CS Lohith K.N.



Section 42 of Companies Act 2013 provides, companies shall make a private placement through issue of a private placement offer letter (PPOL).

When a company is unable to raise funds internally or by its existing shareholders, then it can go for private capital or debt through issuing of securities to the private persons or private banks or private financial institutions etc.,

Section 42 and Rule 14 Companies (Prospectus & Allotment of Securities) Rules, 2014] provides full procedure to way of raising funds from private sector.

Number of Subscribers:

As per 42 (2) a company can the offer of securities or invitation to subscribe securities, shall be made to such number of persons not exceeding fifty or such higher number as may be prescribed and not more than 200 persons in aggregate in a financial year excluding exempted categories.

Excluded Persons from PPOL:

The following two category persons are not eligible to participate in private placement offer (Companies should keep these two category persons before issue securities)

  1. Qualified Institutional Buyers
  2. Employees of the company being offered securities under a scheme of employees stock option as per provisions of clause (b) of sub-section (1) of section 62], in a financial year and on such conditions (including the form and manner of private placement) as may be prescribed.

What if a company invites more than prescribed limit of subscribers?

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.

If the company both listed or unlisted or private limited makes an offer more than the 200 persons whether payment for those securities has been received or not or listed or not in a recognized stock exchange then it shall be treated as Public Offer and such company need to comply the provision of Public Offer requirement under this Act and the Securities Contracts (Regulation) Act, 1956 and the Securities and Exchange Board of India Act, 1992 shall be required to be complied there with.

Can a company make any another fresh offer before completing the existing offer..?

No company can make a fresh offer or invitation through PPOL 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.

A company can make only one private placement offer at a time. No Company shall make any further or fresh offer or invitation through PPOL until it completes earlier offer or earlier invitation has been withdrawn or earlier offer   abandoned by the company.

Once the existing offer complete then only another offer can be made through private placement under section 42 (3) of the Companies Act 2013.

What is the mode of payment?

All monies payable towards subscription of securities under section 42 section shall be paid through cheque or demand draft or other banking channels but not by cash.

Any monies raised through private placement offer should be payable only by cheque or DD with separate bank account opened for this purpose and shall not payable by cash.

What is the time for allotment of securities under private placement offer?

A company shall allot its securities within sixty days (60) from the date of receipt of the application money for such securities ( i.e. from the date of application of money credited to the bank account).

What if company is unable to allot of securities within 60 days?

If the company is not able to allot the securities within that period, it shall repay the application money to the subscribers within fifteen (15) days from the date of completion of sixty days (60) 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 (12%) p.a from the expiry of the sixtieth day (60tth) :

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.

Can a company issue public advertisement to issue securities through private placement?

Since, it is purely concerned with private placement offer, no company offering 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 offer.

Penal Provision

If any company contravene or violates any provision of section 42 of companies Act 2013 while issuing securities through private placement, then the company, its promoters and directors shall be liable for a penalty which may extend to the amount involved in the offer or invitation or two crore rupees, whichever is higher, and the company shall also refund all monies to subscribers within a period of thirty days of the order imposing the penalty.

Procedure for issuing securities under Private Placement Offer Letter

The following conditions should be satisfied before issuing any securities under private placement offer letter

  1. Allotted securities to less than two hundred persons in aggregate in a financial year excluding exempted categories;
  2. Not allotted securities with an application size of less than twenty thousand per person;
  3. Offered such securities through private placement offer letter and no prospectus or any other public advertisement hasbeen issued for the same;
  4. Completed allotment in respect of earlier private placement offers;
  5. received money payable on subscription of such securities through cheque or demand draft or other banking channels but not in cash;
  6. Made such offers only to the persons whose names were recorded by the company prior to such invitation and suchpersons have received such offer by name;
  7. maintaineda complete record of such offers and acceptances in Form No. PAS-5.

Step 1:- Conduct a EGM and p ass special resolution at the General Meeting of the shareholders( MGT-14 need to file)

*a company shall not make an offer under private placement offer unless the proposed offer of securities or invitations previously approved by the shareholder of the company by a special resolution for each of the offers or invitations(Explnatory statement should attach to the each of the notice calling for this purpose)

* in case of non convertible debentures allotted under the private placement offer, it shall be sufficient if the company passes a precious special resolution only once in a year for all the offers or invitation.

Step 2:- Conduct a Board Meeting to confirm the special resolution passed by the general meeting.(MGT-14 no need to file-private companies are exempt)

Step 3:- Prepare list of subscribers/ allotees to whom the securities have to be issued

Step 4:- Prepare information memorandum (Offer Letter-PAS-4)

Once all the required information finalize, the following forms to be filed in order wise.


1. Form 1- MGT -14 for special resolution which is passed on General Meeting for approval of securities ( should file within 30 days of passing resolution)

Attachments:- (i) EGM Notice with Expl. Statment

                        (ii) EGM special resolution extract

                        (iii) Board resolution extract

2. Form 2- GNL-2 for filing private placement offer letter.( should file within 30 days allotment)

Attachments :-(i) EGM special resolution extract

                        (ii) Private placement offer letter / Information Memorandum (PAS-4)

                        (iii) Record of a Private placement offer letter (PAS-5)

3. Form 3- PAS-3 for Return of Allotment of securities (should file within 30 days allotment)

Attachments: –

(i) EGM special resolution extract

(ii) Board Resolution Extract

(iii) Record of a Private placement offer letter (PAS-5)

(iv) List of Allotees

What are the duties of the company after the filing of all required forms?

  • Company shall make complete record of private placement offer in PAS-5 form
  • Keep separate register for list of subscriber or holders(in case of debentures MGT-2)
  • GNL-2 form shall be used for filing of private placement offer letter (Since the particular form is not available with MCA)

More Under Company Law

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Category : Company Law (4307)
Type : Articles
Tags : Companies Act (2765) Companies Act 2013 (2534)


  1. CS Pradeep tuli says:

    Nowadays, private placement method of raising capital ha become very popular with corporates in our country.although QIB,s are not allowed to participate in this.

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