The Ministry of Corporate Affairs ("MCA") on the 27th of October 2023 notified two major amendments to rules under the Companies Act, 2013. These include the Companies (Management and Administration) Second Amendment Rules, 2013 ("MA Rules 2023 ") and the Companies (Prospectus and Allotment of Securities) Second Amendment Rules. 2023. ( "PAS Rules 2023"). These amendments have been introduced to ensure greater transparency in the administration of corporate affairs and come into effect on the date of their publication in the Official Gazette, ensuring prompt implementation.
We are sharing with you an initial brief summary of the changes being implemented under these rules which will be followed up with impact analysis pieces later in the week.
Amendments under the MA Rules 2023
The amendments under the MA Rules 2023 have introduced the concept of a "designated person" with respect to beneficial shares in a company. Via the amendments under the MA Rules, 2023, Rule 9 of the Companies (Management and Administration) Rules, 2014 has been expanded to include sub-rules (4) to (8). Sub-rule (4) mandates that every company must designate a person responsible for providing information to the Registrar or any authorized officer regarding beneficial interests in the company's shares. Sub-rule (5) outlines the choices for designating a responsible person, which may include a company secretary, key managerial personnel (other than the company secretary), or every director. Further, until a person is officially designated as per Sub-rule (4), certain individuals are deemed to have been designated, as specified in Sub-rule (6). This includes the company secretary, Managing Director, or Manager, depending on the company's specific circumstances. Sub-rule (7) mandates that every company must inform the details of the designated person in its Annual Report, ensuring transparency and compliance. Lastly, if a company decides to change its designated person at any time, it must inform the Registrar by submitting e-form GNL-2 as per the Companies (Registration Offices and Fees) Rules, 2014.
Amendments under the PAS Rules 2023
The PAS Rules 2023 cover two major amendments with respect to (i) bearer share warrants under the erstwhile Companies Act, 1956 and (ii) the issue of securities in dematerialized form by all private companies except small companies. The amendments under the PAS Rules 2023 introduce changes for public companies that had previously issued share warrants before the commencement of the Companies Act, 2013. These companies are required to take specific actions within specified timelines. Within three months of the Amendment's commencement, public companies must inform the Registrar about the details of such share warrants using Form PAS-7. Within six months of the Amendment's commencement, these companies must request bearers of the share warrants to surrender them and get the shares dematerialized. This requirement involves placing a notice on the company's website and publishing the same in local and English newspapers. Failure to surrender the share warrants results in their conversion into dematerialized form and transfer to the Investor Education and Protection Fund.
The mandatory dematerialisation requirement is applicable on all securities of every private company, excluding small companies and government companies. The provisions are applicable with immediate effect, and a timeline of 18 months is provided from the closure of the financial year in which a private company is not a small company for to comply with the mandatory dematerialisation requirements.
To elucidate further, for example, a private company (other than a company that is a small company as on 31st March, 2023) is required to comply with mandatory dematerialisation of securities within a period of 18 months from the end of FY 22-23, i.e., on or before 30th September 2024. In case a company ceases to be a small company after 31st March 2023, the timeline of 18 months triggers from the close of the financial year in which it ceases to be a small company. Therefore, if a company ceases to be a small company at any time during FY 23-24, the timeline of 18 months will trigger from 31st March 2024 and therefore, shall be complied with by 30th September 2025.
Furthermore, Private companies falling under these rules must ensure that the entire holding of securities of their promoters, directors, and Key Managerial Personnel has been dematerialized before any offer for the issuance of securities, buyback of securities, or the issuance of bonus shares or rights offers.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.
