Amended Provisions of Private Placement U/s. 42 of Companies Act, 2013

Amended Provisions of Private Placement under Section 42 of Companies Act, 2013 after enforceability of Section 10 of the Companies Amendment Act, 2017

Ministry of Corporate affairs has introduced Companies (Prospectus and Allotment of Securities) Second Amendment Rules, 2018 and also notified Section 10 of the Companies Amendment Act, 2017 which talks about Section 42 of the Companies Act, 2013 which has notified in the official gazette of India on the 7^th day of August, 2018. Some of the points which were earlier required in the Rules and which are to be mentioned in the explanatory statement issued along with notice of Extra ordinary General Meeting for the Private placement has now been introduced in the Private Placement Offer Cum Application Letter in form PAS – 4 itself and the application form has also been specified by the Ministry in the Rules also. Some of the important changes which came are reproduced by us for the sake of understanding of the general public and the points are:

1. No requirement of filing of GNL-2 with the Registrar of Companies  As per the notified sub section 3 of Section 42 the Company is under obligation to dispatch the PAS – 4 within 30 days to the person to whom the offer is made and earlier it was that Company shall report to the Registrar about such dispatch which is no longer available in this notified Section and now there is no requirement of filing PAS 4 along with PAS 5 to the Registrar of Companies in the form GNL-2. Sub section 3 reproduced below:

 A private placement offer cum application letter shall be in the form  of an application in Form PAS-4 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 name of such person pursuant to sub-section (3) of section 42.

2. Proviso of subsection 3 has been inserted which clearly says that the private placement offer and application shall not carry any right of renunciation. Proviso reproduced below:

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

3. Proviso of subsection 4 has also adding one new point which says without filing PAS 3, Company can’t use the application money. Proviso reproduced below:

 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).

4. Proviso of subsection 5 has also adding one new point and as per our interpretation, it allows to making a multiple issue of securities (like Equity/ Preference/ Debentures) simultaneously provided sub section 5 shall not be contravened i.e. first Company is required to make an allotment of its existing issue and after completion of that, Company can make simultaneously multiple issue of securities. Proviso reproduced below:

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

5. According to subsection 8 the time limit to file PAS 3 under Section 42 has been reduced from 30 days to 15 days.

 (Inference: The reason to reduce time limit can be considered as now Company can’t use the application money until it files PAS 3, So as and when allotment done still Company can’t use the money until the reporting of the same forward to the Registrar of Companies.

6. PENALTY for not filing the PAS 3 has been introduced by sub section 9 and the amount of penalty shall be one thousand rupees for each day during which such default continues but not exceeding twenty-five lakh rupees.

7. Rules also amended and now as per Rule 8 PAS 4 can be issued only when the intimation of SR or BR filed to Registrar of Companies. Rule reproduced below:

(8) A company shall issue private placement offer cum application letter only after the relevant special resolution or Board resolution has been filed in the Registry:

Provided that private companies shall file with the Registry copy of the Board resolution or special resolution with respect to approval under clause (c) of sub-section (3) of section 179.

 (Inference: This is the change which has been introduced. Now the exemption to file MGT -14 under 179(3)(c) is not applicable and MGT-14 shall also filed for Board Resolution for the issue of securities by the private companies).

Changes in PAS – 4 – Private Placement Offer Cum Application Letter

The Private Placement Offer Cum Application Letter which is also referred as offer letter in the form PAS – 4 has now become more exhaustive and contains multiple information which was earlier specified in different – different Rules and the information was earlier scattered and because of this investor didn’t get the exact information. To curve this situation additional disclosures like pre and post issue shareholding structure, basis on which price has been arrived, which was earlier specified in the Rules and required to be mentioned in the explanatory statement issued along with notice of Extra ordinary General Meeting for the Private placement has now been introduced in the Private Placement Offer Cum Application Letter in form PAS – 4 itself which become Private Placement Offer Cum Application Letter more exhaustive information letter. The additional information required to be mentioned in Private Placement Offer Cum Application Letter i.e. PAS – 4 are reproduced below:

1. Any Default in Annual filing of the Company under the Companies Act, 2013 or the rules made thereunder;

2. Relevant date with reference to which the price has been arrived at (which was earlier in explanatory statement and now definition of Relevant date also defined

[Relevant Date means a date atleast thirty days prior to the date on which the general meeting of the company is scheduled to be held];

3. The class or classes of persons to whom the allotment is proposed to be made;

4. Intention of promoters, directors or key managerial personnel to subscribe to the offer (applicable in case they intend to subscribe to the offer) [not required in case of issue of non- convertible debentures];

5. The proposed time within which the allotment shall be completed;

6. Basis on which price has been arrived;

7. The Change in Control, if any, in the company that would occur consequent to preferential offer;

8. Number of persons to whom allotment on preferential basis/private placement/rights issue has already been made during the year, in terms of number of securities as well as price;

9. The details of significant and material orders passed by the Regulators, Courts and Tribunals impacting the going concern status of the company and its future operations;

10. The pre-issue and post-issue shareholding pattern of the company;

11. Mode of payment for subscription –

• Cheque
• Demand Draft
• Other Banking Channels

12. Offer Letter has been divided now in 2 Parts Part – A – to be filed by the Company and Part – B – to be filed by the applicant, reproduced for your reference
    

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