The Companies (Prospectus and Allotment of Securities) Rules, 2014 as amended by the Companies (Prospectus and Allotment of Securities) Amendment Rules, 2022.
Chapter III (Sections 23 to 42) of the Companies Act, 2013 deals with the provisions related to Prospectus and Allotment of Securities. You may refer the provisions of section 26 “Matters to be stated in prospectus”, section 27 “Variation in terms of contract or objects in prospectus”, section 28 “Offer of sale of shares by certain members of company”, section 29 “Public offer of securities to be in dematerialised form”, section 31 “Shelf prospectus”, section 39 “Allotment of securities by company”, section 40 “Securities to be dealt with in stock exchanges” and section 42 “Issue of shares on private placement basis”.
The Companies (Prospectus and Allotment of Securities) Rules, 2014
[Published vide G.S.R. 251(E), dated 31-03-2014 and were subsequently amended vide G.S.R. 424(E), dated 30.06.2014, G.S.R. 430(E), dated 07.05.2018, G.S.R. 752(E), dated 07.08.2018, G.S.R. 853(E), dated 10.09.2018, G.S.R. 43(E), dated 22.01.2019, G.S.R. 130(E), dated 19.02.2019, G.S.R. 376(E), dated 22.05.2019,G.S.R. 642(E), dated 16.10.2020 and G.S.R. 338(E), dated 05.05.2022]
In exercise of the powers conferred under section 26, sub-section (1) of section 27, section 28, section 29, sub-section (2) of section 31, sub-sections (3) and (4) of section 39, sub-section (6) of section 40 and section 42 read with section 469 of the Companies Act, 2013 and in supersession of the Companies (Central Government’s) General Rules and Forms, 1956 or any other rules prescribed under the Companies Act, 1956 (1 of 1956) on matters covered under these rules except as respects things done or omitted to be done before such supersession, the Central Government hereby makes the following rules, namely: —
Rule-1: Short title and commencement
Rule-1(1): These rules may be called the Companies (Prospectus and Allotment of Securities) Rules, 2014.
Rule-1(2): They shall come into force on the 1st day of April, 2014.
Rule-2: Definitions
Rule-2(1): In these rules, unless the context otherwise requires, —
- (a) “Act” means the Companies Act, 2013 (18 of 2013);
- (b) “Annexure” means the Annexure to these rules;
- (c) “fees” means fees as specified in the Companies (Registration Offices and Fees) Rules, 2014;
- (d) ”Form” or ‘e-Form” means a form set forth in Annexure to these rules which shall be used for the matter to which it relates;
- (e) “Regional Director” means the person appointed by the Central Government in the Ministry of Corporate Affairs as a Regional Director;
- (f) “section” means section of the Act;
Rule-2(2): Words and expressions used in these rules but not defined and defined in the Act or in the Companies (Specification of definitions details) Rules, 2014, shall have the meanings respectively assigned to them in the Act or in the said Rules.
Rules 3-6: Omitted w.e.f. 7th May 2018
[Rules 3-6 has been omitted by the Companies (Prospectus and Allotment of Securities) Amendment Rules, 2018 vide G.S.R. 430(E), dated 07.05.2018].
Rule-7: Variation in terms of contracts referred to in the prospectus or objects for which prospectus was issued
Rule-7(1): where the company has raised money from public through prospectus and has any unutilized amount out of the money so raised, it shall not vary the terms of contracts referred to in the prospectus or objects for which the prospectus was issued except by passing a special resolution through postal ballot and the notice of the proposed special resolution shall contain the following particulars, namely: —
- (a) the original purpose or object of the Issue;
- (b) the total money raised;
- (c) the money utilised for the objects of the company stated in the prospectus;
- (d) the extent of achievement of proposed objects (that is fifty percent, sixty percent, etc.);
- (e) the unutilised amount out of the money so raised through prospectus,
- (f) the particulars of the proposed variation in the terms of contracts referred to in the prospectus or objects for which prospectus was issued;
- (g) the reason and justification for seeking variation;
- (h) the proposed time limit within which the proposed varied objects would be achieved;
- (i) the clause-wise details as specified in sub-rule (3) of rule 3 as was required with respect to the originally proposed objects of the issue;
- (j) the risk factors pertaining to the new objects; and
- (k) the other relevant information which is necessary for the members to take an informed decision on the proposed resolution.
Rule-7(2): The advertisement of the notice for getting the resolution passed for varying the terms of any contract referred to in the prospectus or altering the objects for which the prospectus was issued, shall be in Form PAS-1 and such advertisement shall be published simultaneously with dispatch of Postal Ballot Notices to Shareholders.
Rule-7(3): The notice shall also be placed on the web-site of the company, if any.
Rule-8: Offer of Sale by Members
Rule-8(1): The provisions of Part I of Chapter III namely “Prospectus and Allotment of Securities” and rules made there under shall be applicable to an offer of sale referred to in section 28 except for the following, namely: –
- (a) the provisions relating to minimum subscription;
- (b) the provisions for minimum application value;
- (c) the provisions requiring any statement to be made by the Board of directors in respect of the utilization of money; and
- (d) any other provision or information which cannot be compiled or gathered by the offer or, with detailed justifications for not being able to comply with such provisions.
Rule-8(2): The prospectus issued under section 28 shall disclose the name of the person or persons or entity bearing the cost of making the offer of sale along with reasons.
Rule-9: Dematerialisation of securities
The promoters of every public company making a public offer of any convertible securities may hold such securities only in dematerialised form:
Provided that the entire holding of convertible securities of the company by the promoters held in physical form up to the date of the initial public offer shall be converted into dematerialised form before such offer is made and thereafter such promoter shareholding shall be held in dematerialized form only.
Rule-9A: Issue of securities in dematerialised form by unlisted public companies
Rule-9A(1): Every unlisted public company shall –
- (a) issue the securities only in dematerialised form; and
- (b) facilitate dematerialisation of all its existing securities
in accordance with provisions of the Depositories Act, 1996 and regulations made there under.
Rule-9A(2): Every unlisted public company making any offer for issue of any securities or buyback of securities or issue of bonus shares or rights offer shall ensure that before making such offer, entire holding of securities of its promoters, directors, key managerial personnel has been dematerialised in accordance with provisions of the Depositories Act, 1996 and regulations made there under.
Rule-9A(3): Every holder of securities of an unlisted public company, –
- (a) who intends to transfer such securities on or after 2nd October, 2018, shall get such securities dematerialised before the transfer; or
- (b) who subscribes to any securities of an unlisted public company (whether by way of private placement or bonus shares or rights offer) on or after 2nd October, 2018 shall ensure that all his existing securities are held in dematerialized form before such subscription.
Rule-9A(4): Every unlisted public company shall facilitate dematerialisation of all its existing securities by making necessary application to a depository as defined in clause (e) of sub-section (1) of section 2 of the Depositories Act, 1996 and shall secure International Security Identification Number (ISIN) for each type of security and shall inform all its existing security holders about such facility.
Rule-9A(5): Every unlisted public company shall ensure that –
- (a) it makes timely payment of fees (admission as well as annual) to the depository and registrar to an issue and share transfer agent in accordance with the agreement executed between the parties;
- (b) it maintains security deposit, at all times, of not less than two years’ fees with the depository and registrar to an issue and share transfer agent, in such form as may be agreed between the parties; and
- (c) it complies with the regulations or directions or guidelines or circulars, if any, issued by the Securities and Exchange Board or Depository from time to time with respect to dematerialisation of shares of unlisted public companies and matters incidental or related thereto.
Rule-9A(6): No unlisted public company which has defaulted in sub-rule (5) shall make offer of any securities or buyback its securities or issue any bonus or right shares till the payments to depositories or registrar to an issue and share transfer agent are made.
Rule-9A(7): Except as provided in sub-rule (8), the provisions of the Depositories Act, 1996, the Securities and Exchange Board of India (Depositories and Participants) Regulations, 2018 and the Securities and Exchange Board of India (Registrars to an Issue and Share Transfer Agents) Regulations, 1993 shall apply mutatis mutandis to dematerialisation of securities of unlisted public companies.
Rule-9A(8): Every unlisted public company governed by this rule shall submit Form PAS-6 to the Registrar with such fee as provided in Companies (Registration Offices and Fees) Rules, 2014 within sixty days from the conclusion of each half year duly certified by a company secretary in practice or chartered accountant in practice.
Rule-9A(8A): The company shall immediately bring to the notice of the depositories any difference observed in its issued capital and the capital held in dematerialised form.
Rule-9A(9): The grievances, if any, of security holders of unlisted public companies under this rule shall be filed before the Investor Education and Protection Fund Authority.
Rule-9A(10): The Investor Education and Protection Fund Authority shall initiate any action against a depository or participant or registrar to an issue and share transfer agent after prior consultation with the Securities and Exchange Board of India.
Rule-9A(11): This rule shall not apply to an unlisted public company which is:—
- (a) a Nidhi;
- (b) a Government company or
- (c) a wholly owned subsidiary.
Rule-10: Shelf prospectus and Information Memorandum
The information memorandum shall be prepared in Form PAS-2 and filed with the Registrar along with the fee as provided in the Companies (Registration Offices and Fees) Rules, 2014 within one month prior to the issue of a second or subsequent offer of securities under the shelf prospectus.
Rule-11: Refund of Application Money:
Rule-11(1): If the stated minimum amount has not been subscribed and the sum payable on application is not received within the period specified therein, then the application money shall be repaid within a period of fifteen days from the closure of the issue and if any such money is not so repaid within such period, the directors of the company who are officers in default shall jointly and severally be liable to repay that money with interest at the rate of fifteen percent per annum.
Rule-11(2): The application money to be refunded shall be credited only to the bank account from which the subscription was remitted.
Rule-12: Return of Allotment
Rule-12(1): Whenever a company having a share capital makes any allotment of its securities, the company shall, within thirty days thereafter, file with the Registrar a return of allotment in Form PAS-3, along with the fee as specified in the Companies (Registration Offices and Fees) Rules, 2014.
Rule-12(2): There shall be attached to the Form PAS-3 a list of allottees stating their names, address, occupation, if any, and number of securities allotted to each of the allottees and the list shall be certified by the signatory of the Form PAS-3 as being complete and correct as per the records of the company.
Rule-12(3): In the case of securities (not being bonus shares) allotted as fully or partly paid up for consideration other than cash, there shall be attached to the Form PAS-3 a copy of the contract, duly stamped, pursuant to which the securities have been allotted together with any contract of sale if relating to a property or an asset, or a contract for services or other consideration.
Rule-12(4): Where a contract referred to in sub-rule (3) is not reduced to writing, the company shall furnish along with the Form PAS-3 complete particulars of the contract stamped with the same stamp duty as would have been payable if the contract had been reduced to writing and those particulars shall be deemed to be an instrument within the meaning of the Indian Stamp Act, 1899 (2 of 1899), and the Registrar may, as a condition of filing the particulars, require that the stamp duty payable thereon be adjudicated under section 31 of the Indian Stamp Act, 1899.
Rule-12(5): A report of a registered valuer in respect of valuation of the consideration shall also be attached along with the contract as mentioned in sub-rule (3) and sub-rule (4).
Rule-12(6): In the case of issue of bonus shares, a copy of the resolution passed in the general meeting authorizing the issue of such shares shall be attached to the Form PAS-3.
Rule-12(7): In case the shares have been issued in pursuance of clause (c) of sub-section (1) of section 62 by a company other than a listed company whose equity shares or convertible preference shares are listed on any recognised stock exchange, there shall be attached to Form PAS-3, the valuation report of the registered valuer.
Explanation: Pending notification of sub-section (1) of section 247 of the Act and finalisation of qualifications and experience of valuers, valuation of stocks, shares, debentures, securities etc. shall be conducted by an independent merchant banker who is registered with the Securities and Exchange Board of India or an independent chartered accountant in practice having a minimum experience of ten years.
Rule-13: Payment of commission
A company may pay commission to any person in connection with the subscription or procurement of subscription to its securities, whether absolute or conditional, subject to the following conditions, namely
- (a) the payment of such commission shall be authorized in the company’s articles of association;
- (b) the commission may be paid out of proceeds of the issue or the profit of the company or both;
- (c) the rate of commission paid or agreed to be paid shall not exceed, in case of shares, five percent of the price at which the shares are issued or a rate authorised by the articles, whichever is less, and in case of debentures, shall not exceed two and a half per cent of the price at which the debentures are issued, or as specified in the company’s articles, whichever is less;
- (d) the prospectus of the company shall disclose—
- (i) the name of the underwriters;
- (ii) the rate and amount of the commission payable to the underwriter; and
- (iii) the number of securities which is to be underwritten or subscribed by the underwriter absolutely or conditionally.
- (e) there shall not be paid commission to any underwriter on securities which are not offered to the public for subscription;
- (f) a copy of the contract for the payment of commission is delivered to the Registrar at the time of delivery of the prospectus for registration.
Rule-14: Private Placement
Rule-14(1): For the purposes of sub-section (2) and sub-section (3) of section 42, a company shall not make an offer or invitation to subscribe to securities through private placement unless the proposal has been previously approved by the shareholders of the company, by a special resolution for each of the offers or invitations:
Provided that in the explanatory statement annexed to the notice for shareholders’ approval, the following disclosure shall be made:-
- (a) particulars of the offer including date of passing of Board resolution;
- (b) kinds of securities offered and the price at which security is being offered;
- (c) basis or justification for the price (including premium, if any) at which the offer or invitation is being made;
- (d) name and address of valuer who performed valuation;
- (e) amount which the company intends to raise by way of such securities;
- (f) material terms of raising such securities, proposed time schedule, purposes or objects of offer, contribution being made by the promoters or directors either as part of the offer or separately in furtherance of objects; principle terms of assets charged as securities:
Provided further that this sub-rule shall not apply in case of offer or invitation for non-convertible debentures, where the proposed amount to be raised through such offer or invitation does not exceed the limit as specified in clause (c) of subsection (1) of section 180 and in such cases relevant Board resolution under clause (c) of sub-section (3) of section 179 would be adequate:
Provided also that in case of offer or invitation for non-convertible debentures, where the proposed amount to be raised through such offer or invitation exceeds the limit as specified in clause (c) of sub-section (1) of section 180, it shall be sufficient if the company passes a previous special resolution only once in a year for all the offers or invitations for such debentures during the year.
Provided also that in case of offer or invitation of any securities to qualified institutional buyers, it shall be sufficient if the company passes a previous special resolution only once in a year for all the allotments to such buyers during the year.
[Fourth proviso of sub-rule (1) of Rule 14 has been inserted w.e.f. 16.10.2020 by the Companies (Prospectus and Allotment of Securities) Amendment Rules, 2020]
Provided also that no offer or invitation of any securities under this rule shall be made to a body corporate incorporated in, or a national of, a country which shares a land border with India, unless such body corporate or the national, as the case may be, have obtained Government approval under the Foreign Exchange Management (Non-debt Instruments) Rules, 2019 and attached the same with the private placement offer cum application letter.
[Fifth proviso in sub-rule (1) of Rule 14 has been inserted w.e.f. 05.05.2022 by the Companies (Prospectus and Allotment of Securities) Amendment Rules, 2022]
Rule-14(2): For the purpose of sub-section (2) of section 42, an offer or invitation to subscribe securities under private placement shall not be made to persons more than two hundred in the aggregate in a financial year:
Provided that any offer or invitation made to qualified institutional buyers, or to employees of the company under a scheme of employees stock option as per provisions of clause (b) of sub-section (1) of section 62 shall not be considered while calculating the limit of two hundred persons.
Explanation: For the purposes of this sub-rule, it is hereby clarified that the restrictions aforesaid would be reckoned individually for each kind of security that is equity share, preference share or debenture.
Rule-14(3): A private placement offer cum application letter shall be in the form of an application in Form PAS-4 serially numbered and addressed specifically to the person to whom the offer is made and shall be sent to him, either in writing or in electronic mode, within thirty days of recording the name of such person pursuant to sub-section (3) of section 42:
Provided that no person other than the person so addressed in the private placement offer cum application letter shall be allowed to apply through such application form and any application not conforming to this condition shall be treated as invalid.
Rule-14(4): The company shall maintain a complete record of private placement offers in Form PAS-5.
Rule-14(5): The payment to be made for subscription to securities shall be made from the bank account of the person subscribing to such securities and the company shall keep the record of the bank account from where such payment for subscription has been received:
Provided that monies payable on subscription to securities to be held by joint holders shall be paid from the bank account of the person whose name appears first in the application:
Provided further that the provisions of this sub-rule shall not apply in case of issue of shares for consideration other than cash.
Rule-14(6): A return of allotment of securities under section 42 shall be filed with the Registrar within fifteen days of allotment in Form PAS-3 and with the fee as provided in the Companies (Registration Offices and Fees) Rules, 2014 along with a complete list of all the allottees containing-
- (i) the full name, address, Permanent Account Number and E-mail ID of such security holder;
- (ii) the class of security held;
- (iii) the date of allotment of security ;
- (iv) the number of securities held, nominal value and amount paid on such securities; and particulars of consideration received if the securities were issued for consideration other than cash.
Rule-14(7): The provisions of sub-rule (2) shall not be applicable to –
- (a) non-banking financial companies which are registered with the Reserve Bank of India under the Reserve Bank of India Act, 1934 (2 of 1934); and
- (b) housing finance companies which are registered with the National Housing Bank under the National Housing Bank Act, 1987 (53 of 1987),
if they are complying with regulations made by the Reserve Bank of India or the National Housing Bank in respect of offer or invitation to be issued on private placement basis:
Provided that such companies shall comply with sub-rule (2) in case the Reserve Bank of India or the National Housing Bank have not specified similar regulations.
Rule-14(8): A company shall issue private placement offer cum application letter only after the relevant special resolution or Board resolution has been filed in the Registry:
Provided that private companies shall file with the Registry copy of the Board resolution or special resolution with respect to approval under clause (c) of sub-section (3) of section 179.