Sections and provisions applicable
• Section 42 of Companies Act, 2013 [Offer or Invitation for Subscription of Securities on Private Placement]
• Rule 14 of the Companies [Prospectus and Allotment of Securities Rules], 2014
Definition of Private Placement
• Private Placement means an offer of securities or invitation to subscribe for securities
• Offer to a select group of persons by a Company
• Other than by way of a Public Offer
• Through Private Placement Offer Letter
Offer/ Invitation to subscribe for shares
• Maximum 50 persons in one go
• 200 persons in aggregate in one financial year
• These limits are individually applicable for each kind of securities
For Example: Limit on number of persons under private placement offer/invitation to subscribe for shares will be available separately for each kind of security [i.e. equity, preference etc.]
Exclusions
Limit of 50 persons and/or 200 persons excludes QIB’s [i.e. Qualified Institutional Buyers] and Employees being allotted shares under ESOP [Employees Stock Option Programmes or Employees Stock Option Schemes]
Minimum Value of Investment
Investment size of not less than INR 20,000/- of face value of securities per person
Mode of Payment
• Mode of payment has to be mandatorily by cheque or demand draft or any other banking channels
• Cash payment is not allowed
• Payment has to come from the account of the person to whom the offer/invitation being made
• In case of joint holders, money should come from the account of the person whose name appears first in the application form
• Details of such bank account to be maintained and preserved by the Company
Bar on making of fresh offer or invitation to subscribe for securities
• No fresh offer or invitation can be made unless allotment with respect to previous offer is completed
• Fresh offer or invitation can be made if earlier offer or invitation is withdrawn or abandoned
• Bar on making of fresh offer or invitation to subscribe for securities applies to each kind of securities
For Example: If allotment with respect to equity shares offered through previous private placement is not completed, the Company cannot offer or invite subscriptions for preference shares or any other security
Private Placement Procedure
• Notice of Board meeting [seven clear days before the meeting]
• Convene and hold Board meeting
• Pass Board resolution approving private placement subject to approval by members in the Members’ meeting vide special resolution
• Notice of Members’ meeting [twenty one clear days before the meeting]
• Explanatory Statement under section 102 of the Act to contain the justification for arriving at the price [including premium amount, if any]
• Special resolution by members approving each offer/invitation
• Company to record the names of the persons to whom invitation or offer to be made
• Company to prepare private placement offer letter in Form PAS-4
• Circulate the same to the persons entitled under the said offer within 30 days of recording their names
• Company to maintain complete record of private placement offers in Form PAS-5 [Record of Private Placement offer to be kept by the Company]
• Company to file Form PAS-4 and PAS-5 with the Registrar of Companies along with the necessary fees prescribed under Companies [Registration Offices and Fees Rules], 2014 within 30 days of circulation of private placement offer letter
• [Date of private placement offer letter shall be deemed to be the date of circulation of private placement offer letter]
• In case of listed Company, file Form PAS-4 and PAS-5 with Securities and Exchange Board of India [SEBI] within 30 days of circulation of private placement offer letter
• Receive subscriptions
• Notice of Board meeting for allotment [seven clear days before the meeting]
• Convene and hold Board meeting
• Pass Board resolution approving allotment of shares pursuant to private placement offer
• Allot shares [within 60 days of receipt of application money]
• If not allotted within 60 days, repay the same within 15 days from the end of 60 days
• If not repaid, pay interest @ 12 % p.a.
• If shares allotted, file PAS-3 [Return of allotment] including complete list of shareholders [List of allottees] along with the full names, addresses, number of securities, amount at which securities allotted etc., with the Registrar of Companies [RoC] within 30 days of allotment
• Share certificates to issued
• Payment of stamp duty on share certificate to be made
Allotment of securities under private placement
• Allotment to be made within 60 days from the date of receipt of application money
• If allotment not made within 60 days, Company to repay the application money within 15 days from the expiry of 60 days [i.e. maximum 75th day from the date of receipt of application money]
• If money not repaid by the 75th day, pay interest @12 % p.a. from the 60th day
• Money received under private placement offer to be kept in a separate account maintained with a scheduled bank and to be utilized for allotment of securities and/or repayment only and not for any other purpose
Penalty Provisions
If offer made or monies accepted in contravention to the provisions of section 42 and applicable rules-
Liable- Company, its promoters, its directors
Penalty- amount involved in the offer or INR 2 crores whichever is higher
Company to refund all the monies to the subscribers within 30 days of the imposing of the penalty
Note
• Release of any public advertisement or use of any media, marketing or distribution channels or appointment of an agent is not allowed
• Offer or invitation not in compliance with the provisions of Sections 42 and applicable rules shall be treated as a public offer
• In case of offer or invitation for non-convertible debentures, previous special resolution only one in a year for all the offers or invitation during the year would suffice
• Secretarial Standards issued by the Institute of Company Secretaries of India need to be adhered to in documentation and other procedures
Author is a Company Secretary and can be reached at jayaranga51@gmail.com
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