Offer or Invitation of Securities on Private Placement-
A public company may issue securities –
1. To public by issuing prospectus; or
2. Through private placement.
Definition and applicability of Private Placement-
Companies Act, 1956 did not define the term ‘Private Placement’. The Companies Act, 1956 prescribed that –
1. where shares or debentures are available for subscription or purchase only to those receiving the offer and
2. offer is a domestic concern of the issuer and
3. those receiving the offer/invitation were termed as private placement.
Companies Act, 2013 defines ‘Private Placement’ as any offer of 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 a private placement offer letter and which satisfies the conditions specified in section 42.
Under the Companies Act, 1956 the conditions relating to private placement were applicable only to public companies. But the Companies Act, 2013 provides various conditions for private placement of shares and debentures which apply to both private companies and public companies.
Section 42 of the Companies Act, 2013 contains provisions for issue of securities through private placement to be read along with Rule 14 of the Companies (Prospectus and Allotment of Securities) Rules, 2014
Private placement offer letter-
Sec 42 of the Companies Act provides that a company may issue securities on private placement through issue of a private placement offer letter in Form PAS-4. A private placement offer letter shall be accompanied by an application form serially numbered and addressed specifically to the person to whom the offer is made and shall be sent to him, either in writing or in electronic mode, within thirty days of recording the names of such persons in accordance with sub-section (7) of section 42. No person other than the person so addressed in the application form shall be allowed to apply through such application form and any application not conforming to this condition shall be treated as invalid.
Maximum number of persons to whom offer can be made-
Sec 42(2) states that the offer or invitation of securities through private placement shall be made to such number of persons not exceeding fifty or such higher number as may be prescribed. As per Rule 14(2)(b) such offer or invitation shall be made to not more than two hundred persons in the aggregate in a financial year. Any offer or invitation made to the following persons shall not be included in the calculation of limit of two hundred persons –
(a) qualified institutional buyers; and
(b) employees of the company under a scheme of employees stock option.
Further, it is clarified that the restrictions under sub-clause (b) would be reckoned individually for each kind of security that is equity share, preference share or debenture.
Rule 14(2)(c) states that the value of such offer or invitation per person shall be with an investment size of not less than twenty thousand rupees of face value of the securities;
Rule 14(2)(d) states that the payment to be made for subscription to securities shall be made from the bank account of the person subscribing to such securities and the company shall keep the record of the Bank account from where such payments for subscriptions have been received. Monies payable on subscription to securities to be held by joint holders shall be paid from the bank account of the person whose name appears first in the application.
Private Placement to be approved by a special resolution and other regulatory matters-
A company shall not make a private placement of its securities unless –
The proposed offer of securities or invitation to subscribe securities has been previously approved by the shareholders of the company, by a Special Resolution, for each of the Offers or Invitations.
Provided that in the explanatory statement annexed to the notice for the general meeting the basis or justification for the price (including premium, if any) at which the offer or invitation is being made shall be disclosed.
Provided further that in case of offer or invitation for non-convertible debentures, it shall be sufficient if the company passes a previous special resolution only once in a year for all the offers or invitation for such debentures during the year.
No fresh offer or invitation under Section 42 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. Any offer or invitation not in compliance with the provisions of section 42 shall be treated as a public offer and all provisions of Companies Act, and the Securities Contracts (Regulation) Act, 1956 (42 of 1956) and the Securities and Exchange Board of India Act, 1992 (15 of 1992) shall be required to be complied with.
All monies payable towards subscription of securities under this section shall be paid through cheque or demand draft or other banking channels but not by cash.
Time limit for allotment-
1. A company making an offer or invitation through private placement shall allot its securities within sixty days from the date of receipt of the application money for such securities and
2. if the company is not able to allot the securities within that period, it shall repay the application money to the subscribers within fifteen days from the date of completion of sixty days and
3. if the company fails to repay the application money within the aforesaid period, it shall be liable to repay that money with interest at the rate of twelve per cent per annum from the expiry of the sixtieth day:
The monies received on application under section 42 shall be kept in a separate bank account in a scheduled bank and shall not be utilized for any purpose other than—
(a) for adjustment against allotment of securities; or
(b) for the repayment of monies where the company is unable to allot securities.
All offers covered section 42 shall be made only to such persons whose names are recorded by the company prior to the invitation to subscribe, and that such persons shall receive the offer by name, and that a complete record of such offers shall be kept by the company in such manner as may be prescribed and complete information about such offer shall be filed with the Registrar within a period of thirty days of circulation of relevant private placement offer letter. 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.
Record of allotment-The company shall maintain a complete record of private placement offers in Form PAS-5. a copy of such record along with the private placement offer letter in Form PAS-4 shall be filed with –
(a) The Registrar with such fees as prescribed and
(b) Where the company is listed, with the Securities and Exchange Board within a period of thirty days of circulation of the private placement offer letter.
Return of allotment-
A return of allotment of securities under section 42 shall be filed with the Registrar within thirty days of allotment in Form PAS-3 and with the fee as prescribed along with a complete list of all security holders containing-
(i) the full name, address, Permanent Account Number and E-mail ID of such security holder;
(ii) the class of security held;
(iii) the date of allotment of security ;
(iv) the number of securities held, nominal value and amount paid on such securities; and particulars of consideration received if the securities were issued for consideration other than cash.
Penalty – If a company makes an offer or accepts monies in contravention of section 42, the company, its promoters and directors shall be liable for a penalty which may extend to the amount involved in the offer or invitation or two crore rupees, whichever is higher, and the company shall also refund all monies to subscribers within a period of thirty days of the order imposing the penalty.
Offer or Invitation of Securities on Private Placement
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