Sec-42 of Companies Act, 2013 and Rule-14 of Companies (Prospectus and Allotment of Securities) Rules, 2014: An Overview
1. Convene Board Meeting:
2. Prepare the list of allottees along with the prescribed details as per Form PAS-5.
3. Hold shareholders meeting and pass special resolution to approve the offer letter and authorize an officer to perform and give necessary effects.
4. Form MGT-14 along with special resolution and explanatory statement.
5. Dispatch the offer letter along with application form to the proposed allottees.
6. Receive the money of subscription in bank account opened in scheduled bank for the issue.
7. Convene Board Meeting for Allotment of securities and make the allotment within 60 days of receiving application money.
8. File PAS – 3 within 15 days of the allotment along with Special Resolution and List of allottees.
♦ Detailed Analysis of the section:
Sec – 42(1): A company may make a private placement of securities as per this provision.
Sec – 42(2): Offer or Invitation to Maximum number of persons:
A private placement shall be made only to:
Sec – 42(3): Offer and Invitation to identified persons recorded by company:
A company making private placement shall issue:
Provided that the private placement offer and application shall not carry any right of renunciation:
Explanation I: “private placement” means
through private placement offer-cum-application, which satisfies the conditions specified in this section.
Explanation II: “qualified institutional buyer” means
Explanation III: If a company, listed or unlisted, makes an offer
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.
Sec – 42(4): Every identified person willing to subscribe to the private placement issue
Provided that a company shall not utilise monies raised through private placement:
Sec – 42(5): No fresh offer or invitation shall be made unless:
Provided that, subject to the maximum number of identified persons under sec – 42(2),
Sec – 42(6): A company making an offer or invitation:
Provided that monies received on application:
(a) for adjustment against allotment of securities; or
(b) for the repayment of monies where the company is unable to allot securities.
Sec – 42(7): No company issuing securities shall:
Sec – 42(8): A company making any allotment of securities:
Sec – 42(9): Defaults in filing of Return of Allotment by Company within the period prescribed U/s. 42(8):
Sec – 42(10): Penalty for the Contravention of the provision:
Subject to sec – 42(11), if a company makes an offer or accepts monies in contravention of this section,
whichever is lower,
Sec – 42(11): Non-Compliance of Sec – 42(2):
Notwithstanding anything contained in sec – (9) and (10),
Rule 14 (1): Prior Approval of shareholders and Disclosure in Explanatory statement:
For the purposes of section 42(2) and (3),
Provided that in the explanatory statement annexed to the notice for shareholders’ approval, the following disclosure shall be made:
(a) particulars of the offer including date of passing of Board resolution;
(b) kinds of securities offered and the price at which security is being offered:
(c) basis or justification for the price (including premium, if any) at which the offer or invitation is being made;
(d) name and address of valuer who performed valuation;
(e) amount which the company intends to raise by way of such securities;
(f) material terms of raising such securities, proposed time 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:
Provided further that this rule – 14(1) shall not apply:
Provided also that in case of offer or invitation for non-convertible debentures,
Rule 14 (2): For the purpose of sec – 42(2), an offer or invitation to subscribe securities under private placement shall not be made:
Provided that any offer or invitation made
Explanation: For the purposes of this rule- 14(2) it is hereby clarified that:
Rule 14 (3): a private placement offer cum application letter shall be:
Provided that no person other than the person so addressed:
Rule 14 (4): The company shall maintain a complete record of private placement offers in Form PAS-5.
Rule 14 (5): The payment to be made for subscription to bank account of the person subscribing to such keep the record of the bank account from where been received:
Provided that 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:
Provided further that the provisions of this sub-rule shall not apply in case of
Rule 14 (6): A return of allotment of securities U/s. 42 shall be filed with the Registrar
(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 herd, nominal value and amount paid on such securities; and particulars of consideration received if the securities were issued for consideration other than cash.
Rule 14 (7): Non – Applicability of Rule – 14(2):
The provisions of rule – 14(2) shall not be applicable to –
(a) 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
(b) housing finance companies which are registered with the National Housing Bank under the National Housing Bank Act, 1987 (53 of 1987),
if they 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 rule – 14(2) in case the Reserve Bank of India or the National Housing Bank have not specified similar regulations
Rule 14 (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:
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