Key Points of Private Placement under Section 42 of Companies Act, 2013 read with The Companies (Prospectus and Allotment of Securities) Rules, 2014

PRIVATE PLACEMENT{Explanation I of Section 42(3)}

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.

Key Points of Private Placement under Companies Act, 2013

TOTAL NUMBER OF PERSONS (Section 42 read with Rule 14)

A private placement shall be made only to identified persons BY THE BOARD, to not more than 200 persons [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 sub-section (1) of section 62], in a financial year subject to such conditions as may be prescribed.

Notes.

1. Restrictions aforesaid would be reckoned individually for each kind of security that is equity share, preference share or debenture.{Explanation to Rule 14(2)}

2. 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 200 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.{Explanation III of Section 42(3)}

MODE OF PAYMENT{Section 42(4)}

Every identified person willing to subscribe to the private placement issue shall apply in the private placement and application issued to such person alongwith subscription money paid either by cheque or demand draft or other banking channel and not by cash.

TIME OF ALLOTMENT{Section 42(6)}

A company making an offer or invitation 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.

SEPERATE BANK ACCOUNT{Proviso of Section 42(6)}

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.

NO ADVERTISEMENT{Section 42(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.

RETURN OF ALLOTMENT{Section 42(8) read with Rule 12(1)}

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 Form  Form PAS-3.

Notes:

1. There shall be attached to the Form PAS-3 a list of allottees stating their names, address, occupation, if any, and number of securities allotted to each of the allottees and the list shall be certified by the signatory of the Form PAS-3 as being complete and correct as per the records of the company{Rule 12(2)}.

2. The company shall maintain a complete record of private placement offers in Form PAS-5.{Rule 12(4)}.

MANDATORY EXPLANATORY STATEMENT{Proviso to Rule 14(1)}.

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.

VALUATION REPORT

Valuation Report is mandatory under Rule 14 as well as with PAS-4, Valuation to be done on the “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.

PROCEDURE

1. Identify Persons to whom Offer to be made.

2. Conduct a Board Meeting to take the Consent of Board to offer and approve draft offer cum application letter in PAS-4.

3. Send Notice to Shareholders for EGM/AGM to take consent to offer to subscribe to securities through private placement.

4. Conduct EGM/AGM To pass special resolution approving Private Placement and approving offer cum application letter.

5. File the Special Resolution in Form MGT-14 within 30 days from the date of EGM/AGM.

6. PAS-4 to be circulated to the identified persons only after filing MGT-14.

7. The Application money to be received and kept in a Separate Bank Account

8. Allotment to be done within 60 days from the date of receipt of Application Money.

9. The Return of Allotment in Form PAS-3 to be filed within 15 days from the date of allotment

10. The amount can be utilised only after filing PAS-3

11. Issue Share Certificates within 2 months from the date of allotment

12. Updating the Register of Members

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