Shelf Prospectus under Companies Act 2013 – A Complete Guide

Section 31 of the Companies Act, 2013, introduces the concept of a shelf prospectus, a significant advancement in the regulatory framework governing securities issuance in India. This provision allows certain classes of companies to issue securities multiple times within a specified period without the need to file a fresh prospectus for each offering, thereby streamlining the capital-raising process and reducing administrative burdens.

A shelf prospectus is a single document filed with the Registrar of Companies (RoC) that permits eligible companies to make multiple securities offerings over a period not exceeding one year from the date of the first offer. This mechanism is particularly beneficial for companies planning successive issues, as it obviates the necessity of preparing and registering a new prospectus for each offering, thus saving time and costs.

Under sub-section (1) of Section 31, the Securities and Exchange Board of India (SEBI) is empowered to specify the classes of companies that may file a shelf prospectus. The validity of such a prospectus is limited to one year, commencing from the date of the opening of the first offer of securities. During this period, the company can make subsequent offers without issuing a new prospectus, simplifying the process of raising capital.

Requirement of Information Memorandum

Sub-section (2) of Section 31 mandates that a company filing a shelf prospectus must submit an information memorandum at the time of making a second or subsequent offer of securities. This memorandum serves to disclose any material changes that have occurred since the previous offer, particularly concerning new charges created on the company’s assets or alterations in its financial position. The objective is to ensure that potential investors have access to up-to-date information, thereby facilitating informed investment decisions.

Furthermore, if the company has received applications for securities along with advance payments before the issuance of the information memorandum, it is required to inform these applicants of the changes. Applicants are then given the option to withdraw their applications within a stipulated period, typically 15 days from the date of such intimation, ensuring investor protection and maintaining trust in the company’s disclosures.

Deemed Prospectus

According to sub-section (3) of Section 31, every information memorandum filed is deemed to be a part of the shelf prospectus. This means that the shelf prospectus and the information memorandum together constitute a comprehensive disclosure document for the securities being offered. This integration ensures that all material information is available to investors, maintaining transparency and compliance with regulatory standards.

Regulatory Provisions and SEBI Guidelines

The Companies (Prospectus and Allotment of Securities) Rules, 2014, provide detailed procedures for the filing of a shelf prospectus and the accompanying information memorandum. Rule 10 specifies that the information memorandum must be prepared in Form PAS-2 and filed with the RoC within one month prior to the issue of the second or subsequent offer of securities under the shelf prospectus. This filing ensures that the RoC and potential investors are apprised of any significant developments affecting the company.

SEBI’s regulations further delineate the entities eligible to utilize a shelf prospectus. As per the SEBI (Issue and Listing of Debt Securities) Regulations, 2008, the following entities may file a shelf prospectus for public issuance of their debt securities:

1. Public financial institutions and scheduled banks.
2. Issuers authorized by the Central Board of Direct Taxes to make public issues of tax-free secured bonds.
3. Infrastructure Debt Funds – Non-Banking Financial Companies regulated by the Reserve Bank of India.
4. Non-Banking Financial Companies and Housing Finance Companies meeting specific financial criteria, such as a net worth of at least ₹500 crore and a consistent track record of distributable profits for the last three years.
5. Listed entities with a track record of compliance with SEBI regulations and meeting certain financial thresholds.

These regulations ensure that only financially sound and compliant entities can avail themselves of the benefits of a shelf prospectus, thereby safeguarding investor interests.

Advantages of a Shelf Prospectus

The introduction of the shelf prospectus mechanism offers several advantages:

1. Efficiency: Companies can raise funds quickly without the need to prepare and register a new prospectus for each offering, expediting the capital-raising process.
2. Cost Savings: Reducing the frequency of prospectus filings lowers legal and administrative expenses associated with securities issuance.
3. Flexibility: Companies have the flexibility to time their securities offerings in response to market conditions within the validity period of the shelf prospectus.
4. Enhanced Disclosure: The requirement to file an information memorandum ensures that investors receive current and relevant information, promoting transparency and informed decision-making.

Conclusion

Section 31 of the Companies Act, 2013, through the provision of a shelf prospectus, significantly enhances the efficiency and flexibility of the securities issuance process for eligible companies. By allowing multiple offerings under a single prospectus and mandating timely disclosures of material changes, the framework balances the facilitation of capital formation with the imperative of investor protection. Companies intending to utilize this mechanism must adhere strictly to the stipulated regulatory requirements to maintain transparency and uphold investor confidence. sector.

Related Resources

• Section 31, The Companies Act, 2013

This article is presented by CA B K Goyal & Co LLP Chartered Accountants, your trusted partner in audit and compliance solutions. For expert assistance, feel free to contact us.