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MCA Introduces Key Amendments with Companies (Prospectus and Allotment of Securities) Second Amendment Rules, 2023

By - King Stubb & Kasiva on November 27, 2023

On October 27, 2023, the Ministry of Corporate Affairs issued the Companies (Prospectus and Allotment of Securities) Second Amendment Rules, 2023, amending the Companies (Prospectus and Allotment of Securities) Rules, 2014[1]. The provisions of these rules were implemented on 27/10/2023. Rule 9 has undergone significant changes, with a focus on two critical aspects:

(i) Bearer Share Warrants under Companies Act, 1956:

Public companies that issued share warrants under the Companies Act, 1956, and have not converted them into shares are required to inform the Registrar within three months. This should be done by submitting details of such share warrants in Form PAS-7 (Details of pending share warrants). Simultaneously, bearers of these warrants must surrender the warrants to the company within six months of the commencement of these amended rules in 2023 for subsequent dematerialization. For this, the company must post a Form PAS-8 notice on its website and publish it in a local vernacular and an English newspaper in the state of its registered office. Failure to comply will prompt the company to convert warrants into dematerialized forms, transferring them to the Investor Education and Protection Fund.

(ii) Mandatory Dematerialisation for Private Companies:

Inserting a new Rule 9-B, the regulatory framework now mandates that private companies other than the small companies to issue securities exclusively in dematerialized form and facilitate dematerialisation of all its securities within eighteen months from the financial year ending on or after March 31st, 2023. In addition, private companies engaging in activities such as securities offers, buybacks, or the issuance of bonus shares or rights offers are obligated to ensure the dematerialization of holdings for their promoters, directors, and key managerial personnel before making such offers. Furthermore, individuals planning to transfer or subscribe to securities must adhere to dematerialization requirements. Additionally, this rule does not apply to Government companies.

These amendments showcase the Ministry of Corporate Affairs' commitment to transparency and investor protection, enforcing strict timelines. Mandating dematerialization for private companies aligns with global trends, enhancing efficiency and minimizing risks associated with physical securities.


[1] https://www.mca.gov.in/bin/ebook/dms/getdocument?doc=Mzc2MDY5NjEw&docCategory=Notifications&type=open


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