CS Yagya Chhabra
Section-23 Public offer and Private Placement
A Public Company may issue securities:
1. To public through prospectus (herein after referred to as “Public Offer”) by Complying with the Provision of this Part; or
2. Through private placement by complying with the provisions of Part II of this chapter or
3. Through Right issue or bonus Issue in accordance with the Provision of this act and in case of listed company or a company which intends to get listed also with the provision of the SEBI 1992 and the rules and regulation made thereunder.
A private Company may issue securities
1. By way of right issue or bonus issue in accordance with the provision of the Act; Or
2. Through Private Placement by Complying with the Provision of Part II of this chapter.
Explanation: For the purposes of this Chapter, “public offer” includes initial public offer or further public offer of securities to the public by a company, or an offer for sale of securities to the public by an existing shareholder, through issue of a prospectus.
Definition of “Securities”
Section 2 “securities” means the securities as defined in clause (h) of section 2 of the Securities Contracts (Regulation) Act, 1956 (42 of 1956);
1. shares, scrips, stocks, bonds, debentures, debenture stock or other marketable securities of a like nature in or of any incorporated company or other body corporate;
3. units or any other instrument issued by any collective investment scheme to the investors in such schemes;]
4. 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;]
5. units or any other such instrument issued to the investors under any mutual fund scheme;]
6. Government securities;
7. such other instruments as may be declared by the Central Government to be securities; and
8. Rights or interest in securities;
Section 62 Further Issue of Shares read with Rule 13 of Companies (Share Capital and Debentures) Rules 2014.
62 Where at any time a company having a share capital propose to increase it subscribed capital by the issue of further shares shares shall be offered :
A. To persons who, at the date of the offer, are holders of equity shares of the company in proportion, as nearly as circumstances admit, to the paid-up share capital on those shares.
Or [Right Issue}
B. to employees under a scheme of employees’ stock option, subject to [special resolution] passed by company and subject to such conditions as may be prescribed;
Or [Employees Stock Option Scheme/Plan]
C. to any persons, if it is authorised by a special resolution, whether or not those persons include the persons referred to in clause (a) or clause (b), either for cash or for a consideration other than cash, if the price of such shares is determined by the valuation report 6[of a registered valuer, subject to the compliance with the applicable provisions of Chapter III and any other conditions as may be prescribed] [Issue of share to Public]
So by way of Section 62[c]we can issue share to public.
Rule- 13 Issue of share of Preferential Basis.
What is Preferential Offer?
The expression ‘Preferential Offer’ means an issue of shares or other securities, by a company to any select person or group of persons on a preferential basis and does not include shares or other securities offered through a public issue, rights issue, employee stock option scheme, employee stock purchase scheme or an issue of sweat equity shares or bonus shares or depository receipts issued in a country outside India or foreign securities;
The Expression “share and other securities” means equity share ,fully convertible debentures, partly convertible debentures or any other securities, which would be convertible into or exchanged with equity shares at a later date.
It means if are going to issue equity share and or any other security which are convertible into equity share at a later date, so we have to section 62(1) and Rule-13 i.e. issue of share on preferential basis, Further we have to follow section 42 and Rule -14 i.e. Private Placement.
13.1 Pass the Special Resolution.
For the purposes of clause (c) of sub-section (1) of section 62, If authorized by a special resolution passed in a general meeting, shares may be issued by any company in any manner whatsoever including by way of a preferential offer, to any persons whether or not those persons include the persons referred to in clause (a) or clause (b) of sub-section (1) of section 62 and such issue on preferential basis should also comply with conditions laid down in section 42 of the Act:
Provided that in case of any preferential offer made by a company to one or more existing members the provision of sub rule (1) and proviso of sub rule (3) or Rule-14 of Companies (Prospectus and Allotment) Rules 2014.
Explanation: If company issue shares to existing member so the requirement of passing the resolution has been passed by the shareholder, Explanatory statement requirement and offer cum application letter is not required now.
Provided Further that the price of shares to be issued on a preferential basis by a listed company shall not be required to be determined by the valuation report by the registered valuer.
13.2 Conditions for preferential offer
Where the preferential offer of shares or other securities is made by a company whose share or other securities are listed on a recognized stock exchange, such preferential offer shall be made in accordance with the provisions of the Act and regulations made by the Securities and Exchange Board, and if they are not listed, the preferential offer shall be made in accordance with the provisions of the Act and rules made hereunder and subject to compliance with the following requirements, namely:-
√ the issue is authorized by its article of association
√ the issue has been authorized by a special resolution of the members
√ the company shall make an following disclosures in the Explanatory statement to be annexed to the notice of the general meeting pursuant to section 102 of the Act. REFER ANNXEURE-1
√ the allotment of securities on a preferential basis made pursuant to the special resolution passed pursuant to sub-rule (2)(b) shall be completed within a period of twelve months from the date of passing of the special resolution.
√ if the allotment of securities is not completed within twelve months from the date of passing of the special resolution, another special resolution shall be passed for the company to complete such allotment thereafter,
√ Pricing of the Share and Other Securities
a) The price of the shares or other securities to be issued on a preferential basis, either for cash or for consideration other than cash, shall be determined on the basis of valuation report of a registered valuer;
b) Where convertible securities are offered on a preferential basis with an option to apply for and get equity shares allotted, the price of the resultant shares pursuant to conversion shall be determined.
a. either upfront at the time when the offer of convertible securities is made, on the basis of valuation report of the registered valuer given at the stage of such offer, or
b. at the time, which shall not be earlier than thirty days to the date when the holder of convertible security becomes entitled to apply for shares, on the basis of valuation report of the registered valuer given not earlier than sixty days of the date when the holder of convertible security becomes entitled to apply for shares:
Provided that the company shall take a decision on sub-clauses (i) or (ii) at the time of offer of security itself and make such disclosure under sub-clause (v) of clause (d) of sub-rule (2) of this rule. [i.e. Under this head “relevant date with reference to which the price has been arrived at” of the Explanatory Statement]
c) where shares or other securities are to be allotted for consideration other than cash, the valuation of such consideration shall be done by a registered valuer who shall submit a valuation report to the company giving justification for the valuation;
Section 42 Offer or Invitation for Subscription of Securities on Private Placement read with Rule 14 of Companies (Prospectus and Allotment) Rules 2014.
14 (1)- Special Resolution & Explanatory Statement
For the purposes of sub-section (2) and sub-section (3) of section 42, a company shall not make an offer or invitation. to subscribe to securities through private placement unless the proposal has been previously approved by the shareholders of the company, by a special resolution. For each of the offers or invitations:
Provided that in the explanatory statement annexed to the notice for shareholders’ approval, the following disclosure shall be made:
1. Particulars of the offer including date of passing of Board resolution;
2. Kinds of securities offered and the price at which security is being offered:
3. Basis or justification for the price (including premium, if any) at which the offer or invitation is being made;
4. Name and address of valuer who performed valuation;
5. Amount which the company intends to raise by way of such securities;
6. 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:
Relaxation provided to Non-Convertible Debentures:
Provided further that this sub-rule shall not apply in case of offer or invitation for. non-convertible debentures, where the proposed amount to be raised through such offer or invitation does not exceed the limit as specified in clause (c) of sub section (1) of section 180 and in such cases relevant Board resolution under clause (c) of subsection (3) of section 179 would be adequate:
Provided also that in case of offer or invitation for non-convertible debentures, where the proposed amount to be raised through such offer or invitation exceeds the limit as specified in clause (c) of subsection (1) of section 180, it shall be sufficient if the company passes a previous special resolution only once in a year for all the offers or invitations for such debentures during the year.
Filling of Resolution(s)
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 subsection (3) of section 179]
42  – No of Person and Identified Person
A private placement shall be made only to a select group of persons who have been identified by the Board (herein referred to as “identified persons”), whose number shall not exceed fifty or such higher number as may be prescribed [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.
14(2) – For the purpose of sub-section (2) of section 42, an offer or invitation to subscribe securities under private placement shall not be made to persons more than two hundred in the aggregate in a financial year:
Provided that any offer or invitation made to qualified institutional buyers, or to employees of the company under a scheme of employees stock option as per provisions of clause (b) of sub-section (1) of section 62 shall not be considered while calculating the limit of two hundred persons.
Explanation. – For the purposes of this sub-rule it is hereby clarified that the restrictions aforesaid would be reckoned individually for each kind of security that is equity share, preference share or debenture.
42 – Private Placement Offer and Application
A company making private placement shall issue private placement offer and application in such 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:
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:
Provided that no person other than the person so addressed the private placement offer cum application letter shall be allowed to apply through such application form and any application not conforming to this condition shall be treated as invalid.
Provided that the private placement offer and application shall not carry any right of renunciation
Explanation I.—”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
Explanation II.—”Qualified institutional Buyer” means the qualified institutional buyer as defined in the Securities and Exchange Board of India (Issue of Capital and Disclosure Requirements) Regulations, 2009, as amended from time to time, made under the Securities and Exchange Board of India Act, 1992.
Explanation III.—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 prescribed number of 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 recognized stock exchange in or outside India, 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.
42 Other Conditions
√ Every identified person willing to subscribe to the private placement issue shall apply in the private placement and application issued to such person along with subscription money paid either by cheque or demand draft or other banking channel and not by cash:
“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 subsection (8).”
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 issue of shares for consideration other than cash.
√ No fresh offer or invitation under this section shall be made unless the allotments with respect to any offer or invitation made earlier have been completed or that offer or invitation has been withdrawn or abandoned by the company:
“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.”
√ A company making an offer or invitation under this section 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:
Provided that 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 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.
√ 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 such manner as may be prescribed, including a complete list of all allottees, with their full names, addresses, number of securities allotted and such other relevant information as may be prescribed.
√ The company shall maintain a complete record of private placement offers in Form PAS S.
PROVISION UNDER THE FEMA
Issue of securities to non-resident India
Where there is issue of securities to non-resident, provisions of Foreign Exchange Management (Transfer or Issue of Security by a Person Resident Outside India) Regulations, 2017 (FEMA), shall also apply. The company will have to adhere the following timeline:
♦ Within 60 days of receipt of money, company is required to allot the shares
♦ Within 30 days of allotment, company is required to file FC-GPR under Single Master Form (SMF), with RBI. Under the revised procedure of intimation of FDI, the two staged reporting (first at the time or receipt of share application money and second at the time of allotment) has been merged into one step reporting under SMF.
FMV under FEMA is calculated as per internationally accepted pricing methodologies and is considered the floor price.
CHECKLIST FOR PRIVATE PLACEMENT
|1.||Notice of Board Meeting||Prepare and Issue notice convening of Board Meeting in such manned as Prescribed in Section 173(3) of the Companied Act 2013 and SS-1|
|2.||Conduct of a Board Meeting||Conduct a Board Meeting for:
1. Appointment of Registered Valuers
2. Authorizing one of the Directors to take necessary steps in respect of the proposed issue of shares on Private Placement Basis.
|2.||Valuation report||Obtain a Valuation Report from the Valuers in order to decide the Issue Price. The Relevant Date of the Valuation Report shall be at least 30 Days prior to the date on which the general meeting of the company is scheduled to be held.|
|3.||Notice of Board Meeting||Prepare and Issue notice convening of Board Meeting in such manned as Prescribed in Section 173(3) of the Companied Act 2013 and SS-1|
|4.||Conduct a board meeting||Conduct a Board Meeting for:
Approval of Private Placement offer cum application letter.
Issue of shares on private placement basis, subject to the shareholder approval.
For calling of EOGM for issue of shares on PP basis.
Opening of Separate Bank Account for receiving the amount of Subscription
|5.||Form MGT-14||File a Board resolution for issue of shares on private placement basis in form MGT-14 within 30 Days of Passing of Such resolution. (applicable for all companies including private companies)|
|6.||Notice of General Meeting||Prepare and Issue notice convening General Meeting in such manner as prescribed in section 101 of the Companied Act 2013 and SS-2 along with the ES as per rule 14(1) of Companies (Prospectus and allotment of Securities) Rules 2014.|
|7.||Conduct a General Meeting||Conduct a general meeting for obtaining approval of Issue of Securities on Private Placement Basis|
|8.||Form MGT-14||File a Special Resolution for issue of securities on private Placement basis in form MGT-14 within 30 Days of passing of such special resolution.|
|10.||Circulation of Private Placement offer cum application letter and arrangement for collection and verification of accepted offers.||Circulate the private placement offer cum application letter to the proposed applicants.
Make necessary arrangements for collection and verification of accepted offer letter.
Verify the letters of offer received
|11.||Notice of Board Meeting||Prepare and Issue Notice Convening Board Meeting in such manner as prescribed in Section 173(3) of the Companies Act & SS-1|
|12.||Conduct of Board Meeting||Conduct a board meeting for allotment of shares|
|13.||List of allottees||Prepare a List of Allotees.
List of Allottees should contain Name, Address, Pan, Email ID, Class of security, the no of security held, Nominal Value and amount paid on such security and Particular of consideration received if the securities were issues for consideration other than cash and the list shall be certified by the signatory of PAS-3
|14.||FORM PAS-3||File a Board resolution for the allotment of shares in FORM PAS-3 within 15 days of passing of such board Resolution.
Money can be utilized only after the return of allotment is filled.
|15.||Share Certificate||Issue share certificate to the shareholder within a period of two months from the date of allotment.|
|16.||Register of Members||The particulars of every share certificate issued shall be entered in the register of members maintained in accordance with the provision of section 88 along with the name of person to whom it has been issued indication the date of issue.|
ANNEXURE – 1 DISCLOSURE IN EXPLANATORY STATEMENT UNDER RULE-13 OF COMPANIES (SHARE CAPITAL AND DEBENTURE) RULES
The relevant disclosures / details of the proposed issue are given below:
1. Objects of the preferential issue:
Particulars of the Offer and date of passing Board Resolution:
Wherein the Company has agreed to issue [●]Equity Shares of Rs. [●]/- each at an Issue Price of Rs. [●]/aggregating to Rs. [●]/- to the Investor. The Board has approved the same at its meeting held on [●].
2. Kind of security offered, the number of security offered and the amount which the Company intends to raise by way of such securities:
[●]Equity Shares of Rs. [●]/- each at an Issue Price of Rs. [●]/- aggregating to Rs. [●]/-.
3. Price at which allotment is proposed Basis of arrival at the issue price:
The price for allotment of the Securities is in accordance with the Companies Act, 2013 and rules thereof and the basis of price is a derived on the basis of Valuation Report issued by [●], Chartered Accountant dated [●].
4. Name and address of the Valuer who performed valuation:
Name: [●], Chartered Accountant / Merchant Banker or any other person
5. Relevant date of reference to which the price has been arrived at:
Relevant date means a date at least thirty days prior to the date on which the general meeting of the company is scheduled to be held
6. Class of persons to whom the allotment is being made:
The allotment is being made solely to (mention the details of allottees)
7. Intention/Contribution of promoters, directors, key managerial personnel to subscribe to the offer or in furtherance of the objects:
8. Names of the proposed Allottees and percentage of post preferential offer capital held by them:
|Name||No. of Equity||Percentage||No. of||Percentage|
|offer||shares post offer|
9. The proposed time within which the allotment shall be completed:
10. The Change in control; if any, in the Company that would occur consequent to the preferential offer:
11. The number of persons to whom allotment on preferential basis has already been made during the year, in terms of number of securities as well as price:
12. Material terms of raising securities:
13. Principle terms of assets charged as security, if applicable
14. The pre issue and post issue Equity shareholding pattern of the Company.
|% of Shareholding||No. of
|% of Shareholding|
|Sub Total (A)|
|Directors and Relatives|
|Others (Including NRIs)|
|Sub Total (B)|