REVISED TIME-LIMIT FOR THE ACCEPTANCE OF OFFER BY SHAREHOLDERS UNDER SECTION 62(1)(i) OF THE COMPANIES ACT, 2013

The Ministry of Corporate Affairs (“MCA”) vide MCA Notification No. G.S.R. 113(E) dated February 11, 2021 (“Notification”), has notified an amendment to the Companies (Share Capital and Debentures) Rules, 2014 by way of the Companies (Share Capital and Debentures) Amendment Rules, 2021. The amendment prescribes a shorter time period within which the shareholders of the company shall be required to accept an offer made under Section 62(1)(a)(i) of the Companies Act, 2013 (“Act”).

1. Existing Position -

   Section 62 of the Act details the provisions in relation to further issue of share capital by a company. It confers certain pre-emptive rights upon the equity shareholders of the company, which essentially enable them to subscribe to new shares as and when issued by the company.

   As per Section 62(1)(a)(i) of the Act, a company proposing to increase its share capital by way of issuance of further equity shares, shall send a notice of offer to the existing equity shareholders of the company to subscribe such new shares, in close proportion to the paid-up share capital of the shares being offered. Such notice of offer may be accepted by the existing equity shareholders within a time period of 15 (fifteen) days and in any case not exceeding 30 (thirty) days, from the date of the offer. Failure to accept the same shall be deemed to be considered as the offer being declined.

2. Change introduced by the Amendment -

   MCA, through the Notification, has inserted a new Rule 12A under the Companies (Share Capital and Debentures) Rules, 2021. Rule 12A has been introduced with a view to affect an amendment under Section 62(1)(a)(i) of the Act, specifying a shorter time period for the acceptance of a rights issue offer.

   As opposed to the aforementioned requirement of keeping the offer period open for a period of 15 (fifteen) days, Rule 12A provides that the notice for the offer in respect of the further issue of shares shall prescribe that the time limit for acceptance of the offer by the shareholders of the company shall be not less than 07 (seven) days from the date of the offer. However, the maximum time limit for keeping an offer open under Section 62 of the Act, which is 30 (thirty) days, still remains unchanged.

   The introduction of the said amendment by insertion of new rule 12A would facilitate ease of business for companies as under the erstwhile provisions, companies were required to keep the offer period mandatorily open for atleast a minimum period of 15 (fifteen) days, even in cases where the quantum of on-record equity shareholders were less. Such a requirement often resulted in delay in the closure of the procedure as a whole and for completion of allotments. Moreover, unless and until the allotments had been completed, the company would not be able to utilize the money so raised as its capital. Therefore, the amendment would enable the closure of the process under Section 62 of the Act in an expeditious manner.

The amendment discussed hereinabove has been specified to be effective from April 01, 2021. Please find the Notification at http://www.mca.gov.in/Ministry/pdf/CompaniesShareCapitalDebenturesRules_16022021.pdf.