CS Vasudeva Rao Devaki
D V Rao & Associates
Madhapur, Hyderabad
Mobile: +91 9989345999
Email: csvasudevarao.devaki@gmail.com
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
The procedure for further issue of capital in 2013
Act is tedious and involves huge compliances.

Previously, the Private Companies were
exempted from complying with these stringent
compliances but now even they are under the net
of huge compliances.

Securities Definition - Securities as defined in
clause (h) of section 2 of the Securities Contracts
(Regulation) Act, 1956.
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
Applicable Provisions
The Provisions pertaining to Private Placement is
provided in Section 42 and Rule 14 of the
Companies
(Prospectus
and
Allotment
of
Securities) Rules, 2014.

Meaning of Private Placement
As defined in S. 42 of the 2013 ActAny offer of securities or invitation to subscribe
securities to a select group of persons by a
company (other than by way of public offer)
through issue of a private placement offer letter
and which satisfies the conditions specified in this
section.
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
Can be done by whom? (S. 23)
Private Placement
Listed
Public
Company
Unlisted
Public
Company
Private
Company
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1.
Private Placement Offer Letter
Company shall make an offer or invitation to subscribe to
securities through issue of Private Placement offer letter in Form
PAS – 4.
2.
Application form to accompany offer letter

Offer letter shall be accompanied by an application form.

It should be serially numbered.

Addressed specifically to the person to whom the offer is made.
•
It shall be sent either in writing or in electronic mode within 30
days of recording the names of such persons.

No person other than the person addressed can apply in the
application not confirming to this condition shall be treated as
invalid.
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3. A company shall not make a Private Placement of its securities
unless•
Private Offer to be previously approved by special resolution.
•
Explanatory Statement to give full justification for the price.
•
Need of special resolution once a year for non convertible
debentures. Only one special resolution will be sufficient for
all the offers made in a year for non convertible debentures.
4.
Offer to maximum of 200 persons in aggregatte in a
financial year
Offer or invitation shall be made to not more than 200 persons
in the aggregate in a financial year.
5.
Above 200 persons exclusive of certain entities (Rule 2)
Offer or invitation made to QIB’s or to employees of the company
under a scheme of Employee stock option shall not be considered
while calculating the limit of 200 persons.
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6. All the monies towards subscription of securities shall be paid
through cheque or DD or other banking channels but not by
cash.
7. Securities to be allotted within 60 days of receiving of the
application money.
8. If unable to allot within 60 days, it shall repay the application
money within 15 days after the 60th day.
9. If the Company fails to repay the application money within the
aforesaid time period, then it shall pay interest of 12 % P.A. from
the expiry of 60th day.
10. The entire Application Money should be kept in a separate bank
account in a scheduled bank and can be used only for allotment
or for repayment.
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11. Offer counted separately for each kind of security
While counting the limit of 200, it shall be reckoned individually for
each kind of security that is equity share, preference share, or
debenture.
12. No further offer till completion of earlier offer
No fresh 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 / withdrawn
/abandoned by the company.
13. Offer per person of investment if Rs. 20,000.
The value of such offer or invitation per person shall be with an
investment size of not les than 20,000 of face value of the securities.
14.
Payment from subscribers bank account
The payment for subscription to securities shall be made from the
bank account of the person subscribing to the securities. Company
to keep the record of the Bank account from where such payments
for subscriptions have been received.
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15.
Company to keep record in Form PAS – 5

The Company to maintain a Complete record of Private
Placement offers in Form PAS 5.

Copy of the record along with the Private Placement offer letter
shall be filed in Form PAS 4 with the ROC within 30 days of
Circulation of private placement offer letter.

If the Company is listed, to be filed SEBI within 30 days of
Circulation of private placement offer letter.
Explanation: The date of private placement offer letter shall be
deemed to be the date of circulation of private placement offer letter.
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16. The Company offering security cannot give public advertisement
or use any marketing media to inform the public at large about
the offer.
17. Return of allotment to Registrar
A return of allotment to be filed with the registrar within 30 days
of allotment in Form PAS 3 along with a complete list of all
security holders containing:




The full name, address, Permanent Account Number and E-mail ID
of such security holder
The class of security held
The date of allotment of security
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.
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Exemption to provisions of clauses (b) and (c) of sub-rule (2) of rule 14
shall not be applicable to –


NBFC registered with RBI
Housing Finance Companies registered with National Housing Bank
If they are complying with regulations made by RBI or National
Housing Bank in respect of offer or invitation to be issued on private
placement basis.
Companies shall comply with sub-clauses (b) and (c) of sub-rule (2)
in case the Reserve Bank of India or the National Housing Bank
have not specified similar regulations.
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1.
Board Meeting
Identify the persons to whom Private
placement offer/ invitation has to be made.
2.
Prepare offer letter and application form addressing the persons
individually.
3.
General Meeting
4.
Circulate the offer letter to the proposed allotee within 30 days of
recording the name.
5.
Company to maintain a complete record of private placement
offers and acceptance of such offers.
6.
Copy of the record maintained by the company and offer letters
to be filed with ROC within 30 days of circulation of private
placement offer letter 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.
The proposed offer to be approved by members
individually, by way of special resolution
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7.
Receive consideration of the allotment in separate bank account
8.
Allot securities within 60 days from the date of receipt of money
9.
File Return of Allotment PAS -3 with the ROC
10.
Issue Share certificates
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1.
If the company offers or accepts money in contravention of this
section, the Company, promoters, Directors shall be liable for penalty
which may extend to the amount involve in the offer/ invitation or
Rs. 2 Crore, whichever is higher.
2.
The Company shall also refund the money to the subscribers within a
period of 30 days of the order imposing the penalty.
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Thank You
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