Meaning of Preferential Issue:

As per Regulation 2(1)(nn) of SEBI (ICDR) Regulation 2018- ‘Preferential issue’ means an issue of specified securities by a listed issuer to any select person or group of persons on a private placement basis in accordance with Chapter V of these regulations and does not include an offer of specified securities made through employee stock option scheme, employee stock purchase scheme or an issue of sweat equity shares or depository receipts issued in a country outside India or foreign securities;

References made in this article

1. Chapter V of SEBI (ICDR) 2018

2.  SEBI LODR 2015

3. FEM(Transfer or Issue of Security by a Person Resident Outside India) Regulations 2017

4. Companies Act 2013 read with Rules made thereunder.

A part from above regulation, the Listed entity shall ensure provisions of SEBI (PIT) Regulations 2015 regarding closure of Trading Window.

Coverage of the Article- This article specifically  deals regarding Issue of Equity shares (and not other convertible securities)  by way of Preferential Allotment by Listed Entity.

Before we dive out to analyse the provisions regarding issuance of Preferential Issue, the pre-requisite is to clear who are ineligible to make such preferential issue.


As per Regulation 159 of SEBI (ICDR) 2018

1. Any person who has sold or transferred any equity shares of the issuer during the six months  (6 months) preceding the(relevant date)*1:

However the SEBI may grant relaxation from the requirements of this sub-regulation.

Where any person belonging to promoter(s) or the promoter group has sold/ transferred their equity shares in the issuer during the six months preceding the relevant date, the promoter(s) and promoter group shall be ineligible for allotment of specified securities on preferential basis.

The above restriction shall not apply to following:

A. Any sale of equity shares by any person belonging to promoter(s) of the promoter group which qualifies for inter-se transfer amongst qualifying persons under clause (a) of sub-regulation(1) of regulation 10 of the SEBI (SAST) Regulation 2011

B. In case of transfer of shares held by the promoters or promoter group on account of invocation of pledge by a schedule commercial bank or a systematically important non-banking finance company or mutual fund or insurance company registered with Insurance Regulatory and Development Authority (IRDA)

2. Where any person belonging to promoter(s) or the promoter group has previously subscribed to warrants of an issuer but has failed to exercise the warrants, the promoter(s) and promoter group shall be ineligible for issue of specified securities of such issuer on preferential basis for a period of one year from:

a) the date of expiry of the tenure of the warrants due to non-exercise of the option to convert; or

b) the date of cancellation of the warrants, as the case may be.

3. An issuer shall not be eligible to make a preferential issue if any of its promoters or directors is a fugitive economic offender.

*1 Relevant Date – As per Regulation 161 of SEBI (ICDR) 2018, For the purpose of this Chapter, “relevant date” means:

Pre-requisite for Preferential Issue:

After ensuring the above pre-requisite its to take ride of step wise procedure that is to be followed by listed entities while making Preferential Issue of Equity Shares.

Reader should note that, listed entity before issuing securities shall obtain an “in principle” approval from Recognised Stock Exchanges – [Regulation 28 of SEBI (LODR) 2015]

Step 1 Pre Board Meeting Requirement-

1. Intimation to Stock Exchange about the Board meeting where proposal for preferential issue is to be considered. [Regulation 29 of SEBI (LODR) 2015 and intimation for closure of trading window [SEBI (PIT) Regulation 2015]

2.Closure of Trading Window [SEBI (PIT) Regulation 2015]

Step 2 Conduct Board Meeting: The Listed shall call Board Meeting for the following:

1. To approve issue of equity share on preferential basis and approve the offer letter and to identify the group of person to whom such offer is to be given.

2. To consider and fix the date, time and venue of Extra Ordinary General Meeting for passing special resolution and simultaneously approve notice of Extra Ordinary General Meeting. [Section 62(1)(c)]

Step 3 Post Board Meeting:

1. Intimate Stock exchange regarding outcome of the Board Meeting within 30 minutes of the closure of meeting. [Regulation 30 of SEBI (LODR) 2015]

2. Above intimation made shall also be published on Website of the Company [Regulation 46(3) of the SEBI (LODR) 2015]

3. File MGT-14 with ROC with Copy of Board Resolution passed. [ Section 117 read with 179(3) and Companies (Prospectus and Allotment of Securities Rules) 2014]

Step 4 Pre General Meeting Requirement:

1. Certificate from Statutory Auditors certifying that issue is in accordance with the relevant provisions as required for the time being in force. [Regulation 163 of SEBI (ICDR) 2018].

2. Valuation of Equity Shares as per Regulation 161 of SEBI (ICDR) 2018

Step 5 Conduct General Meeting: The Listed Entity shall call General Meeting for according approval of Shareholders for issuance of Equity shares by preferential issue by means of Special Resolution.
Step 6 Post General Meeting:

1. Intimation to Stock Exchange about proceedings of the General Meeting within 24 hours of the conclusion. [Regulation 30 of SEBI (LODR) 2015] and details regarding voting results within 48 hours of the conclusion of general meeting [Regulation 44 of SEBI (LODR) 2015]

2. Publish the above on the website of the Company [ Regulation 46(3) of SEBI (LODR) 2015]

3. File MGT-14 with ROC

4. Opening of Bank Account for receiving application money [ Section 42]

5. 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

However 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

5. Received the amount of subscription: [Section 42 read with Rule 14 of Companies (Prospectus and Allotment of Securities) Rules 2014]

Identified person 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:

The company shall not utilise monies raised through private placement unless allotment is made and the return of allotment is filed with the Registrar i.e. [PAS 3]

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, However 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:

6. The company shall maintain a complete record of private placement offers in Form PAS-5

Step 7 Conduct Second Board Meeting*

To consider the allotment of Equity Shares.

* Allotment can also be made through Resolution by Circulation as “Issue of Securities” are prohibited by this mode.

Allotment pursuant to the special resolution shall be completed within a period of fifteen days from the date of passing of such resolution: [Regulation 170 of SEBI (ICDR) 2018

Step 8 Post Board Meeting:

1. Intimate Stock exchange regarding outcome of the Board Meeting within 30 minutes of the closure of meeting. [Regulation 30 of SEBI (LODR) 2015]

2. Above intimation made shall also be published on Website of the Company [Regulation 46(3) of the SEBI (LODR) 2015]

3. File Return of Allotment within 15 days from the date of allotment form PAS-3 [Section 42(8]

RBI Reporting: If the allotment was made to any Non-Resident, FORM FC-GPR is required to be file within 30 days of allotment at firms portal of RBI.

Requirement for FC-GPR

1. FIRC and KYC of Investor

2. Valuation Report

3. Certificate from Company Secretary

4. Certified true copy of Board Resolution

Other Important Point to be ensure.

  • Allotment will be made only in DEMAT MODE.
  • Exemption given under Regulation 158 should be considered for availing any exemptions.
  • Provision of Lock-in period for promoter and promoter group shall also require to be ensured.
  • Apply to Stock Exchange for In-principle approval

About Author-

Author ‘Aakarshit Jai‘ is An Avid Learner, Commerce Graduate and Company Secretary. He can be reached at [email protected] or at linked-in details mentioned in his profile.

Disclaimer: The entire contents of this document have been prepared on the basis of relevant provisions and as per the information existing at the time of the preparation. Although care has been taken to ensure the accuracy, completeness, and reliability of the information provided, I assume no responsibility, therefore. Users of this information are expected to refer to the relevant existing provisions of applicable Laws. The user of the information agrees that the information is not professional advice and is subject to change without notice.

Author Bio

Qualification: CS
Company: N/A
Location: New Delhi, IN
Member Since: 23 Apr 2020 | Total Posts: 2
An avid Learner and Qualified Company Secretary View Full Profile

My Published Posts

More Under SEBI

One Comment

Leave a Comment

Your email address will not be published. Required fields are marked *

Search Posts by Date

June 2021