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The rights issue has been an essential medium for companies to raise funds for them. Big corporate houses and many listed companies desire to raise capital through rights issue. However, due to the Covid-19 pandemic, many such companies are facing severe challenges. Major representations were made to the ministry with a view to getting relaxation in laws. Pursuant to this, the MCA provided clarification on the mode of issue of notice.
The Ministry of Corporate Affairs (MCA) clarified that in case of inability to issue notice specified in Section 62 (a) (1) (i) of the Companies Act, 2013[1] for the right issue by a listed company to its shareholders by:
Then it won’t amount to the violation of the law. This relaxation is allowed for listed companies whose issue will be opening on or before July 31, 2020. Therefore the listed companies can issue the notice in any other mode but subject to the relaxation provided under the circular issued by the Securities Exchange Board of India) (SEBI) (SEBI/HO/CFD/DIL2/CIR/P/2020/78.
It is critical to note here that such relaxation is not applicable for unlisted public companies and private companies.
The listed company is required to do the following:
According to the regulation 84(1) of the ICDR (Issue of Capital Disclosure Requirements), the company is required to issue advertisement in three newspapers including one English, one Hindi and one regional language, where the registered office of the company is situated.
It may be noted that:
Due to the Covid-19 pandemic, many physical shareholders have not been able to open Demat accounts or are unable to communicate their details for the REs (Dematerialized Right Entitlement). Such shareholders can apply the rights issue if the following conditions are met:
According to the regulation 76 of the ICDR (Issue of Capital Disclosure Requirements), the application for the rights issue shall be processed only through the ASBA (Application Supported by Blocked Amount) facility. Considering the impact of the Covid-19 pandemic, the company shall develop an optional mechanism (non-cash mode only) to accept the application by the shareholder. Such a mechanism will ensure that no third party payment is allowed with regard to any application.
Concerning the mechanism specified above, the following points must be kept in mind:
It may be noted that for filing of all offer documents the following relaxations are granted:
Further, it may also be noted that the relaxations mentioned above by the Securities Exchange Board of India (SEBI) is effective from May 6, 2020, and will be applicable to all the listed companies whose issues will be opening on or before July 31, 2020.
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