APPLICABLE SECTIONS AND RULES

In order to understand the concept of Private Placement better we have to look into applicable Sections and Rules which governs the said concept.

♦ Applicable Section: Section 42 of the Companies Act, 2013

♦ Applicable Rule: Rule 14 of the Companies (Prospectus and Allotment of Securities) Rules, 2014

PRIVATE PLACEMENT

“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 subject to certain conditions.

Select Group of Persons

  • Persons who have been identified by the Board,
  • Whose number shall not exceed two hundred in the aggregate, excluding the Qualified Institutional Buyers and employees of the company being offered securities under Employee Stock Option in terms of provisions of section 62(1)(b) in a financial year.

Employees’ Stock Option

As per section 2 (37) of Companies Act, 2013 it means the option given to the Directors, officers or employees of a company or of its holding company or subsidiary company or companies, if any, which gives such Directors, officers or employees, the benefit or right to purchase, or to subscribe for, the shares of the company at a future date at a pre-determined price.

Qualified Institutional Buyers

“An institutional investor that possesses the necessary expertise plus the financial background to carefully evaluate and strategically invest in capital markets.”

It includes SEBI registered Mutual Funds, Venture Capital Funds, Alternative Investment Fund, Schedule Commercial Banks etc.

KEY HIGHLIGHTS

  • Private placement offer and application shall be made in Form PAS-4 to identified persons, whose names and addresses are recorded by the company within thirty days of recording the names of such person, also company shall maintain a complete record of such offers in Form PAS-5.
  • Private placement offer shall not carry any right of renunciation.
  • Subscription money cannot be paid in cash it can only be paid either by

(a) Cheque;

(b) demand draft or

(c) other banking channel

  • Monies raised through private placement cannot be utilized unless allotment is made and the return of allotment is filed with the Registrar in Form PAS-3 within fifteen days from the date of the allotment, including a complete list and relevant information of all allottees.
  • No fresh offer or invitation shall be made unless the earlier allotments with respect to any offer or invitation have been completed or withdrawn or abandoned by the company.
  • A company making an offer or invitation shall allot its securities within sixty days from the date of receipt of the application money and in case of failure it shall repay the application money to the subscribers within fifteen days from the expiry of sixty days, otherwise it shall be liable to repay it with interest at the rate of 12%a from the expiry of the sixtieth day.
  • Company has to open a separate bank account in a scheduled bank to receive application money which shall not be utilised for any purpose other than—
  • Adjustment against allotment of securities or
  • Repayment of monies where the company is unable to allot securities.
  • Company offering securities cannot releases any public advertisements or utilises any media, marketing or distribution channels or agents to inform the public at large about the offer.

APPLICABILITY

The provisions of sub-rule (2) shall not be applicable to –

  • Non-Banking Financial Companies which are registered with the Reserve Bank of India under the Reserve Bank of India Act,1934 (2 of 1934) and
  • Housing Finance Companies which are registered with the National Housing Bank under the National Housing Bank Act, 1987 (53 of 1987),

if they are complying with regulations made by the Reserve Bank of India or the National Housing Bank in respect of offer or invitation to be issued on private placement basis:

Provided that such companies shall comply with sub-rule (2) in case RBI or NHB have not specified similar regulations.

PRIVATE PLACEMENT PROCEDURE

Private Placement Procedure

PENALTIES INVOLVED

S. No Particulars Penalty
1. If Company defaults in filing PAS-3 within fifteen days of allotment,

> Company

> its promoters and

>Directors

Shall be liable to a penalty for each default.

One thousand rupees for each day during which such default continues but not exceeding twenty-five lakh rupees
2. If Company makes an offer or accepts monies in contravention of this section,

> Company

>Its Promoters and

> Directors

would be liable to pay a penalty that which may extend to

 

the amount raised through the offer

OR 

Rs. 2 Crore, whichever is lower

Company refunds all the collected amount along with interest of 12 % p.a to the subscribers within thirty days of the penalty order.

3. Notwithstanding anything contained in section 42(9) and 42(10), any private placement issue not made in compliance of the provisions of 42(2) shall be deemed to be a public offer and all the provisions of

> Companies Act, 2013

> Securities Contracts (Regulation) Act, 1956

> Securities and Exchange Board of India Act, 1992 shall be applicable.

*****

Disclaimer: The entire contents of this document have been prepared on the basis of relevant provisions and information available at the time of preparation of this document. Utmost care has been taken to ensure the accuracy, completeness, and reliability of the information provided,

In no event the author shall be responsible for any direct or indirect, special or incidental damage resulting from or arising out of or in connection with the use of the information provided in the article.

Author Bio

Qualification: CS
Company: Piyush Garg & Associates
Location: Delhi, Delhi, India
Member Since: 15 Apr 2021 | Total Posts: 5
I am a Practicing Company Secretary based at Delhi, having an experience of 5+ years in the field of Company Law and related matters. View Full Profile

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