The MCA, by way of a Notification dated October 27, 2023, has amended the Companies (Prospectus and Allotment of Securities) Rules, 2014. The key regulatory changes brought about by the Notification are set out below:

i.    Share Warrants: Every public company which has issued share warrants prior to the commencement of Companies Act, 2013 (‘Act’) and has not converted such share warrants into shares must: (i) file the details of such share warrants with the RoC in form PAS-7 by January 27, 2024; and (ii) require the bearer of the share warrants to surrender them to the Company and issue dematerialized shares in the name of such bearer by April 27, 2024. To notify the bearers to surrender their share warrants, the Company is required to issue a notice in form PAS-8 on their website, if any, and must also publish the notice in a vernacular language in a newspaper which is in circulation in the district and in English language in an English newspaper, widely in circulation in the State where the registered office of the Company is situated.

If the bearer does not surrender the share warrants within the above-mentioned period, the Company must convert the non-surrendered share warrants into dematerialized shares and transfer them to the Investor Education and Protection Fund.

ii.   Dematerialization of Securities by Private Companies: Every private company (apart from a small company^[1]) is required to dematerialize all its securities by October 1, 2024 (‘Cut-Off Date’). After the Cut-Off Date, private companies may only issue securities in dematerialized form.

iii.  Restriction on Transfer of Shares Held in Physical Format: After the Cut-Off Date, all holders of securities in physical form are required to get such securities dematerialized before undertaking any transfer. Further, if any existing shareholder of a company intends to subscribe to further securities of such company by way of private placement or bonus shares or rights offer after the Cut-Off Date, such person is required to dematerialize their existing holdings prior to such subscription.

iv.   Obligation of Private Company to Dematerialize Shareholding of Certain Categories of Shareholders: A private company, prior to making: (i) any offer for issue of any securities; (ii) any buyback of securities; or (iii) any issue of bonus shares after the Cut-Off Date, is obligated to dematerialize the holdings of its promoters, directors, and KMP.

[1] A ‘small company’ is defined as a company other than a public company with: (i) paid up share capital equal to or less than ₹ 40,000,000 (approx. US$ 500,000); and (ii) turnover of equal to or less than ₹ 400,000,000 (approx. US$ 5,000,000). A ‘small company’ does not include a: (i) holding company or subsidiary company; (ii) a not-for-profit company; or (iii) company or body corporate governed by any special act.