By its notifications dated May 04, 2022 and May 05, 2022[1], the Ministry of Corporate Affairs amended the Companies (Prospectus and Allotment of Securities) Rules, 2014 (“PAS Rules”) and Companies (Share Capital and Debentures) Rules, 2014 (“SCD Rules”) and introduced certain compliance requirements in line with the Foreign Exchange Management (Non-debt Instruments) Rules, 2019 (“FEMA NDI Rules”)[2] (i.e. relating to opportunistic takeovers of Indian companies by entities/persons from neighboring countries).

The key changes are set out below:

  • The PAS Rules have been amended to prohibit an Indian company from making an offer or invitation to subscribe its securities to any body corporate incorporated in, or a national of a country, which shares its land borders with India, unless prior government approval has been obtained under the FEMA NDI Rules for such investment.
  • The acceptance form to the private placement offer cum application letter (Form PAS-4) to be provided by the subscriber to the company issuing shares/securities on a private placement basis has been amended to include a declaration that no government approval is required under the FEMA NDI Rules in respect of such investment. If an approval is required, such approval has been obtained and is to be annexed with the private placement offer cum application letter.
  • The format of the share transfer form (Form SH-4) set out in the SCD Rules has been amended to require a similar declaration (as specified above) to be provided by the transferee of the securities and to attach a copy of the relevant government approval, if applicable.

As a result of these changes, compliance with the FEMA NDI Rules has now been made a part of the Companies Act, 2013 and a breach of the FEMA NDI Rules would also result in a breach of the Companies Act, 2013. Moreover, compliance with the above-mentioned requirements will need to be ensured prior to the issuance or transfer of shares and not subsequently (i.e. as was previously the case, where declarations were being obtained post-completion, as a part of Form FC-TRS and Form FC-GPR filings under the FEMA NDI Rules).

  1. Both effective from the date of publication in the official gazette.
  2. Rule 6, FEMA NDI Rules, read with Press Note 3 of 2020 (2020 Series).