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Effect of new Rule 12A – Companies (Share Capital and Debentures) Rules, 2014

The term –Ease of Doing Business is popular nowadays and under this ‘Ease of Doing Business (EODB)’ several amendments are being made to the legislative framework for corporates by the MCA (Ministry of Corporate Affairs). In the same spirit MCA has notified Companies (Share Capital & Debentures) Amendment Rules, 2021, making it easier for the companies to close the offer period for Rights Offer within as minimum as 7 days and no need to keep the offer period open for 15 days.

Ministry of Corporate Affairs has introduced new Rule 12A in the Companies (Share Capital and Debentures) Rules, 2014 to effect the minimum 7 days offer period.

Let’s understand this rule through these steps

As we are aware that Companies (Amendment) Act, 2020 was introduce to decriminalise the offences which does not prejudice Public Interest and to remove hardships of compliance. In case of Rights Offer, a company has to keep the offer open for at least 15 days. The Amendment Act, brought an amendment to the Companies Act, 2020- Section 62(1)(a)(i) empowering MCA to prescribe a time limit lesser than 15 days, for which open offer can be kept open as a minimum offer period.

The amended text of Section 62(1)(a)(i) –

(i) the offer shall be made by notice specifying the no. of shares offered and time limit not being less than 15 days “or such lesser no. of days as may be stipulated” and not exceeding 30 days from the offer date within which the offer, if not accepted, will be deemed to have been declined;

This amended Section 62 of the Companies Act, 2013 was notified with effect from 22January, 2021.

The MCA, used the power in amended Section 62, and notified Companies (Share Capital and Debentures) Amendment Rules, 2021 on 11/01/2021 and added Rule 12A as follows:

“The rule 12A. Period for notice under sub-clause (i) of clause (a) of sub-section (1) of section 62. – For the purposes of sub-clause (i) of clause (a) of sub-section (1) of section 62, the time period within which the offer will be made for acceptance shall be not less than 07 days from the date of offer.

This Rule 12A is effective from 01/04/2021.

Effect of new Rule 12A-

Prior to the amendments brought in the Act and the Rules, in case of Rights Offer the Company must keep the offer period for at least 15 days even where the quantum of the on-record equity shareholder is lesser This hardship caused delay in closure of the process & allotments, and until allotments are done, the company could not use the money as their capital.

The amendment will help the company to close the process at the earliest, as the minimum time during which the Rights Offer can be kept open is now reduced to seven days and allotments could be made early. However, the maximum time limit for which an offer can be kept open is unchanged at 30 days from the date of offer.