Private Placement, Rights Issue & Preferential Allotment Procedure Under Companies Act

Summary: This note discusses the procedure for Private Placement, Rights Issue and Preferential Allotment under the Companies Act, 2013 and applicable rules and SEBI regulations. Private Placement under Section 42 involves an offer or invitation to identified persons through a prescribed private placement offer-cum-application and is subject to shareholder or Board approvals, Form PAS-4, maintenance of Form PAS-5, banking-channel payment requirements, a separate bank account, prescribed allotment timelines and filing of Form PAS-3. Rights Issue under Section 62(1)(a) enables a company to offer further shares to existing equity shareholders in proportion to their existing holdings, with provisions governing the offer period, renunciation and disposal of unsubscribed shares. Listed-company rights issues are additionally governed by the SEBI ICDR Regulations, including requirements concerning the record date, advertisements, Rights Entitlements, ASBA, trading, renunciation and allotment. Preferential Allotment under Section 62(1)(c), read with Rule 13 of the Companies (Share Capital and Debentures) Rules, 2014, permits securities to be issued to selected persons subject to prescribed approvals, disclosures, valuation and pricing requirements. Since preferential issues are also subject to Section 42, the applicable private-placement requirements must additionally be complied with. The note sets out the principal statutory provisions, approvals, forms, procedural requirements, timelines, penalties, valuation requirements and dematerialisation considerations applicable to these three capital-raising routes.

Private Placement- Section 42 of the Companies Act, 2013

Section 42 of the Companies Act, 2013 (“the CA”) defines “Private Placement” as:

“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.”

Section 2(81) of the CA defines securities as “the securities as defined in clause (h) of section 2 of the Securities Contracts (Regulation) Act, 1956.” Section 2(h) of the Securities Contracts (Regulation) Act, 1956, defines ‘Securities,’ which has been reproduced hereinbelow for reference:

“2(h) “securities” include-

(i) shares, scripts, stocks, bonds, debentures, debenture stock or other marketable securities of a like nature in or of any incorporated company or a pooled investment vehicle or other body corporate;

(ia) derivative;

(ib) units or any other instrument issued by any collective investment scheme to the investors in such schemes;

(ic) security receipt as defined in clause (zg) of Section 2 of the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002;

(id) units or any other such instrument issued to the investors under any mutual fund scheme;

(ida) units or any other instrument issued by any pooled investment vehicle;

Explanation.—For the removal of doubts, it is hereby declared that “securities” shall not include any unit linked insurance policy or scrips or any such instrument or unit, by whatever name called, which provides a combined benefit risk on the life of the persons and investment by such persons and issued by an insurer referred to in clause (9) of Section 2 of the Insurance Act, 1938.

(ie) any certificate or instrument (by whatever name called), issued to an investor by any issuer being a special purpose distinct entity which possesses any debt or receivable, including mortgage debt, assigned to such entity, and acknowledging beneficial interest of such investor in such debt or receivable, including mortgage debt, as the case may be…”

There are two types of private placement:

• Preferential Allotment: Selling securities to a specific group, often at a set price, to raise cash fast or bring in key partners. Preferential allotment is a specific route of issue governed by Section 62(1)(c) of the CA read with Rule 13 of the Companies (Share Capital and Debentures) Rules, 2014 (“Share Capital Rules”).
• Qualified Institutional Placement (“QIP”): It is a method used by listed companies to raise capital by selling shares or securities exclusively to large, well-established investors- such as mutual funds, banks, or insurance companies. It’s a faster, more efficient way to bring in capital without going through lengthy public offerings. QIP is a route available to listed companies and is principally governed by the SEBI ICDR Regulations.

Please Note: There is no explicit provision that provides for the different types of Private Placement.

Prior Approvals & Offer Process

Special Resolution Requirement

Rule 14(1) of the Companies (Prospectus and Allotment of Securities) Rules, 2014 (“Rules”) mandates that no private placement offer shall be made unless previously approved by shareholders through a Special Resolution for each offer or invitation. The explanatory statement annexed to the Special Resolution notice must disclose:

• particulars of the offer including date of passing of Board resolution;
• kinds of securities offered and the price at which security is being offered;
• basis or justification for the price (including premium, if any) at which the offer or invitation is being made;
• name and address of valuer who performed valuation;
• amount which the company intends to raise by way of such securities;
• material terms of raising such securities, proposed schedule, purposes or objects of offer,
• contribution being made by the promoters or directors either as part of the offer or separately in furtherance of objects;
• principle terms of assets charged as securities.

For Non-Convertible Debentures (“NCDs”):

• Where the proposed amount to be raised through the offer or invitation is within the limit specified under Section 180(1)(c) of the CA, a Board Resolution under Section 179(3)(c) of the CA is sufficient.
• Where the proposed amount exceeds the limit specified under Section 180(1)(c) of the CA, it is sufficient for the company to pass a previous Special Resolution only once in a year for all offers or invitations for NCDs made during that year.

For the purpose of the above-mentioned provisions, Section 180(1)(c) of the CA provides that the Board can borrow money only up to a specified overall limit. If the proposed borrowing, together with the company’s existing borrowings, exceeds the aggregate of its paid-up share capital, free reserves and securities premium, shareholder approval by way of a Special Resolution is required.

The proviso excludes temporary loans obtained from the company’s bankers in the ordinary course of business from this calculation. The proviso clarifies that, for a banking company, the ordinary-course acceptance of public deposits, whether repayable on demand or otherwise, is not treated as borrowing for this purpose.

Further, Section 179(3)(c) of the CA provides that the Board of Directors must approve the issue of securities, including debentures, by passing a resolution at a Board meeting. This applies whether the securities are issued in India or outside India. Similarly, for Qualified Institutional Buyers (“QIBs”), a company making an offer or invitation of securities to QIBs is required to pass a Special Resolution only once in a year, which can cover all allotments made to QIBs during that year.’

Moreover, the Special Resolution approving the private placement is required to be filed with the Registrar in Form MGT-14.^[1] The requirement is specified under Section 117(1) read with Section 117(3)(a) of the CA. Section 117(3)(a) specifically includes Special Resolutions within the resolutions required to be filed with the Registrar. The resolution must be filed with the Registrar within 30 days from the date of passing the resolution.

Private Placement Offer-Cum-Application

A company making private placement shall issue a private placement offer and application in 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^[2] under Rule 14(3) of the Rules.

The company shall issue the offer and application in Form PAS-4, which must be:

• Serially numbered
• Addressed specifically to the identified person and shall be sent to him, either in writing or in electronic mode
• Sent within 30 days of recording the name

Additionally, the offer:

• Carries no right of renunciation
• Cannot be transferred
• Only the addressee can apply

Further, Rule 14(4) of the Rules requires maintaining a complete record in Form PAS-5.

Filing Requirement Before Issuance of Offer Letter

Rule 14(8) of the Rules states that a company shall issue the PAS-4 only after the relevant Special Resolution or Board Resolution has been filed with the Registrar of Companies. In the case of a private company, a copy of the Board Resolution or Special Resolution relating to the approval under Section 179(3)(c) of the CA must also be filed with the Registrar of Companies.

Section 179(3)(c) of the CA provides that the Board of Directors of a company shall exercise the powers on behalf of the company by means of resolutions passed at meetings of the Board, including to issue securities, including debentures, whether in or outside India.

A company cannot make a fresh offer or invitation under the private placement route unless the allotments relating to an earlier offer or invitation have been completed, or the earlier offer or invitation has been withdrawn or abandoned by the company.^[3] However, subject to the maximum number of identified persons prescribed under Section 42(2) of the CA, a company may make more than one issue of securities to such class of identified persons as may be prescribed. However, multiple issues to the prescribed class of identified persons are permitted subject to the applicable limit.

Payment, Separate Bank Account and Utilisation of Subscription Money

As per Section 42(4) of the CA, every identified person subscribing to securities through private placement must make the application along with the subscription money. The payment can be made through cheque, demand draft or other banking channels and cannot be made in cash. The company also cannot utilise the money received through the private placement until:

• the securities have been allotted; and
• the return of allotment has been filed with the Registrar under Section 42(8).

Under Rule 14(5) of the Rules, the subscription money must be drawn from the bank account of the person subscribing for the securities. The company is required to maintain a record of the bank account from which the payment is received. Where the securities are to be held by joint holders, the payment must come from the bank account of the person whose name appears first in the application. It is pertinent to note that this requirement does not apply where the shares are issued for consideration other than cash.

Moreover, the company must allot the securities within 60 days from the date of receipt of the application money. If the company is unable to make the allotment within 60 days:

• the application money must be repaid within 15 days from the expiry of the 60 days;and
• if the company fails to make the repayment within this period, it must repay the money with interest at 12% perannum, calculated from the expiry of the 60th day.

It is important to note that funds received on application must be kept in a separate scheduled bank account, and it cannot be utilised until:

• for adjustment against allotment of securities; or
• for the repayment of money where the company is unable to allot securities.^[4]

Additionally, a company shall not release any public advertisements or utilise any media, marketing or distribution channels or agents to inform the public at large about such an issuance of securities.^[5]

Penal Provisions

Once the securities have been allotted, the company must file a Return of Allotment with the Registrar within 15 daysfrom the date of allotment.[6] The return must be filed in Form PAS-3, along with the prescribed fee. It must contain the following details:

• Full name and address;
• Permanent Account Number (PAN);
• Email ID;
• Class of security held;
• Date of allotment;
• Number of securities allotted;
• Nominal value and amount paid on the securities; and
• Particulars of the consideration received, where the securities are issued for consideration other than cash.[7]

Now, if the company fails to file the Return of Allotment within the prescribed 15-day period, the company, its promoters and directors are liable to a penalty of Rs 1,000 for every day the default continues, subject to a maximum of Rs. 25 lakh.[8]

If a company makes an offer or accepts money in contravention of Section 42 of the CA, the company, its promoters and directors may be liable to a penalty. The penalty may extend to the amount raised through the private placement or Rs. 2 crore, whichever is lower. In addition, the company must refund all the money received from the subscribers along with interest at the rate specified under Section 42(6) of the CA within 30 days from the date of the order imposing the penalty.[9]

Section 42(11) of the CA stipulates that where a private placement is not made in compliance with Section 42(2) of the CA, it is deemed to be a public offer. In such a case, the provisions of:

• the Companies Act, 2013;
• the Securities Contracts (Regulation) Act, 1956; and
• the Securities and Exchange Board of India (“SEBI”) Act, 1992 will apply.

Exemption Rule

The 200-person limit under Rule 14(2) of the Rules does not apply to:

• Non-Banking Financial Companies registered with the Reserve Bank of India; and
• Housing Finance Companies registered with the National Housing Bank,

subject to the condition that they comply with the regulations prescribed by the Reserve Bank of India or National Housing Bank, as applicable, for offers or invitations made through private placement. However, if the Reserve Bank of India or National Housing Bank has not prescribed similar regulations, these companies must comply with the 200-person limit under Rule 14(2) of the Rules.[10]

Private Placement Process- Distinction

S. No.	Document/ Form	Provisions	Purpose
A. Pre-offer stage
	Board resolution	Section 179(3)(c)	Approve private placement proposal, valuation report, draft PAS-4, and notice of General Meeting
	Special resolution	Rule 14(1) Rules	Separate resolution required for each offer or invitation; not required for NCDs within Section 180(1)(c) limits
	Form MGT-14 (Board Resolution)	Section 179(3)(c), Section 117	File with Registrar of Companies (“ROC”) within 30 days of passing Board Resolution
	Form MGT-14 (Special Resolution)	Section 117(3)(a)	File with ROC within 30 days of passing the Special Resolution in General Meeting
B. Offer & subscription stage
	Separate bank account	Section 42(6)	Open in a Scheduled Bank before making any offer; all subscription money deposited here
	Private placement offer letter (Form PAS-4)	Rule 14(3) Rules	Serially numbered, addressed to each identified person; issued only after MGT-14 filings; sent within 30 days of recording names
	Record of private placement offers (Form PAS-5)	Rule 14(4) Rules	Maintain complete record of all offers; to be maintained internally (post-2018 amendment, filing with ROC no longer mandatory)
	Application forms (from Investors)	Section 42(4)	Subscription via cheque, Demand Draft, or banking channels only (no cash).
9.	Issue share certificates	Section 56(4)(b)	Within 2 months of allotment [The certificates must be issued in Form SH-1 and executed in accordance with Rule 5 of the Share Capital Rule. In the case of debentures, Section 56(4)(d) permits six months from the date of allotment for delivery of debenture certificates.]
10.	Return of Allotment	Section 42(8)	File with ROC in Form PAS-3 within 15 days of allotment, along with the prescribed details of allottees.

Rights Issue- Section 62(1)(a) of the Companies Act, 2013

A Rights Issue is a method by which a company raises additional capital by offering further shares to its existing equity shareholders, generally in proportion to their existing shareholding. The shareholders are given the right to subscribe to the additional shares, usually at a price determined by the company.

It is primarily governed by Section 62(1)(a) of the CA and, in the case of listed companies, the SEBI (Issue of Capital and Disclosure Requirements) Regulations, 2018 (“SEBI ICDR”). Under Section 62(1)(a) of the CA, where a company proposes to increase its subscribed capital by issuing further shares, such shares must first be offered to the existing equity shareholders in proportion to their paid-up share capital, by issuing a letter of offer, subject to the prescribed conditions:

• the offer should specify the number of shares offered, and the acceptance period of the same should be not less than 15 days and not exceeding 30 days, or a lesser number of days prescribed.If the offer is not accepted within this period, it shall be deemed to have been declined. In addition to this, Rule 12A of the Share Capital Rules provides that the time period within which the offer shall be made for acceptance shall be not less than seven daysfrom the date of offer.
• unless the company’s articles provide otherwise, the offer shall be deemed to include a right of renunciation.
• after the expiry of the time specified in the notice, or on receipt of an earlier intimation from the person that he declines to accept the shares offered, the Board may dispose of the shares in a manner which is not dis-advantageous to the shareholders and the company.

It is important to note that MCA Notification G.S.R. 464(E), dated 5 June 2015, issued under Section 462 of the CA, provides that for private companies where 90% of the members of a private company consent in writing or electronically, periods shorter than those ordinarily specified may be followed. A rights issue can be undertaken without obtaining prior approval of the shareholders. However, it is pertinent to note that in accordance with Section 179(3)(c) of the CA, a rights issue can be undertaken only after obtaining approval of the Board, by a resolution passed at a Board Meeting.

Procedure for Listed Companies- SEBI ICDR

The process for a Rights Issue by a listed company is broadly set out as follows:

Record Date

The record date is fixed to determine the shareholders entitled to Rights Entitlements (“REs”). The listed entity shall give notice in advance of at least three working days, excluding the date of intimation and the record date, to the stock exchange of the record date, specifying the purpose of the record date.

Newspaper Advertisement

The issuer shall issue a newspaper advertisement disclosing the date of completion of dispatch of the offer documents and intimate the same to the stock exchanges for dissemination on their websites. The advertisement shall be issued at least 2 days before the date of opening of the Rights Issue.

The advertisement must be published in:

• at least one English and Hindi national daily newspaper having wide circulation; and
• at least one regional-language daily newspaper having wide circulation at the place where the registered office of the issuer is situated.

The issuer must also intimate the stock exchanges so that the advertisement can be disseminated on their websites.

The advertisement must disclose:

• the date on which dispatch of the letter of offer and application form was completed;
• the centres, other than the registered office of the issuer, from which shareholders or persons entitled to rights entitlements may obtain duplicate application forms;
• that a shareholder who has neither received the original application form nor can obtain a duplicate may apply:
• using the application form available on the website of the Registrar to the Issue or the stock exchanges; or
• on plain paper, with the prescribed particulars;
• that if an applicant applies using both the prescribed application form and a plain-paper application, both applications may be rejected at the option of the issuer; and
• details of identified specific investors, where applicable.

A plain-paper application must contain the applicant’s:

• name and address;
• rights-issue ratio;
• issue price;
• number of equity shares held;
• ledger folio number, where applicable;
• Depository Participant ID and Client ID;
• number of equity shares to which the applicant is entitled;
• number of equity shares applied for;
• additional shares applied for, if any; and
• amount to be blocked with the Self-Certified Syndicate Bank.[11]

Application on plain paper does not dispense with the ASBA requirement. The required amount must still be blocked through the applicant’s SCSB.

The advertisement must disclose:

• the name of the specific investor or renouncee, the name of the promoter/promoter-group member renouncing the rights entitlement and the number of rights entitlements renounced, where the promoter or promoter group renounces rights entitlements in accordance with Regulations 62(3) and 86(1)(b) of the SEBI ICDR; and
• the names of specific investors to whom the issuer proposes to allot any under-subscribed portion of the rights issue under Regulation 90(2)(d) of the SEBI ICDR.

Timeline for Completion of Rights Issue

The Rights Issue shall be completed within 23 working days from the date on which the Board of Directors approves the Rights Issue. Where the Rights Issue involves convertible debt instruments and shareholders’ approval is required, the timeline shall be adjusted accordingly, as given in Annexure I.[12]

Please note: The revised timelines for completion of the various activities involved in the rights issue process are given in Annexure I.

Issue Period

The Rights Issue shall remain open for subscription for:

• Minimum: 7 days
• Maximum: 30 days[13]

Credit of Rights Entitlements

REs are credited to the demat accounts of eligible shareholders before the opening of the Rights Issue, against the shares held by them as on the record date. The REs are credited in dematerialised form and have a separate International Securities Identification Number (ISIN). The issuer is also required to disclose in the offer document the process for credit of REs and their renunciation.

Physical Shareholders

Physical shareholders must provide their demat account details to the issuer or Registrar to the Issue not later than 2 working days before the issue closing date. The REs must consequently be credited to their demat account at least a day before the issue closes.

Trading and Renunciation of Rights Entitlements

Dematerialised REs can be traded on the stock exchange platform.

Trading:

• commences along with the opening of the Rights Issue;
• follows T+1 rolling settlement; and
• closes at least 3 working days before the Rights Issue closes.

An investor holding REs in dematerialised form may renounce the entitlement either:

• by trading the REs on the stock exchange; or
• by transferring them off-market through the depository mechanism.

Making the Application

Applications for the Rights Issue shall be made only through the Application Supported by Blocked Amount facility. Once the Rights Issue closes, withdrawal of the application is not permitted.

Validation and Allotment

The applications received for subscribing to the Rights Shares are validated by the Stock Exchanges and Depositories along with the Registrar to the Issue.

The allotment basis is also finalised through this process.

Rights Issue Process- Distinction

S. No.	Process	Timeline / Form
	Board meeting notice to directors	Not less than 7 days (Section 173(3))
	Board approves the Rights Issue, including the ratio, price and other terms	Board Resolution
	File Board Resolution	Form MGT-14 within 30 days with the ROC (depending on the eligibility in case of private company)
	Dispatch Letter of Offer to all eligible shareholders	At least 3 days before offer opens and the offer period must comply with the statutory requirements.
	Offer remains open for acceptance	Minimum 15 days, maximum 30 days (Section 62(1)(a)(i))
	Shareholders may accept the offer, decline it, or renounce the entitlement in favour of another person	Within the offer period
	If the shareholder does not exercise the entitlement within the offer period then the offer is treated as declined and the shares may be disposed of by the Board.	–
	Return of Allotment	File with ROC in Form PAS-3 within 30 days of allotment (Section 39(4) & Rule 12 of the Rules)
	Issue share certificates	Within 2 months (Section 56(4)(b)) [The certificates must be issued in Form SH-1 and executed in accordance with Rule 5 of the Share Capital Rule. In the case of debentures, Section 56(4)(d) permits six months from the date of allotment for delivery of debenture certificates.]

Preferential Allotment- Section 62(1)(c) of the Companies Act, 2013

Preferential allotment means issuance of shares or other securities by a company to any select person or group of persons on a preferential basis but does not include shares offered through a public issue, employee stock option scheme, rights issue, or bonus shares. Section 62(1) (c) of the CA, Rule 13 of the Share Capital Rules, and Rule 14 of the Rules deal with the Preferential allotment of Shares of the company.

Preliminary Conditions

Authority in Articles of Association

Rule 13 of the Share Capital Rules expressly requires that, in the case of an unlisted company, the preferential issue must be authorised by its Articles.

Number of persons to whom the offer may be made

A preferential issue which is subject to Section 42 of the CA cannot be made to more than 200 persons in aggregate in a financial year as per Rule 14(2) of the Rules.

The following are excluded while calculating the limit:

• QIBs and
• Employees receiving securities under an Employee Stock Option Plan under Section 62(1)(b) of the CA.

The 200-person restriction is calculated separately for each kind of security, i.e.:

• equity shares;
• preference shares; and
• debentures.

Prior Special Resolution

The preferential issue must be authorised by a special resolution of the members. Section 62(1)(c) of the CA also provides that further shares may be issued to any persons if authorised by a special resolution, and the price is determined by the valuation report of a registered valuer, subject to the applicable provisions of Chapter III and prescribed conditions. Further, Rule 13 of the Share Capital Rules expressly provides that shares may be issued on a preferential basis pursuant to Section 62(1)(c) if authorised by a special resolution and subject to Section 42 of the CA.

Disclosures in the Explanatory Statement

Rule 13(2)(d) of the Share Capital Rules requires the following disclosures in the explanatory statement annexed to the notice of the general meeting under Section 102 of the CA:

1. Objects of the issue;

2. Total number of shares or other securities to be issued;

3. Price or price band at/within which allotment is proposed;

4. Basis on which the price has been arrived at, along with the registered valuer’s report;

5. Relevant date with reference to which the price has been arrived at;

6. Class or classes of persons to whom the allotment is proposed;

7. Intention of promoters, directors or KMPs to subscribe;

8. Proposed time within which allotment shall be completed;

9. Names of proposed allottees and percentage of post-preferential-offer capital that may be held by them;

10. Change in control, if any, consequent to the preferential offer;

11. Number of persons to whom preferential allotments have already been made during the year, including number of securities and price;

12. Justification for allotment for consideration other than cash, together with registered valuer’s report; and

13. Pre-issue and post-issue shareholding pattern in the format prescribed by the said Rule in the specified format.

Section 102 of the CA requires a statement containing the material facts relating to every item of special business to be annexed to the notice of a general meeting.

Valuation and Pricing

The price of shares issued under preferential allotment must be determined based on the valuation report of a registered valuer.[14]

Unlisted Company

The price of the shares or other securities to be issued on a preferential basis, whether for cash or consideration other than cash, shall be determined based on a valuation report of a registered valuer.[15] Thus, the valuation report of a registered valuer forms the basis for determining the price of the preferential issue.

Where shares or other securities are allotted for consideration other than cash:

• the consideration must be valued by a registered valuer; and
• the registered valuer must submit a valuation report giving justification for the valuation.[16]

Additionally, the consideration is also valued by a registered valuer, who must submit a valuation report giving justification for the valuation. Further, Rule 13(3) of the Share Capital Rules stipulates that the price of shares or other securities to be issued on a preferential basis must not be less than the price determined based on a valuation report of a registered valuer.

In case shares are issued under Section 62(1)(c) of the CA by an unlisted company whose equity shares or convertible preference shares are not listed on any recognised stock exchange, the valuation report of the registered valuer must be attached to Form PAS-3.[17]

Listed company

Rule 13 of the Share Capital Rules proviso states that the price of shares issued on a preferential basis by a listed company is not required to be determined by a registered valuer under this Rule; the listed company must instead comply with the applicable SEBI regulations. For listed companies, SEBI regulations impose lock-in requirements on shares allotted under preferential allotment:

• Promoter/promoter group-up to 20% of total capital: 18 months from trading approval.
• Promoter/promoter group-in excess of 20%: 6 months from trading approval.
• Non-promoter allottee: 6 months from trading approval.
• Unlisted convertible securities or warrants: 1 year from allotment.
• Entire pre-preferential shareholding of the allottee: from the relevant date until 90 trading days from trading approval.
• Shares issued under an RBI stressed-assets framework or National Company Law Tribunal approved resolution plan: 1 year from trading approval.[18]

Time Limit for Preferential Allotment

The allotment of securities on a preferential basis pursuant to the special resolution must be completed within 12 months from the date of passing of the special resolution.[19]

If the allotment is not completed within 12 months, another special resolution must be passed to complete the allotment thereafter.[20]

Please Note: A preferential issue under Section 62(1)(c) of the CA, read with Rule 13 of the Share Capital Rules, is also required to comply with the conditions laid down under Section 42 of the CA. Accordingly, the provisions relating to private placement contained in Section 42 read with Rule 14 of the Companies (Prospectus and Allotment of Securities) Rules, 2014, as discussed in detail in the Private Placement section of this note, shall apply to a preferential allotment as well. Therefore, the requirements relating to the private placement offer, identified persons, permissible number of persons, application money, separate bank account, allotment, return of allotment, public advertisement and other applicable private-placement compliances need not be repeated here and may be referred to as set out above.

Preferential Allotment- Distinction

Compliance	Provision	Time limit
Board meeting notice	Section 173(3)	At least 7 days unless shorter notice is validly given for urgent business under the proviso to Section 173(3).
Filing special resolution with ROC	Section 117	Within 30 days
Issue PAS-4 after recording identified person’s name	Rule 14(3) Rules	Within 30 days
Allotment after receipt of application money	Section 42(6)	Within 60 days
Repayment if allotment not made within 60 days	Section 42(6)	Within 15 days after expiry of 60 days
Preferential allotment pursuant to special resolution	Rule 13(2) Share Capital Rules	Within 12 months from special resolution
PAS-3 after allotment	Section 42(8), Rule 14(6)	Within 15 days
Share certificate for allotted shares	Section 56(4)(b)	Within 2 months from allotment

Miscellaneous (Overall)

Where physical issuance is legally permissible, share certificates in Form SH-1 shall be delivered within two months of allotment under Section 56(4)(b), read with Rule 5 of the Share Capital and Debentures Rules. Where Section 29, Rule 9A, Rule 9B or applicable SEBI provisions require dematerialisation, the company shall instead complete the prescribed depository corporate action and credit the securities in dematerialised form.

[1] Rule 24 of the Companies (Management and Administration) Rules, 2014.

[2] Section 42(3), Companies Act, 2013.

[3] Section 42(5), Companies Act, 2013.

[4] Section 42(6), Companies Act, 2013.

[5] Section 42(7), Companies Act, 2013.

[6] Section 42(8), Companies Act, 2013.

[7] Rule 14(6), Companies (Prospectus and Allotment of Securities) Rules, 2014.

[8] Section 42(9), Companies Act, 2013.

[9] Section 42(10), Companies Act, 2013.

[10] Rule 14(7), Companies (Prospectus and Allotment of Securities) Rules, 2014.

[11] Regulation 84(1), SEBI ICDR Regulations, 2018.

[12] Regulation 85, SEBI ICDR Regulations, 2018.

[13] Regulation 87, SEBI ICDR Regulations, 2018.

[14] Section 62(1)(c), Companies Act, 2013.

[15] Rule 13(2)(g), Companies (Share Capital and Debentures) Rules, 2014.

[16] Rule 13(2)(i), Companies (Share Capital and Debentures) Rules, 2014.

[17] Rule 12(7), Companies (Prospectus and Allotment of Securities) Rules, 2014.

[18] Regulation 167, SEBI ICDR Regulations, 2018.

[19] Rule 13(2)(e), Companies (Share Capital and Debentures) Rules, 2014.

[20] Rule 13(2)(f), Companies (Share Capital and Debentures) Rules, 2014.