Chapter III - The Companies (Prospectus and Allotment of Securities) Rules, 2014. - File Number 1/21/13-CL-V - Companies Law

[TO BE PUBLISHED IN THE GAZETTE OF INDIA, EXTRAORDINARY, PART II, SECTION 3, SUB-SECTION (i)] Government of India Ministry of Corporate Affairs Notification New Delhi, the 31st March, 2014 G.S.R. 251 (E).- 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:- 1. Short title and commencement. - (1) These rules may be called the Companies (Prospectus and Allotment of Securities) Rules, 2014. (2) They shall come into force on the 1 st day of April, 2014. 2. Definitions.- (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 ; (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. 3. Information to be stated in the prospectus.- (1) The Prospectus to be issued shall contain- (a) the names, addresses and contact details of the corporate office of the issuer company, compliance officer of the issuer company, merchant bankers and co-managers to the issue, registrar to the issue, bankers to the issue, stock brokers to the issue, credit rating agency for the issue, arrangers, if any, of the instrument, names and addresses of such other persons as may be specified by the Securities and Exchange Board in its regulations; (b) the dates relating to opening and closing of the issue; (c) a declaration which shall be made by the Board or the Committee authorised by the Board in the prospectus that the allotment letters shall be issued or application money shall be refunded within fifteen days from the closure of the issue or such lesser time as may be specified by Securities and Exchange Board or else the application money shall be refunded to the applicants forthwith, failing which interest shall be due to be paid to the applicants at the rate of fifteen per cent. per annum for the delayed period. (d) a statement given by the Board that all monies received out of the issue shall be transferred to a separate bank account maintained with a Scheduled Bank; (e) the details of all utilized and unutilised monies out of the monies collected in the previous issue made by way of public offer shall be disclosed and continued to be disclosed in the balance sheet till the time any part of the proceeds of such previous issue remains unutilized indicating the purpose for which such monies have been utilized, and the securities or other forms of financial assets in which such unutilized monies have been invested; (f) the names, addresses, telephone numbers, fax numbers and e-mail addresses of the underwriters and the amount underwritten by them; (g) the consent of trustees, solicitors or advocates, merchant bankers to the issue, registrar to the issue, lenders and experts; (2) The capital structure of the company shall be presented in the following manner, namely: - (i) (a) the authorised, issued, subscribed and paid up capital (number of securities, description and aggregate nominal value); (b) the size of the present issue; (c) the paid up capital- (A) after the issue; (B) after conversion of convertible instruments (if applicable); (d) the share premium account (before and after the issue); (ii) the details of the existing share capital of the issuer company in a tabular form, indicating therein with regard to each allotment, the date of allotment, the number of shares allotted, the face value of the shares allotted, the price and the form of consideration: Provided that in the case of an initial public offer of an existing company, the details regarding individual allotment shall be given from the date of incorporation of the issuer and in the case of a listed issuer company, the details shall be given for five years immediately preceding the date of filing of the prospectus: Provided that the issuer company shall also disclose the number and price at which each of the allotments were made in the last two years preceding the date of the prospectus separately indicating the allotments made for considerations other than cash and the details of the consideration in each case. (3) The prospectus to be issued shall contain the following particulars, namely: - (a) the objects of the issue; (b) the purpose for which there is a requirement of funds ; (c) the funding plan (means of finance); (d) the summary of the project appraisal report (if any); (e) the schedule of implementation of the project; (f) the interim use of funds, if any (4) The prospectus to be issued shall contain the following details and disclosures, namely:- (i) the details of any litigation or legal action pending or taken by any Ministry or Department of the Government or a statutory authority against any promoter of the issuer company during the last five years immediately preceding the year of the issue of the prospectus and any direction issued by such Ministry or Department or statutory authority upon conclusion of such litigation or legal action shall be disclosed; (ii) the details of pending litigation involving the issuer, promoter, director, subsidiaries, group companies or any other person, whose outcome could have material adverse effect on the position of the issuer; (iii) the details of pending proceedings initiated against the issuer company for economic offences; (iv) the details of default and non-payment of statutory dues etc. (5) The details of directors including their appointment and remuneration, and particulars of the nature and extent of their interests in the company shall be disclosed in the following manner, namely:- (i) the name, designation, Director Identification Number (DIN), age, address, period of directorship, details of other directorships; (ii) the remuneration payable or paid to the director by the issuer company, its subsidiary and associate company; shareholding of the director in the company including any stock options; shareholding in subsidiaries and associate companies; appointment of any relatives to an office or place of profit; (iii) the full particulars of the nature and extent of interest, if any, of every director: (a) in the promotion of the issuer company; or (b) in any immoveable property acquired by the issuer company in the two years preceding the date of the Prospectus or any immoveable property proposed to be acquired by it. (iv) where the interest of such a director consists in being a member of a firm or company, the nature and extent of his interest in the firm or company, with a statement of all sums paid or agreed to be paid to him or to the firm or company in cash or shares or otherwise by any person either to induce him to become, or to help him qualify as a director, or otherwise for services rendered by him or by the firm or company, in connection with the promotion or formation of the issuer company shall be disclosed. (6) The sources of promoters contribution, if any, shall be disclosed in the following manner, namely:- (i) the total shareholding of the promoters, clearly stating the name of the promoter, nature of issue, date of allotment, number of shares, face value, issue price or consideration, source of funds contributed , date when the shares were made fully paid up, percentage of the total pre and post issue capital; (ii) the proceeds out of the sale of shares of the company and shares of its subsidiary companies previously held by each of the promoters; (iii) the disclosure for sources of promoters contribution shall also include the particulars of name, address and the amount so raised as loan, financial assistance etc , if any, by promoters for making such contributions and in case of own sources, complete details thereof. 4. Reports to be set out in the Prospectus.- The following reports shall be set out with the prospectus, namely:- (1) The reports by the auditors with respect to profits and losses and assets and liabilities. Explanation.- For the purposes of this sub-rule, the report shall also include the amounts or rates of dividends, if any, paid by the issuer company in respect of each class of shares for each of the five financial years immediately preceding the year of issue of the prospectus, giving particulars of each class of shares on which such dividends have been paid and particulars of the cases in which no dividends have been paid in respect of any class of shares for any of those years: Provided that if no accounts have been made up in respect of any part of the period of five years ending on a date three months before the issue of the prospectus, a statement of that fact accompanied by a statement of the accounts of the issuer company in respect of that part of the said period up to a date not earlier than six months of the date of issue of the prospectus indicating the profit or loss for that period and assets and liabilities position as at the end of that period together with a certificate from the auditors that such accounts have been examined and found correct and the said statement may indicate the nature of provision or adjustments made or which are yet to be made. (2) The reports relating to profits and losses for each of the five financial years or where five financial years have not expired, for each of the financial year immediately preceding the issue of the prospectus shall- (a) if the company has no subsidiaries, deal with the profits or losses of the company (distinguishing items of a non-recurring nature) for each of the five financial years immediately preceding the year of the issue of the prospectus; and (b) if the company has subsidiaries, deal separately with issuer company s profits or losses as provided in clause (a) and in addition, deal either - (i) as a whole with the combined profits or losses of its subsidiaries, so far as they concern members of the issuer company; or (ii) individually with the profits or losses of each subsidiary, so far as they concern members of the issuer company; or (iii) as a whole with the profits or losses of the company, and, so far as they concern members of the issuer company, with the combined profits or losses of its subsidiaries. (3) The reports made by the auditors in respect of the business of the company shall be stated in the prospectus in the manner provided in sub-rule (2). 5. Other matters and reports to be stated in the prospectus. - The prospectus shall include the following other matters and reports, namely:- (1) If the proceeds, or any part of the proceeds, of the issue of the shares or debentures are or is to be applied directly or indirectly (a) in the purchase of any business; or (b) in the purchase of an interest in any business and by reason of that purchase, or anything to be done in consequence thereof, or in connection therewith; the company shall become entitled to an interest in either the capital or profits and losses or both, in such business exceeding fifty per cent. thereof, a report made by a chartered accountant (who shall be named in the prospectus) upon- (i) the profits or losses of the business for each of the five financial years immediately preceding the date of the issue of the prospectus ; and (ii) the assets and liabilities of the business as on the last date to which the accounts of the business were made up, being a date not more than one hundred and twenty days before the date of the issue of the prospectus; (c) in purchase or acquisition of any immoveable property including indirect acquisition of immoveable property for which advances have been paid to even third parties, disclosures regarding - (i) the names, addresses, descriptions and occupations of the vendors; (ii) the amount paid or payable in cash, to the vendor and, where there is more than one vendor, or the company is a sub-purchaser, the amount so paid or payable to each vendor, specifying separately the amount, if any, paid or payable for goodwill; (iii) the nature of the title or interest in such property proposed to be acquired by the company; and (iv) the particulars of every transaction relating to the property, completed within the two preceding years, in which any vendor of the property or any person who is, or was at the time of the transaction, a promoter, or a director or proposed director of the company had any interest, direct or indirect, specifying the date of the transaction and the name of such promoter, director or proposed director and stating the amount payable by or to such vendor, promoter, director or proposed director in respect of the transaction. (2) (a) If - (i) the proceeds, or any part of the proceeds, of the issue of the shares or debentures are or are to be applied directly or indirectly and in any manner resulting in the acquisition by the company of shares in any other body corporate; and (ii) by reason of that acquisition or anything to be done in consequence thereof or in connection therewith, that body corporate shall become a subsidiary of the company, a report shall be made by a Chartered Accountant (who shall be named in the prospectus) upon - (A) the profits or losses of the other body corporate for each of the five financial years immediately preceding the issue of the prospectus; and (B) the assets and liabilities of the other body corporate as on the last date to which its accounts were made up. (b) The said report shall - (i) indicate how the profits or losses of the other body corporate dealt with by the report would, in respect of the shares to be acquired, have concerned members of the issuer company and what allowance would have been required to be made, in relation to assets and liabilities so dealt with for the holders of the balance shares, if the issuer company had at all material times held the shares proposed to be acquired; and (ii) where the other body corporate has subsidiaries, deal with the profits or losses and the assets and liabilities of the body corporate and its subsidiaries in the manner as provided in sub-clause (ii) of clause (a). (3) The matters relating to terms and conditions of the term loans including re-scheduling, prepayment, penalty, default. (4) The aggregate number of securities of the issuer company and its subsidiary companies purchased or sold by the promoter group and by the directors of the company which is a promoter of the issuer company and by the directors of the issuer company and their relatives within six months immediately preceding the date of filing the prospectus with the Registrar of Companies shall be disclosed. (5) The matters relating to - (A) Material contracts; (B) Other material contracts; (C) Time and place at which the contracts together with documents will be available for inspection from the date of prospectus until the date of closing of subscription list. (6) The related party transactions entered during the last five financial years immediately preceding the issue of prospectus as under - (a) all transactions with related parties with respect to giving of loans or, guarantees, providing securities in connection with loans made, or investments made ; (b) all other transactions which are material to the issuer company or the related party, or any transactions that are unusual in their nature or conditions, involving goods, services, or tangible or intangible assets, to which the issuer company or any of its parent companies was a party: Provided that the disclosures for related party transactions for the period prior to notification of these rules shall be to the extent of disclosure requirements as per the Companies Act, 1956 and the relevant accounting standards prevailing at the said time. (7) The summary of reservations or qualifications or adverse remarks of auditors in the last five financial years immediately preceding the year of issue of prospectus and of their impact on the financial statements and financial position of the company and the corrective steps taken and proposed to be taken by the company for each of the said reservations or qualifications or adverse remarks. (8) The details of any inquiry, inspections or investigations initiated or conducted under the Companies Act or any previous companies law in the last five years immediately preceding the year of issue of prospectus in the case of company and all of its subsidiaries; and if there were any prosecutions filed (whether pending or not); fines imposed or compounding of offences done in the last five years immediately preceding the year of the prospectus for the company and all of its subsidiaries. (9) The details of acts of material frauds committed against the company in the last five years, if any, and if so, the action taken by the company. (10) A fact sheet shall be included at the beginning of the prospectus which shall contain - (a) the type of offer document ( Red Herring Prospectus or Shelf Prospectus or Prospectus ). (b) the name of the issuer company, date and place of its incorporation, its logo, address of its registered office, its telephone number, fax number, details of contact person, website address, e-mail address; (c) the names of the promoters of the issuer company; (d) the nature, number, price and amount of securities offered and issue size, as may be applicable; (e) the aggregate amount proposed to be raised through all the stages of offers of specified securities made through the shelf prospectus; (f) the name, logo and address of the registrar to the issue, along with its telephone number, fax number, website address and e-mail address; (g) the issue schedule - (i) date of opening of the issue; (ii) date of closing of the issue; (iii) date of earliest closing of the issue, if any. (h) the credit rating, if applicable; (i) all the grades obtained for the initial public offer; (j) the name(s) of the recognised stock exchanges where the securities are proposed to be listed; (k) the details about eligible investors; (l) coupon rate, coupon payment frequency, redemption date, redemption amount and details of debenture trustee in case of debt securities. 6. Period for which information to be provided in certain cases.- For the matters specified in rules 3 to 5, which require a company to provide certain particulars or information relating to the preceding five financial years, it shall be sufficient compliance for a company which has not completed five years, if such company provides such particulars or information for all the previous years since its incorporation. 7. Variation in terms of contracts referred to in the prospectus or objects for which prospectus was issued.- (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. (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. (3) The notice shall also be placed on the web-site of the company, if any. 8. Offer of Sale by Members.- (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 offeror, with detailed justifications for not being able to comply with such provisions. (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. 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. 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. 11. Refund of Application Money.- (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. (2) The application money to be refunded shall be credited only to the bank account from which the subscription was remitted. 12. Return of Allotment.- (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. (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. (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. (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. (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). (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. (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. 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. 14. Private Placement.- (1)(a) For the purposes of sub-section (1) of section 42 , a company may make an offer or invitation to subscribe to securities through issue of a private placement offer letter in Form PAS-4. (b) A private placement offer letter shall be accompanied by an application form 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 names of such persons in accordance with sub-section (7) of section 42 : Provided that no person other than the person so addressed in the application form shall be allowed to apply through such application form and any application not conforming to this condition shall be treated as invalid. (2) A company shall not make a private placement of its securities unless - (a) the proposed offer of securities or invitation to subscribe securities 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 the general meeting the basis or justification for the price (including premium, if any) at which the offer or invitation is being made shall be disclosed: Provided further that in case of offer or invitation for non-convertible debentures, it shall be sufficient if the company passes a previous special resolution only once in a year for all the offers or invitation for such debentures during the year. (b) such offer or invitation shall be made to not more than two hundred persons 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 - (i) the restrictions under sub-clause (b) would be reckoned individually for each kind of security that is equity share, preference share or debenture; (ii) the requirement of provisions of sub-section (3) of section 42 shall apply in respect of offer or invitation of each kind of security and no offer or invitation of another kind of security shall be made unless allotments with respect to offer or invitation made earlier in respect of any other kind of security is completed; (c) the value of such offer or invitation per person shall be with an investment size of not less than twenty thousand rupees of face value of the securities; (d) 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 payments for subscriptions have 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. (3) The company shall maintain a complete record of private placement offers in Form PAS-5: Provided that a copy of such record along with the private placement offer letter in Form PAS-4 shall be filed with the Registrar with fee as provided in Companies (Registration Offices and Fees) Rules, 2014 and where the company is listed, with the Securities and Exchange Board within a period of thirty days of circulation of the private placement offer letter. Explanation.- For the purpose of this rule, it is hereby clarified that the date of private placement offer letter shall be deemed to be the date of circulation of private placement offer letter. (4) A return of allotment of securities under section 42 shall be filed with the Registrar within thirty 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 security holders 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. (5) The provisions of clauses (b) and (c) of sub-rule (2) shall not be applicable to - (a) non-banking financial companies which are registered with the Reserve Bank of India under Reserve Bank of India Act, 1934; and (b) housing finance companies which are registered with the National Housing Bank under National Housing Bank Act, 1987, if they are complying with regulations made by Reserve Bank of India or National Housing Bank in respect of offer or invitation to be issued on private placement basis: Provided that such companies shall comply with sub-clauses (b) and (c) of sub-rule (2) in case the Reserve Bank of India or the National Housing Bank have not specified similar regulations. PAS FORM [F. No. 1/21/2013-Cl-V] RENUKA KUMAR, Jt. Secy.