CS Rahul Harsh

CS Rahul HarshThe Central government on Wednesday, 16th of March, 2016 introduced in the Lok Sabha Companies Amendment Bill, 2016 to further amend the Companies Act, 2013 as part of efforts to address difficulties faced by stakeholders and improve the ease of doing business in the country.

This Article deals with Section 42 of the Companies Act, 2013 and is in Continuation of the Series of Comparative Analysis of Companies Act, 2013 & Companies (Amendment) Bill, 2016 of both the Existing and Proposed provisions. I have also incorporated a summary of Process of Private Placement as per the revised provisions.

The 3 Part Comparative Analysis of Companies Act, 2013 & Companies (Amendment) Bill, 2016 can be viewed from the Following Links:

PARTLINK
Part 1:http://taxguru.in/company-law/comparative-analysis-of-companies-amendment-bill-2016-companies-act-2013-part-1.html
Part 2:http://taxguru.in/company-law/comparison-of-companies-amendment-bill-2016-ca-2013-part-2.html
Part 3:http://taxguru.in/company-law/comparative-analysis-companies-amendment-bill-2016-companies-act-2013-part-3.html

Comparative  summary of Process of Private Placement as per the Current Provisions and as per the Proposed Companies (Amendment) Bill, 2016

Current ProvisionsProposed Amendments
 

(1) Without prejudice to the provisions of section 26, a company may, subject to the provisions of this section, make private placement through issue of a private placement offer letter.

(2) Subject to sub-section (1), the offer of securities or invitation to subscribe securities, shall be made to such number of persons not exceeding fifty or such higher number as may be prescribed, [excluding qualified institutional buyers and employees of the company being offered securities under a scheme of employees stock option as per provisions of clause (b) of sub-section (1) of section 62], in a financial year and on such conditions (including the form and manner of private placement) as may be prescribed.

Explanation I.–If a company, listed or unlisted, makes an offer to allot or invites subscription, or allots, or enters into an agreement to allot, securities to more than the prescribed number of 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 recognised 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 this Chapter.

Explanation II.–For the purposes of this section, the expression–

(i) “qualified institutional buyer” 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) “private placement” means 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 this section.

(3) 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.

(4) Any offer or invitation not in compliance with the provisions of this section shall be treated as a public offer and all provisions of this 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.

(5) 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.

(6) A company making an offer or invitation under this section shall allot its securities within sixty days from the date of receipt of the application money for such securities and 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 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:

Provided that monies received on application under this section shall be kept in a separate bank account in a scheduled bank and shall not be utilised 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.

(7) All offers covered under this section 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.

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

(9) Whenever a company makes any allotment of securities under this section, it shall file with the Registrar a return of allotment in such manner as may be prescribed, including the complete list of all security-holders, with their full names, addresses, number of securities allotted and such other relevant information as may be prescribed.

(10) If a company makes an offer or accepts monies in contravention of this section, 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.

 

For section 42 of the principal Act, the following section shall be substituted, namely:—

42. (1) A company may, subject to the provisions of this section, make a private placement of securities.

(2) A private placement shall be made only to a select group of persons who have been identified by the Board (herein referred to as “identified persons”), whose number shall not exceed fifty or such higher number as may be prescribed [excluding the qualified institutional buyers and employees of the company being offered securities under a scheme of employees stock option in terms of provisions of clause (b) of subsection (1) of section 62], in a financial year subject to such conditions as may be prescribed.

(3) A company making private placement shall issue private placement offer and application in such form and manner as may be prescribed to identified persons, whose names and addresses are recorded by the company in such manner as may be prescribed:

Provided that the private placement offer and application shall not carry any right of renunciation.

Explanation I.—”private placement” means any offer or invitation to subscribe or issue of securities to a select group of persons by a company (other than by way of public offer) through private placement offer-cum-application, which satisfies the conditions specified in this section. (EXPLANATION – ii(ii) As per current provisions)

Explanation II.—”qualified institutional buyer” 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, made under the Securities and Exchange Board of India Act, 1992. (EXPLANATION – ii(i) As per current provisions)

Explanation III.—If a company, listed or unlisted, makes an offer to allot or invites subscription, or allots, or enters into an agreement to allot, securities to more than the prescribed number of 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 recognised 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 this Chapter. (EXPLANATION – i As per current provisions)

(4) Every identified person willing to subscribe to the private placement issue shall apply in the private placement and application issued to such person along with subscription money paid either by cheque or demand draft or other banking channel and not by cash:

Provided that a company shall not utilise monies raised through private placement unless allotment is made and the return of allotment is filed with the Registrar in accordance with sub-section (8).

(5) 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: Provided that, subject to the maximum number of identified persons under subsection (2), a company may, at any time, make more than one issue of securities to such class of identified persons as may be prescribed.

(6) A company making an offer or invitation under this section shall allot its securities within sixty days from the date of receipt of the application money for such securities and 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 expiry of sixty days and 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:

Provided that monies received on application under this section shall be kept in a separate bank account in a scheduled bank and shall not be utilised 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.

(7) No company issuing securities under this section shall release any public advertisements or utilise any media, marketing or distribution channels or agents to inform the public at large about such an issue.

(8) A company making any allotment of securities under this section, shall file with the Registrar a return of allotment within fifteen days from the date of the allotment in such manner as may be prescribed, including a complete list of all allottees, with their full names, addresses, number of securities allotted and such other relevant information as may be prescribed.

(9) If a company defaults in filing the return of allotment within the period prescribed under sub-section (8), the company, its promoters and directors shall be liable to a penalty for each default of one thousand rupees for each day during which such default continues but not exceeding twenty-five lakh rupees.

(10) Subject to sub-section (11), if a company makes an offer or accepts monies in contravention of this section, the company, its promoters and directors shall be liable for a penalty which may extend to the amount raised through the private placement or two crore rupees, whichever is lower, and the company shall also refund all monies with interest as specified in sub-section (6) to subscribers within a period of thirty days of the order imposing the penalty.

(11) Notwithstanding anything contained in sub-section (9) and sub-section(10), any private placement issue not made in compliance of the provisions of the subsection

(2) shall be deemed to be a public offer and all the provisions of this Act and the Securities Contracts (Regulation) Act, 1956 and Securities and Exchange Board of India Act, 1992 shall be applicable.

In a Nutshell the Proposed Changes bring the following Effects to the Private Placement Provision:

The Proposed Section 42 by Companies (Amendment) Bill 2016 is based on the recommendations made by the Company Law Committee in its report on 1st February 2016. Though the Section has been re-drafted most of the previous provisions have been retained. The major changes are as follows:

  • A new proviso barring any right of renunciation being attached to the private placement offer letter and application has been inserted;
  • Restriction on utilizing the money till allotment has been extended further to filing of return of allotment with Registrar have been provided;
  • Return of Allotment needs to be filed within 15 days of allotment which was previously within 30 days;
  • The penalty for any contravention of section 42 has been lowered to Rs. 2 crores i.e. it shall be extended to the amount raised through the private placement or two crore rupees, whichever is lower.
  • A Proviso enabling the companies to make more than one issues at any time to such identified persons have been inserted; Though the Trm Private Placement means Issuance of Shares to Persons whose have been identified by the board of directors, but to clear all doubts the same has now been provided in the section.

THE REVISED PROCESS OF PRIVATE PLACEMENT ALONG WITH PROPOSED AMENDMENTS – IN BRIEF

  • Private placement is of securities by any offer or invitation to a select group of persons or Identified Persons whose names and addresses are recorded by the company to subscribe or issue of securities (other than by way of public offer) by offer-cum-application.
  • Maximum No. of Persons: 50 at a time (maximum) 200 in a year (maximum).
  • Any offer of securities to more than 50 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 recognised stock exchange in or outside India, THE SAME SHALL BE DEEMED TO BE A PUBLIC OFFER.
  • Private Placement shall not include:

(a) Any offer made to the qualified institutional buyers,

(b) Employees of the company being offered securities under Employees stock option scheme as per of provisions of clause (b) of subsection (1) of section 62 of Companies Act, 2013.

  • 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.
  • Mode of Payment: By cheque or demand draft or other banking channel and NOT by cash.
  • Allotment of Securities: Within sixty days from the date of receipt of the application money for such securities.
  • In case of failure to allot: Repay money within 15 days from expiry of 60 days from date of receipt of application if fails to repay within 15 days then repay with interest of 12% from expiry of 60th day.
  • Company shall not utilise monies raised through private placement UNLESS allotment is made and the return of allotment is filed with the Registrar in Form PAS – 3.
  • Prohibition: No company issuing securities under this section shall release any public advertisements or utilise any media, marketing or distribution channels or agents to inform the public at large about such an issue.
  • Filings: Maintain complete records of the offer in PAS 5.File PAS 4 & PAS 5 in Form GNL 2 with ROC within 30 days of circulation of the offer letter. Return of allotment in Form PAS 3 to be filed with ROC within 15 days of allotment.

Author: CS Rahul Harsh is a Company Secretary in Employment from Kolkata and can be contacted at: csrahulharsh@gmail.com

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