Rule 3(6): Disclosures of Sources of Promoters’ Contribution

3.1 Section 26(1)(a)(xiv) provides every prospectus to state disclosures in such manner as may be prescribed about sources of promoter’s contribution. Rule 3(6) of the PAS Rules further provides for the disclosures to be made. It has been suggested that obtaining such a detailed level of disclosures from promoters invested in the shares of the Company since the beginning of the operations of companies having a long period of existence would be very difficult and, therefore, this provision should be done away with. The Committee noted that as it has recommended for modification of Section 26 to allow prescription powers to SEBI (refer paragraph 3.1 of Part I of the report), consequential changes would result in omission/modification of the Rules and these requirements.

Refund of Share Application Money

3.2 Rule 11(2) of the PAS Rules lays down the requirement that in case the stated minimum amount has not been subscribed, the application money to be refunded shall be credited only to the bank account from which the subscription was remitted. The Committee did not agree with the contention that the company is dependent on the depository for investor related details and the account details are not available making it difficult for the subscription amount to be remitted, and does not recommend any change.

Private Placement of Securities

3.3 The private placement requirements have been comprehensively dealt with in paragraphs 3.3 to 3.13 of Part I of the report. The Committee recommended that consequential changes to Rules as identified in those paragraphs would need to be addressed in the Rules.

3.4 It was indicated that as per the second proviso to Section 67(3) of the Companies Act, 1956, the limit of a maximum of forty-nine persons, to whom securities could be issued, by way of private placement, was not made applicable to the Public Financial institutions (PFIs), as defined under Section 4A of the said Act. However, Section 42 of the Companies Act, 2013, read with Rule 14 of the Companies (Prospectus and Allotment of Securities) Rules, 2014 does not provide such relaxation to PFIs. The Committee felt that exemption, as in the case of NBFCs, from the Rule 14 can be extended to PFIs.

Disclosure of promoters' contribution: proposed regulator-prescribed changes may alter prospectus and private placement obligations. Proposed amendments target Rule 3(6) on disclosures of sources of promoters' contribution by enabling regulator-prescribed modification or omission, retain Rule 11(2)'s requirement that refunds of share application money be credited only to the originating bank account, and propose consequential changes to private placement rules including extending the Rule 14 exemption to Public Financial Institutions.