Cap Table Management

Under Section 42(8) of the Companies Act 2013 read with Rule 14 of the Companies (Prospectus and Allotment of Securities) Rules 2014, Form PAS-3 must be filed with the Registrar of Companies within 15 days of allotment. Late filing attracts escalating additional fees under Section 403. A deliberate default also exposes directors to disqualification under Section 164(2) and the company cannot make any further offer or invitation until the default is remedied per Section 42(10).

Section 42(2) of the Companies Act 2013 caps each private placement round at 200 persons per financial year (excluding QIBs and employees under ESOP). Before the offer, the board must pass a resolution and then obtain shareholder approval by special resolution under Section 42(3). The offer must be made only through a Private Placement Offer-cum-Application Letter in Form PAS-4. All amounts received must be kept in a dedicated bank account and cannot be deployed until PAS-3 is filed (Section 42(6)). Mixing this with a public offer route is prohibited.

A rights issue under Section 62(1)(a) is an offer to existing shareholders in proportion to paid-up capital and requires a rights notice dispatched at least 3 days before the offer opens per Rule 13 of the Companies (Share Capital and Debentures) Rules 2014. The allotment return is filed in Form PAS-3, and if authorised capital is simultaneously increased, Form SH-7 is also required. Section 62 and Section 42 are mutually exclusive routes for the same offer — a company cannot combine them. Rights issue proceeds do not need a separate bank account, unlike Section 42 funds.

Under FEMA (Non-Debt Instruments) Rules 2019 read with the RBI Master Direction on Foreign Investment in India, the Indian company must report the foreign equity allotment in Form FC-GPR to its Authorised Dealer Bank within 30 days of allotment. The cap table must reflect the applicable FDI sectoral cap, downstream investment conditions under DPIIT Press Note 3 of 2020, and pricing compliance with the DCF-based floor under Schedule I of the NDI Rules. Failure to file FC-GPR on time is a FEMA contravention that must be compounded under Section 15 of FEMA 1999.

A shareholders agreement (SHA) binds only the contracting parties and does not bind the company as a body corporate or future allottees. Rights that affect share capital or voting — anti-dilution, liquidation preference, drag-along, tag-along, reserved matter veto — must be incorporated into the Articles of Association under Section 5 of the Companies Act 2013. The amendment requires a special resolution under Section 14, and Form MGT-14 must be filed within 30 days of the resolution. Until the AoA is amended, these rights are unenforceable against the company and third-party transferees.