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Allotment of Securities under the Companies Act, 2013

Chandra Bhushan 
on 28 November 2016

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ALLOTMENT OF SECURITIES UNDER THE COMPANIES ACT, 2013

(i) Private Placement
(ii) Right Issue
(iii) Preferential Allotment

1. PRIVATE PLACEMENT: -

Private placement means any offer of securities or invitation to subscribe securities or invitation to subscribe securities to a select group of persons by a company (other than by way of public offer) through issue of private placement offer letter and which satisfies the conditions as specified in Section 42 of the Companies Act, 2013.

The private placement of securities is governed by Section 42 of the Companies Act, 2013 read with Rule 14 of the Companies (Prospectus and Allotment of Securities) Rules, 2014.

CONDITIONS: -

(i)  A private placement offer cannot be made to more than 200 people in aggregate (in total) in a financial year excluding “Qualified Institutional Buyers (QIBs)” and employees of the Company being offered securities    under a scheme of employee’s stock option as per the provisions of clause (b) of Sub-Section (1) of Section 62.

“Qualified Institutional Buyer (QIB)” means the qualified institutional buyer as defined in the Securities and Exchange Board of India (Issue of Capital and Disclosure Requirements) Regulations, 2009 as amended from time to time.

(ii)   If a company, whether listed or unlisted makes an offer to allot or invites subscription, or allots, or enters into an agreement to allot, securities to more than 200 persons, whether the payment for the securities has been received or not or whether the Company intends to list its securities or not on any recognized stock exchange in or outside India, the same shall be deemed to be an offer to the public and shall accordingly be governed by the provisions of Part I of chapter III of SEBI (ICDR) Regulation, 2009.

(iii) No fresh offer or invitation under this section shall be made unless the allotments with respect to any offer or invitation made earlier have been completed or that offer or invitation has been withdrawn or abandoned by the Company.

(v)  The number of such offers or invitations shall not exceed 4 in a financial year and not more than once in a calendar quarter with a minimum gap of 60 days between any 2 such offers or invitations.

(vi) The value of such offer or invitation shall be with an investment size of not less than Rs. 20,000/- per person of the face value of the securities.

(vii) A company making an offer or invitation under this section shall allot its securities within 60 days from the date of receipt of the application money for such securities and if the Company is not able to allot securities within that period, it shall repay the application money to the subscribers within 15 days from the date of completion of sixty days and if the Company fails to repay the application money within the aforesaid period, it shall be liable to repay the money with interest at the rate of twelve per cent per annum from the expiry of the sixtieth day. Also the money received as share application money shall be kept in separate bank account in a scheduled bank and shall not be utilized for any of the following purpose: -

  • For adjustment against allotment of securities;  
  • For repayment of monies where the Company is unable to allot securities.

(viii) No company offering securities under this section shall release any public advertisements or utilize any media, marketing or distribution channels or agents to inform the public at large about such an offer.

(ix)  Any offer or invitation not in compliance with the provisions of this section shall be treated as a public offer and all provisions of the Companies Act, 2013 and the Securities Contracts (Regulation) Act, 1956 and the Securities and Exchange Board of India Act, 1992 shall be required to be complied with.

PROCEDURE: -

(i) Check the provision in the Articles of Association of the Company regarding Private Placement of shares and if the same is not there then the Articles of Association needs to be amended suitably as per the Provisions of the Companies Act, 2013.

(ii) Issue Notice for convening Board Meeting at least seven days before the date of meeting for making the proposal for private placement of shares and approval of notice of convening the General Meeting.

(iii) Issue Notice of the General Meeting at least 21 clear days before the date of the Meeting to all the Shareholders, Directors and Auditors as required Section 101 of the Companies Act, 2013.

(iv) In General Meeting pass the Special Resolution for Private Placement of shares along with the approval on the Offer Letter.

(v) File E-Form MGT -14 with Registrar of Companies within 30 days of passing the Special Resolution.

(vi) Issue offer letter in Form PAS-4 within 30 days of record of name of persons.

(vii) Prepare complete record of Private Placement in Form PAS-5.

(viii) File Form PAS-4 and Form PAS-5 with Registrar of Companies within 30 days of issue of offer letter in E-Form GNL-2.

(ix) Call Board Meeting for Allotment of shares within 60 days of receipt of share application money.

(x)  File E-Form PAS-3 with Registrar of Companies within 30 days of Allotment of shares;

(xi)  File E-Form MGT-14 with Registrar of Companies within 30 days of Board meeting for resolution passed in the Board Meeting for allotment of securities.

(xii) Issue share certificate to the respective shareholder within 2 months from the date of allotment of shares.

Note: Non-compliance of the above mentioned provisions and guidelines can lead to a penalty of Rs. 2 crores or the amount involved in the offer, whichever is higher.

2. RIGHTS ISSUE OF SHARES: -

The Right issue of shares means issue when new shares are offered to the existing shareholders in proportion to their current shareholding. The Right Issue of shares is governed by Section 62 of the Companies Act, 2013.

CONDITIONS: -

As per Section 62 (1) where at any time, a company having a share capital proposes to increase its subscribed capital by the issue of further shares, then such shares shall be offered: -

(a) to persons who, at the date of the offer, are holders of equity shares of the company in proportion, as nearly as circumstances admit, to the paid-up share capital on those shares by sending a letter of offer subject to the following conditions, namely: –

(i)  the offer shall be made by notice specifying the number of shares offered and limiting a time not being less than fifteen days and not exceeding thirty days from the date of the offer within which the offer, if not accepted by 90% of its members, shall be deemed to have been declined;

(ii)  unless the Articles of the Company otherwise provide, the offer aforesaid shall be deemed to include a right exercisable by the person concerned to renounce the shares offered to him or any of them in favor of any other person; and the notice referred to in clause (i) shall contain a statement of this right; and

(iii)  after the expiry of the time specified in the notice aforesaid, or on receipt of earlier intimation from the person to whom such notice is given that he declines to accept the shares offered, the Board of Directors may dispose of them in such manner which is not dis-advantageous to the shareholders and the Company.

PROCEDURE: -

(i)   Issue Notice for convening the Board Meeting at least 7 days before the date of meeting for making the proposal for right issue of shares.

(ii)  In Board Meeting pass a resolution for approving the “Letter of offer”. The letter of offer shall also include right of renunciation of shares.

(iii) Issue the Letter of offer to all the existing shareholders through registered post or speed post or through electronic mode at least three days before the opening of the issue.

(iv) Acceptance, renunciations and rejection of rights offered to be obtained from the respective shareholders.

(v)  Issue Notice for convening the Board Meeting for Allotment of shares within 60 days of receipt of share application money.

(vi) In the Board Meeting pass the resolution for allotment and issue of shares.

(vii) File E-Form PAS-3 with Registrar of Companies within 30 days of Allotment of securities.

(viii) File E-Form MGT-14 with Registrar of Companies within 30 days of Board meeting for resolution passed in the Board Meeting for allotment of securities.

(ix)  Issue share certificate to the respective shareholder within 2 months from the date of allotment of shares.

3. PREFERENTIAL ALLOTMENT OF SHARES: -

The Preferential allotment of shares is governed by Section 62(1(C) of the Companies Act, 2013 read with Rule 13 of Companies (Share Capital and Debentures) Rules, 2014.

PROCEDURE: -

(i) Check the provision in the Articles of Association of the Company regarding Preferential Allotment of shares and if the same is not there then the Articles of Association needs to be amended suitably as per the provisions of the Companies Act, 2013.

(ii) Issue Notice for convening Board Meeting for making the proposal for Preferential Allotment of shares and approval of notice of convening the General Meeting.

(iii) The following disclosures shall be given in the explanatory statement to be annexed to the notice of the general meeting pursuant to Section 102 of the Companies Act, 2013: -

  • The objects of the issue;
  • The total number of shares or other securities to be issued;
  • The price or price band at/within which the allotment is proposed;
  • Basis on which the price has been arrived at along with report of the registered valuer;
  • Relevant date with reference to which the price has been arrived at;
  • The class or classes of persons to whom the allotment is proposed to be made;
  • Intention of promoters, directors or key managerial personnel to subscribe to the offer;
  • The proposed time within which the allotment shall be completed;
  • The names of the proposed allottees and the percentage of post preferential offer capital that may be held by them;
  • The change in control, if any, in the company that would occur consequent to the preferential offer;
  • The number of persons to whom allotment on preferential basis have already been made during the year, in terms of number of securities as well as price;
  • The justification for the allotment proposed to be made for consideration other than cash together with valuation report of the registered valuer; and
  • The pre issue and post issue shareholding pattern of the company in the prescribed format.

(iv) Issue Notice of the General Meeting at least 21 clear days before the date of the Meeting to all the Shareholders, Directors and Auditors as required Section 101 of the Companies Act, 2013.

(v)  In General Meeting pass the Special Resolution for Preferential Allotment of shares.

(vi) File E-Form MGT-14 with Registrar of Companies within 30 days of passing the Special Resolution.

(vi) The securities allotted by way of Preferential offer shall be made fully paid up at the time of allotment.

(viii) The allotment of securities on a preferential basis made pursuant to the special resolution passed pursuant to sub-rule (2)(b) shall be completed within a period of 12 months from the date of passing of the special resolution. If the allotment of securities is not completed within 12 months from the date of passing of the special resolution, another special resolution shall be passed for the company to complete such allotment thereafter.

(ix)  the price of the shares or other securities to be issued on a preferential basis, either for cash or for consideration other than cash, shall be determined on the basis of valuation report of a registered valuer and when convertible securities are offered on a preferential basis with an option to apply for and get equity shares allotted, the price of the resultant shares shall be determined beforehand on the basis of a valuation report of a registered valuer and also complied with the provisions of Section 62 of the Act.

(x)  Where shares or other securities are to be allotted for consideration other than cash, the valuation of such consideration shall be done by a registered valuer who shall submit a valuation report to the company giving justification for the valuation.

(xi) Where the preferential offer of shares is made for a non-cash consideration, such non-cash consideration shall be treated in the following manner in the books of account of the company.

(xii) Where the non-cash consideration takes the form of a depreciable or amortizable asset, it shall be carried to the balance sheet of the company in accordance with the accounting standards.

(xiii) Where clause (i) is not applicable, it shall be expensed as provided in the accounting standards.

(xiv) Once the allotment is made, the company shall within 30 days of allotment, file with the Registrar a return of allotment in E-Form PAS.3, along with the fee as specified in Companies (Registration of Offices and Fees) Rules, 2014.

(xv) Issue share certificates within a period of 2 months from the date of allotment.

(xvi) Intimate the details of allotment of shares to the Depository immediately on allotment of such shares

(xvii) In case of listed companies, the conditions/procedures prescribed under Chapter VII of SEBI (ICDR) Regulations are to be complied with.


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