Section 42 of the Companies Act, 2013 allows any company, whether private or public, to make private placement of securities through issue of a “Private Placement Offer Letter” (PPOL). We have discussed provision of the Section earlier here.
In addition of Section 42, Rule 14 of the Companies (Prospectus and Allotment of Securities) Rules 2014 prescribes all fine prints of the private placement.
A company may make an offer or invitation to subscribe to securities through issue of a private placement offer letter in Form PAS – 4.
A private placement offer letter shall be accompanied by an application form 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 names of such persons in accordance with sub-section (7) of section 42.
No person other than the person so addressed in the application form shall be allowed to apply through such application form and any application not conforming to this condition shall be treated as invalid.
A company shall not make a private placement of its securities unless –
(a) The proposed offer of securities or invitation to subscribe securities has been previously approved by the shareholders of the company, by a Special Resolution, for each of the Offers or Invitations. In the explanatory statement annexed to the notice for the general meeting the basis or justification for the price (including premium, if any) at which the offer or invitation is being made shall be disclosed.
In case of offer or invitation for non-convertible debentures, it shall be sufficient if the company passes a previous special resolution only once in a year for all the offers or invitation for such debentures during the year. According Amendment Rules 2014 dated 30th June 2014, in case of an offer or invitation for non-convertible debentures, made within a period of six months from the date of commencement of these rules, the special resolution referred to in the second proviso may be passed within the said period of six months from the date of commencement of these rules.
(b) Such offer or invitation shall be made to not more than two hundred persons in the aggregate in a financial year.
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 –
(i) the restrictions under sub-clause (b) would be reckoned individually for each kind of security that is equity share, preference share or debentures;
(ii) the requirement of provisions of sub-section (3) of section 42 shall apply in respect of offer or invitation of each kind of security and no offer or invitation of another kind of security shall be made unless allotments with respect to offer or invitation made earlier in respect of any other kind of security is completed;
(c) The value of such offer or invitation per person shall be with an investment size of not less than twenty thousand rupees of face value of the securities;
(d) The payment to be made for subscription to securities shall be made from the bank account of the person subscribing to such securities and the company shall keep the record of the Bank account from where such payments for subscriptions have been received.
The 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.
The company shall maintain a complete record of private placement offers in Form PAS – 5.
A copy of such record along with the private placement offer letter in Form PAS – 4 shall be filed with the Registrar with fee as provided in Companies (Registration Offices and Fees) Rules, 2014 and where the company is listed, with the Securities and Exchange Board within a period of thirty days of circulation of the private placement offer letter.
Explanation.- For the purpose of this rule, it is hereby clarified that the date of private placement offer letter shall be deemed to be the date of circulation of private placement offer letter.
A return of allotment of securities under section 42 shall be filed with the Registrar within thirty days of allotment in Form PAS – 3 with the fee as provided in the Companies (Registration Offices and Fees) Rules, 2014 along with a complete list of all security holders containing-
(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 held, nominal value and amount paid on such securities; and particulars of consideration received if the securities were issued for consideration other than cash.
The provisions related to Maximum 200 persona and minimum investment size of not less than twenty shall not be applicable to –
(a) non-banking financial companies which are registered with the Reserve Bank of India under Reserve Bank of India Act, 1934; and
(b) housing finance companies which are registered with the National Housing Bank under National Housing Bank Act, 1987,
if they are complying with regulations made by Reserve Bank of India or National Housing Bank in respect of offer or invitation to be issued on private placement basis. These companies shall comply these provisions in case the Reserve Bank of India or the National Housing Bank have not specified similar regulations.
[Please go to next page of this post to read further]
AishMGhrana 
Sir,
I would personally like to thank you, for your continued efforts, to make budding professionals understand the nitty-gritty of the new Companies Act 2013.
while replying to my earlier queries you have asked me to summarise the procedure of capital infusion.
I have summarise the procedure required to be followed at the time of infusion of additional capital as follows:
Procedure for Further Issue of Capital – Private Placement
1. Board Meeting for Resolving upon Infusion Of Additional Capital
2. Board Meeting for Approving Draft Valuation Report & for fixing the date of EGM
3. Calling Extra Ordinary General Meeting for approving the Private Placement Issue
4. Issue of Offer Letter & Share Application Form
5. Acceptance of Offer & submission of Share Application Form
6. Remittance of Share Application Money
7. Allotment of Shares
8. Franking of share Certificate
9. Actual dispatch of Share Certificate
CHECKLIST UNDER SECTION 42 & COMPANIES (PROSPECTUS AND ALLOTMENT OF SECURITIES) RULES, 2014.
Checklist Under Section 42 of Companies Act 2013
1. Any offer not in compliance with this section shall be treated as Public Offer
2. All monies payable towards subscription of securities shall be paid through Cheque or Demand Draft but not by Cash
3. Securities shall be allotted within 60 days from the date of receipt of funds
4. If the Company is not able to allot the shares within 60 days it shall refund the application money within 15 days from the date of completion of sixty days of receipt of subscription money.
If the Company could not refund the money as mentioned above it shall be liable to repay that money with interest @12% p.a. from the expiry of 60th day.
5. Monies received under this section shall be kept in the separate Bank Account
6. Monies received on application shall not be utilised for the purpose other than (i) for adjustment against allotment of securities or ii) for repayment of monies where company is unable to allot securities
7. No company offering securities under this section shall release any public advertisement or utilise any media, marketing or distribution channels or agents to inform the public at large
8. Company shall file Return of allotment.
30 days from allotment in form PAS 3
9. If Contravention is made under this section Company & every officer shall be liable for penalty which may extend up to 2 crore Rupees.
Checklist under Companies (Prospectus And Allotment Of Securities) Rules, 2014.
1. Private Placement Offer Letter & Application in Form PAS 4
2. Proposed Offer must be approved by shareholder by Special Resolution
3. Such Offer cannot be made to more than 200 persons
4. No offer can be made unless Allotments with respect to offer or invitation made earlier is completed
5. The value of offer or invitation shall be with an investment size of not less than Rs. 20,000/-
6. The Payment towards subscription shall be made from the Bank Account of the subscriber and the Company shall keep the record of the Bank Account from where such payment for subscription have been received
7. Record of Private Placement shall be maintained in From PAS 5
8 Such Records shall be furnished within the period of 30 days of circulation of Private Placement Offer
9 A Return of allotment shall be filed with Registrar within 30 days from the allotment
Reporting Checklist under Companies Act 2013
1. Notifying Special Resolution to ROC vide Form No. MGT14 as per provision of clause 42,117 of Companies Act within 30 days from passing the resolution
2. Notifying Private Placement Offer letter through form PAS 4 as per provision of clause 42 of Companies Act 2013 Within 30 days from issue of Private Placement offer letter
3. Notifying Board Resolution for filing Board Resolution for issue & allotment of Shares per provision of 117of Companies Act 2013 Within 30 days of passing resolution
4. Return of Allotment through form No. PAS 3 per provision of 42of Companies Act 2013 Within 30 days of allotment
In case of FDI –
1. Valuation Report as per RBI Notification FEMA 205/2010- RBI Before EGM
2. Reporting receipt of fund Within 30 days from the receipt of the funds
3. FCGPR Within 30 days of allotment
4. Annual return on foreign Assets & liabilities Before July 2015
Requesting you to correct if something is missed out .
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Thanks. I appreciate your efforts.
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I had a Query Regarding the Filing of The Private Placement. As I could comprehend PAS-3 is Required to be Filed but For UnListed Company are PAS-4 and PAS-5 mandatory for records?
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PAS – 3 is Return of Allotment for all allotments.
PAS – 4 is Offer Letter for private placement and a prerequisite for private placement while PAS – 5 is a Register or a Record kept by the company after private placement.
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Sir,
Is there any specific time limit for which Private Placement offer has to be kept open?
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close reading of Section 42 read with Rule 14, suggest Private Placement Offer letter is not an OPEN document but a CLOSED one.
As there is no time period for for acceptance of the Offer under the Rules and the Act, a reasonable period shall be presumed under the Contract Act.
I assume from reading of the Language used, such period should close with end of financial year. Further, all material facts may also be changed with end of Financial Year.
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can you provide me resolution for the MGT 14 for private Limited Company wants to allot Shares to their Existing Shareholder.?
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can any one provide me the format for resolutions to be passed for private placement
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can you provide me resolution for the MGT 14 for private Limited Company wants to allot Shares to their Existing Shareholder.?
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Sir I want to know whether the Company will be required to comply with Section 62 of the Companies Act, 2013 for the allotment of Equity Shares ?
Secondly i also want to know that Section 42 says an offer or invitation to subscribe ? what if Company doesn’t makes any invitation or offer ? Can it make an allotment without any invitation or offer ?
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1. Yes, Comply with Section 62.
2. Indian Contract Act, 1972 help to understand these basic terms. Either offer or Invitation to Offer shall be there.
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is it mandatory to open a separate bank account for receiving the application money????? please advice..
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Yes.
I have already discussed in an earlier post, Proviso to sub – section (6) of Section 42 of the Companies Act 2013.
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Sir for issue of compulsory redeemable preference shares , Private Placement Offer Letter is mandatory
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Yes, unless preference shares are not being issued through public offer.
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Sir good info in pvt ltd company the MD has been issuing me shares at premium almost 3 times of last invested share investment by an angel.could I get legal recources/legal expertise/timelines/investment
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Mail me details.
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Dear Aishwarya,
thanks for such a detailed article. appreciate your good work! ‘
However, i have few queries. let me take an example. Suppose a private company stock has a face value of 10 rs and market value of 1000 Rs (Rs 990 premium).now any new investor coming in has to bring in a min of 20,000 Rs of face value (so 2000 shares). Now the value for these 2000 shares would be 20,000 * 1000 = 2,000,000 Rs (20 lacs).. now the investors has a limitation and wants to invest only Rs 10 lac. so how do we manage this situation ?
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I guess if such person is unable to invest the said amount of Rs. 2000000 then he shall not be eligible to participate in the private placement offer!!
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Sir I have a question and that is:
Under the provisions of Section 42 it has been clearly stated that the maximum number of persons to whom offer could be made in the entire Fin. year shall not be more than 50. However under Rule 14 the same provision has been contradicted somehow cause it goes on to say that the same max number of persons could not exceed 200. Is Rule 14 supposed to have an overriding effect or does it simply means that even if the former figure of 50 persons is increased by the CG even then it cannot exceed 200?
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hi..
Is the amount of private placement included in paid up capital?
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Yes, if it is private placement of shares.
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whats the minimum time gap required between subsequent private placement? draft rules mentioned time gap of 60 days and minimum 4 in a year. is that applicable? it is nowhere in the act or rules 2013
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Please, read Act and Rules as notified only.
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Thank you for described the sec. 42 in detail.
But my question is that –
section 42 says that The value of offer or invitation shall be with an investment size of not less than Rs. 20,000/
But silent about allotment amt mean can company allot amt less then 20,000 because law is silent about allotment amt.
Example – If the value of offer or invitation more then 20,000 but subscription value is less then 20,000 then this will be allowed because company follow the sec. after offering the amt is more then 20,000 ?
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