Amendment in the Companies (Prospectus and Allotment of Securities) Rules, 2014

All Private Placement offer letters to foreign body corporate or national, sharing land borders with India, to be accompanied with government approval
under the FEMA Rules

The Ministry of Corporate Affairs (MCA) has recently amended the Companies (Prospectus and Allotment of Securities) Rules, 2014 (“Rules”) vide Notification No. G.S.R. 338(E) dated 5th May, 2022 , thereby, affecting all private placement offer letters made by body corporates. The said private placement offer letters shall now be accompanied with the details of the applicant in written/electronic form, and the same shall be effective from 5th May, 2022. The key highlights of the amendment are as follows:

I. Requirement of government approval for offers/ invitations of securities to a body corporate or national sharing land border with India under FEMA Rules (Rule 14)
Under Rule 14 (1), the following proviso has been added after the fourth proviso:
“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.”

Impact:
(i) No offer or invitation of any securities can be made to a body corporate incorporated in, or a national of a country sharing a land border with India, unless a governmental approval is obtained by the body corporate or national under the Foreign Exchange Management (Non-Debt Instruments) Rules, 2019.

(ii) The government approval received under FEMA Rules should be attached with the private placement offer cum application letter.

II. Amendment in FORM PAS-4
As per the notification, FORM PAS – 4 also stands to be amended, with the following to be inserted in Part B, after serial number (vii):
“(viii) Tick whichever is applicable:-
(a) The applicant is not required to obtain Government approval under the Foreign Exchange Management (Non-debt Instruments) Rules, 2019 prior to subscription of shares- _____.
(b) The applicant is required to obtain Government approval under the Foreign Exchange Management (Non-debt Instruments) Rules, 2019 prior to subscription of shares and the same has been obtained, and is enclosed herewith- _____”

Impact:
(i) The Form has been amended to be in consonance with the amended Rule 14, indicating the intentions of the government to restrict / oversee the activities of foreign companies / nationals sharing land border with India.
(ii) The amended Form will act as an undertaking in situations of private placement.

IMPACT OF THE AMENDMENT:
The amendment vide Notification No. G.S.R. 338(E) dated 5th May, 2022, intends to monitor the allotment of shares or securities under Private Placement Rules, to a body corporate incorporated in, or a national of a country sharing land border with India, (such as China, Nepal, Bhutan, Pakistan, Bangladesh and Myanmar), thereby, requiring such body corporate or national to obtain a Government approval under the Foreign Exchange Management (Non-Debt Instruments) Rules, 2019. In accordance with the same, FORM PAS-4 has also been amended in consonance to the amendment. The amendment is undoubtedly a step undertaken by the government to monitor and oversee the activities of such foreign national or body corporate, which in turn may affect the Indian economy.