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PROSPECTUS AND ALLOTMENT OF SECURITIES - Proposed Amendments in the Companies Act 2013

News and Press Release - Dated:- 2-2-2016 - Matters to be stated in the Prospectus 3.1 The Committee noted that SEBI is in the process of simplifying the contents of the prospectus/offer document by amending the provisions of SEBI (ICDR) Regulations, 2009 so as to reduce the volume of disclosures following suggestions from the stakeholders that those offer documents are becoming too long, too detailed, and repetitive as also too difficult to understand. The Committee felt, however, that this obj .....

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ectors, promoters and experts for issuing misleading statements in a prospectus; and the defences available to them. During the process of public consultation, the stakeholders suggested that directors could not rely on the statements made by experts in a prospectus, as a defence for civil liability, although such defence was available to them under Section 62(2)(d)(ii) of the Companies Act, 1956. In the United States, under the Securities Exchange Act, 1934, named experts (including accountants .....

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or knew, or was reckless in not checking whether the statement was untrue or misleading or knew the omission to be dishonest concealment of a material fact. The Committee acknowledged that it would be appropriate to hold experts liable for statements prepared by them, and which the directors relied upon (as long as such experts were identified in the prospectus). Accordingly, an amendment in the provision was recommended. Private Placement 3.3 Section 42 of the Act, in conjunction with Section 6 .....

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e, time consuming; requiring elaborate, sensitive and significant public disclosures. Difficulties had been expressed with regard to the offer letter, opening of a separate account, time period for allotment of shares, size of minimum investment, making of a fresh offer etc. The Committee noted that changes had been made in the current provisions to check the gross misuse of earlier provisions relating to private placement under the Companies Act, 1956, and felt that such requirements, which wer .....

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directors with respect to compliances under the Act, etc. The Committee felt that the requirement under Section 42 and Rule 14 with regard to preparation and filing of Private Placement Offer Letter (PPOL) should be done away with and Form PAS-4 should be discontinued. In order to ensure that investor gets adequate information about the company which is making private placement, the disclosures made under Explanatory Statement referred to in Rule 13(2)(d) of Companies (Share Capital and Debentu .....

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he Committee also deliberated on Section 42(3), which prohibits the making of any fresh offer or invitation, when there are allotments pending for an earlier offer or invitation. It was pointed out that companies might be required to simultaneously issue, different forms of instruments, such as preference shares or non-convertible debentures, for meeting their financial requirements that had been clarified to an extent under Explanation (ii) below sub-rule 14(2)(b). The Committee recommended tha .....

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the simultaneous offering of securities of different kinds, as currently prescribed in the Rules. 3.7 The Committee felt that Section 42(7) could be modified to require that all offers covered under Section 42 shall be made only to such persons whose names, father s names, addresses, phone numbers and email IDs, if any, or any other information as may be prescribed by rules are duly recorded by the company prior to the invitation to subscribe. These details need not, however, be filed with the .....

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equential change in Rule 14(3) could also be made. Once the basic details like names, father s names, addresses, phone numbers and email IDs, if any, are kept by the company, the requirement for PAS-5 can also be omitted. 3.8 At the moment, in case of non-convertible debentures a prior special resolution only once in a year has been prescribed. The Committee recommends that since Non-Convertible Debentures are pure borrowings and do not form part of equity capital, the proviso to Rule 14(2)(a) m .....

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nt under Section 42 and certain other minimum details as may be prescribed in the rules be provided in the Board resolution. Private companies (who have been given exemption from Section 117(3)(g) through section 462 notification) should either be required to file board resolutions under Section 179(3)(c) or pass a special resolution. 3.9 The Committee also felt that since the requirement for filing of PPOL and list/details of proposed offerees (i.e. PAS-5) with Registry within 30 days of circul .....

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of 90 days. 3.10 The Committee further recommended that Section 42(1) may clearly provide that provisions of Section 42 and rules made thereunder shall also apply to offer of convertible securities referred to in Section 62(1)(c) read with Rule 13 of the Companies (Share Capital and Debenture) Rules, 2014. 3.11 Regarding valuation of convertible securities, the Committee felt that while the company should be mandated to get valuation done (in respect of equity and convertible securities), the re .....

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