PRESENTATION ON
Raising Funds – Public Issue / Rights
Issue / Private Placement
Share Capital & Debentures, Deposits
(Chapters III, IV & V – The
Companies Act, 2013)

K. SETHURAMAN
August 01, 2014
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FUND RAISING
•3
•4
PUBLIC OFFER & PRIVATE PLACEMENT (S.23)
 Public company to issue securities:
a) To public through prospectus.
b) Through private placement.
c) Through rights issue or bonus issue.
 Private company to issue securities
a) Through Rights Issue or Bonus Issue
b) Through Private Placement
 Public Issue includes:
a) Initial Public Offer / Further Public Offer
b) Offer for sale
•5
Note: Provisions contained in Chapter III (Public Offer & Private
Placement) Chapter IV (Share Capital & Debentures) in so far as
they relate to issue and transfer of securities by listed companies
and companies which intend to get their securities listed shall be
administered by SEBI (Section 24)
PROSPECTUS (SEC 26)
•6
 A company making a public issue also to comply with the
disclosure requirements and matters to be stated in the
Prospectus as per SEBI (ICDR) Regulations, 2009.
 Contents of Prospectus are listed out in the Section and in the
Companies (Prospectus and Allotment of Securities) Rules,
2014
 Following are some of the additional disclosures:
(a) The sources of Promoter contribution in the prescribed manner
(b) Name and Address of CFO
(c) Particulars relating to (a) management perception of risk factor
specific to the project, (b) gestation period of the project, (c)
extent of progress made in the project and (d) deadline for
completion of Project
(d) Litigation / Legal action pending or taken by any Govt dept or
statutory body against promoters of the company during the last
five years
•7
VARIATION IN TERMS OF CONTRACT OR
OBJECTS IN PROSPECTUS (SECTION 27)
 A company shall not vary at any time the terms of contract or
objects for which the prospectus was at any time issued
except with the approval of shareholders by passing a special
resolution through Postal Ballot.
 Justification for such variation should be clearly set out in the
notice and published in newspapers in Form PAS - 1.
 The notice of the Special Resolution to contain, inter-alia:
(a) Original purpose or object of issue
(b) Total money raised and spent for the object stated in the
prospectus
(c) Unutilized money so raised through prospectus
(d) Particulars of proposed variation and reasons or justification
for seeking variation
(e) The risk factors pertaining to the new object
VARIATION IN TERMS OF CONTRACT OR
OBJECTS IN PROSPECTUS (SECTION 27)
 Such variation may be made not more than one time
in any particular public offer.
 Dissenting shareholders to be given an exit offer by
Promoters or Controlling Shareholders at the exit
price specified by SEBI.
•8
 Public issue proceeds cannot be used for buying /
dealing in equity shares of any other listed
company.
OFFER OF SALE (SECTION 28)
 In consultation with Board of Directors of a company,
certain members may offer whole or part of their
holdings to the public.
 Document offering such sale to comply with
prospectus requirements and the offer document
deemed to be a prospectus.
 The members offering the shares will reimburse the
company all expenses incurred on this matter.
•9
 In an Offer for Sale, the dividend on the shares
offered for the entire year shall be payable to the
transferees
DEMATERIALIZED FORM (SECTION 29)

Every company making public offer; and

Prescribed class of public companies,
shall issue securities only in dematerialised form.
•10
 Any other company may convert its securities into
dematerialised form or issue its securities in physical
form
CRIMINAL LIABILITY FOR MIS-STATEMENTS IN
PROSPECTUS (SEC 34)
 If a prospectus issued includes any statement which is
untrue or misleading in form or context in which it is
included or where any inclusion or omission of any
matter is likely to mislead,
every person who authorises the issue of such
prospectus shall be liable under section 447.
•11
 The offence would be non-compoundable.
CIVIL LIABILITY FOR MIS-STATEMENT IN
PROSPECTUS (SEC 35)
 Company and the following persons liable to pay
compensation for any statement included in the prospectus
which is misleading, to every person who has subscribed for
securities and has sustained any loss or damage as a
consequence.
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a) Director at the time of issue of prospectus.
b) Promoter of the company.
c) Person who has authorised himself to be named as a
director.
d) Person who has authorised the issue of prospectus.
e) An expert.
 Above persons personally liable without any limitation of
liability for all losses incurred by the subscribers if it is
proved that prospectus was issued with intent to defraud
the applicants.
PUNISHMENT FOR FRAUDULENTLY INDUCING
PERSONS TO INVEST MONEY (SEC 36)
 Any person who, either knowingly or recklessly makes any
statement, promise or forecast which is false, deceptive or
misleading, or deliberately conceals any material facts, to
induce another person to enter into, or to offer to enter into(a) any agreement for, or with a view to, acquiring, disposing
of, subscribing for, or underwriting securities; or
(b) any agreement, the purpose or the pretended purpose of
which is to secure a profit to any of the parties from the
yield of securities or by reference to fluctuations in the
value of securities; or
(c) any agreement for, or with a view to obtaining credit
facilities from any bank of financial institution;
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Shall be liable for action under Section 447.
ACTION BY AFFECTED PERSONS (SEC 37)
 New Provision in the Act
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 A class action suit may be filed by any person, group of
persons or any association of persons affected by any
misleading statement or the inclusion or omission of
any matter in the Prospectus
PUNISHMENT FOR PERSONATION FOR
ACQUISITION OF SECURITIES (SEC 38)
 Any person who:
a) Makes or abets making of an application in a fictitious
name to a company for acquiring its securities
b) Makes or abets making multiple applications for
acquiring its securities
c) Otherwise induces a company to allot or register any
transfer of securities in a fictitious name
Shall be liable for action under section 447.
 The Court may order a convicted person for disgorgement
of gain and seizure and disposal of securities in
possession of such person.
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 Amount received as above to be credited to IEPF.
SECURITIES TO BE DEALT WITH IN STOCK
EXCHANGES (SEC 40)
 Company making a public offer, before making the offer
shall make an application to a recognised stock exchange and
obtain permission for listing the securities
 Name of the stock exchanges to be stated in the Prospectus
 All application monies received from Public to be kept in a
separate Bank Account in a scheduled bank except for
adjustment against allotment of securities or refund of monies
within the time specified by SEBI where the company is unable
to allot securities
 Waiver of compliance with any of the above requirements shall
be void
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 Company may pay commission in connection with the
subscription of its securities
PRIVATE PLACEMENT (SEC 42)
 New Act has tightened provisions relating to private
placement to protect stakeholders.
 Private Placement is an Offer of Securities or
invitation to subscribe securities to a select group
of persons not exceeding 50 or such higher number
(presently 200) as may be prescribed (excluding QIBs
and ESOP) in a financial year for each kind of
security, that is equity, preference shares or
debentures
 A company may make private placement through issue
of a private offer letter in Form PAS-4.
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 Thus, any issue other than a public issue or a Rights
issue is a private placement.
KEY PROVISIONS GOVERNING PRIVATE PLACEMENT
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 Provisions common to all class of companies – private, public
(listed and unlisted)
 Listed companies are governed by SEBI ICDR Regulations, 2009
 Offer through a Private Placement, Offer letter to a selected known
group of persons with the prior approval of shareholders by way of
a special resolution for each offer (equity shares)
 Company to pass a special resolution only once in a year for
all offers made during the year in case of issue of NonConvertible Debentures
 Offer to be made to persons whose names are recorded by the
company prior to making the offer
 Application serially numbered with Letter of Offer to be addressed
specifically to the concerned person and no other person shall be
allowed to apply through such form
 Even an agreement to allot securities to more than the
prescribed number of persons (whether money received or not)
shall be deemed to be an offer to the Public
KEY PROVISIONS GOVERNING PRIVATE PLACEMENT
 Offer in a financial year not to exceed 200 persons in
aggregate for each kind of security. Value of offer to
each person not to be less than Rs 20,000 face value
(This requirement not applicable to NBFC Companies
and Housing Finance Companies)
 If a company makes an offer to allot securities to
more than the prescribed number of persons, the
same to be deemed to be an offer to the public
 No fresh offer of any securities to be made unless
allotments of all earlier offers of any other security
are completed or withdrawn or abandoned.
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 The monies payable towards subscription should not
be and cannot be in cash.
KEY PROVISIONS GOVERNING PRIVATE PLACEMENT
 Subscription money by way of cheque / draft from the
bank account of the sole / first holders name
 Allotment to be completed within 60 days of receipt of
application money – refund within 15 days thereafter;
Else interest @ 12% from 60th day
 Application money to be kept in a separate Bank
account till allotment and cannot be utilised other
than for allotment / refund
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 Complete information about private placement to be
filed with RoC within 30 days of the private placement
offer; Listed Company – also with SEBI
KEY PROVISIONS GOVERNING PRIVATE PLACEMENT
 The Company to maintain a complete record of private
placement in Form PAS-5
 No advertisement or media announcement or engage
agents to inform the public at large of the private
placement is permitted
 In case of contravention, the company promoters and
directors are liable for penalty which may extend to the
amount involved or Rs. 2 crore whichever is higher
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 Company to refund all monies to subscribers within 30
days of the order imposing penalty
ADDITIONAL REQUIREMENT FOR PREFERENTIAL ISSUE
OF EQUITY SHARES / CONVERTIBLE SECURITIES
 No partly paid securities shall be issued
 Allotment to be made within 12 months of the date of the
special resolution; Else another special resolution shall be
passed.
*Till a Registered Valuer is appointed as per the New Act, the
valuation report shall be made by an Independent Merchant
Banker registered with SEBI or an independent Practising CA
having a minimum experience of 10 years [Amendment to the
Rules]
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 Various disclosures required in the Explanatory Statement
including (a) basis of price of price arrived with Report of
Registered Valuers (b) object of the issue (c) name of the
proposed allottees and percentage of post preferential offer
capital that may be held by them (d) change of control if any
consequent to the preferential offer
RIGHTS ISSUE
 Companies Act, 2013 has not defined the concept of
‘Rights Issue’; but it is defined under the SEBI ICDR
Regulations
 ‘Rights Issue’ means an offer of equity shares and
convertible securities by a listed issuer to the
shareholders of the issuer as on the ‘record date’ fixed
for the said purpose
 No complicated procedures unlike in the case of ‘Public
Issue’ or ‘Private Placement’
 Requirements of Rights Issue
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 Rights issue to be made after securing board of directors
approval at the Board meeting
RIGHTS ISSUE
 The issue price need not be valued by registered valuers
 Offering shares (Equity / Preference Shares) to the holders of
equity shares on a uniform basis (in the same proportion in
reference to his equity holding on a ‘cutoff’ date)
 Offer to be kept open for at least 15 days and not exceeding
30 days (issue cannot be open ended)
 Letter of offer to be despatched through registered post /
speed post at least 3 days before the opening of the issue
 Listed Companies whose shares are listed should adhere to
the requirement set out under SEBI (ICDR) Regulations, 2009
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 Non compliance with the requirements of a ‘Rights Issue’ shall
attract punishment under Section 450 as no specific penalty or
punishment is provided in the section regulating ‘Rights Issue’.
EMPLOYEES’ STOCK OPTION
 Company having share capital may make an offer of
shares to employees under a Scheme of ‘Employees’
Stock Option’ subject to passing of a special
resolution
 Issue price need not be valued by registered value
 Issue of ESOP shares by unlisted companies will be
governed by Rule 12 of the Companies (Share Capital
and Debentures) Rules, 2014.
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 Issue of ESOP Shares by a listed company whose
shares are listed will be governed by regulations made
by SEBI.
DEBENTURES
 A company may issue debentures – convertible or nonconvertible
 Issue of convertible debentures into shares requires
approval of shareholders by passing a special resolution.
 Debenture Trustee to be appointed before issuing a
prospectus or making an offer to company’s members
exceeding 500 persons
 Company issuing debentures to execute debenture trust
deed not later than 60 days after the allotment of
debentures
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 No secured debentures can be issued with a redemption
period beyond ten years from the date of the issue; A
company engaged in setting up infrastructure projects
can issue debentures which are redeemable not beyond
thirty years from the date of the issue.
DEBENTURES
 A company (including manufacturing / infrastructure) issuing
NCDs to create DRR equivalent to atleast 25% of the amount
raised by the debenture issue before the debenture
redemption commences
 No DRR by All India Financial Institutions and Banking
Companies for debentures issued;
 NBFCs registered under RBI Act to create DRR of 25% for
debentures issued through public issue; No DRR in case of
privately placed debentures by them.
 DRR shall not be utilised by the company except for the
purpose of redemption of debentures.
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 The company shall on or before 30th April each year invest or
deposit a sum which is not less than 15% of the amount of its
debentures maturing during the year ending on 31st day of
March of the next year (As per Rules)
ISSUE OF PREFERENCE SHARES
 No company limited by shares shall issue any preference
shares which are irredeemable
 A company may issue preference shares to be redeemed
within a period of Twenty years from the date of their issue
 A company may issue preference shares redeemable
beyond 20 years for making funds required for
infrastructure projects and the redemption shall be at the
option of the preference shareholders
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 Companies engaged in infrastructure projects may redeem
preference shares from the 21st year @ 10% minimum
redemption such that all the preference shares are
redeemed not later than 30 years from the date of issue of
Preference Shares.
ISSUE OF PREFERENCE SHARES
 Where dividend payable on Preference Shares
(cumulative or non-cumulative) is in arrears for a
period of two years or more, such class of preference
shareholders shall have a right to vote on all
resolutions placed before a meeting of the company
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 Premium payable on redemption of preference
shares issued w.e.f. 01.04.2014 will be provided
only out of profits of the company
VARIATION OF SHAREHOLDERS’ RIGHTS (SEC 48)
(SECTION NOT NOTIFIED YET)
 The rights attached to a class of shares may be varied
with consent in writing of the holders of not less than
three-fourths of the issued shares of that class, or by
means of a special resolution passed by the
shareholders of that class.
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 If the variation affects the rights of any other class
of shareholders, consent of such other class is
necessary in a similar way.
PROHIBITION ON ISSUE OF SHARES AT A
DISCOUNT (SEC 53)
 No company shall issue shares at a discount (except
sweat equity shares)
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 Any shares issued at a discount shall be void
•32
ACCEPTANCE OF DEPOSITS OF
COMPANIES (SEC 73-76)
ACCEPTANCE OF DEPOSITS (SEC 73)
• No company to invite, accept or renew deposits from
public, except as provided under Chapter V (only
eligible Companies can accept deposits from
public)
• Provisions not applicable to banking company, NBFC –
registered with RBI and other company as may be
specified by CG in consultation with RBI
•33
• Deposits can be accepted by a company from its
members subject to passing a resolution in general
meeting and subject to such rules as may be
prescribed
ACCEPTING DEPOSITS FROM MEMBERS
[SEC 73(2)]
•34
 Company to comply with the Companies (Acceptance of
Deposits) Rules, 2014
 Company to issue circular to its members containing
details as prescribed , viz. credit rating, financial
position, total number of depositors and amount due, in
respect of any previous deposits, etc.
 Company to file copy of circular with ROC before the
issue of circular to the members
 Company to deposit not less than 15 % of amount
maturing during a financial year and the next financial
year next following, in Deposit Repayment Reserve
Account (compare with DRR provisions)
ACCEPTING DEPOSITS FROM MEMBERS
[SEC 73(2)]
 Various
enhanced
disclosures
under
the
Companies (Acceptance of Deposits) Rules, 2014
A. General Information
1. Management perception of risk factors
2. Details of default including amount involved, duration
of default and present status in repayment of:
(a) Statutory dues
(b) Debentures and interest thereon
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(c) Loans from any bank or financial institutions and
interest thereon
ACCEPTING DEPOSITS FROM MEMBERS
[SEC 73(2)]
1.
Date of passing of Board Resolution
2.
Date of passing resolution in General Meeting authorising the
invitation of such deposits
3.
Type of deposits - whether secured or unsecured
4.
Outstanding deposits as on the date of issue of circular and
amount of deposit proposed to be raised and amount of deposit
repayable within 12 months
5.
Objects of raising the deposit
6.
Particulars of Credit rating obtained
7.
Extent of deposit insurance
8.
Short particulars of charge created in case of secured deposits
9.
Interest of directors, promoters and KMPs in such deposits
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B. Particulars of Deposit Scheme
ACCEPTING DEPOSITS FROM MEMBERS
[SEC 73(2)]
C. Financial Position of the Company
1. Interest coverage ratio for the last three years
2. Audited Cash flow statement for the last three years
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3. Any changes in accounting policies in the last three
years
ACCEPTING DEPOSITS FROM MEMBERS
[SEC 73(2)]
D. Declarations by directors to include:
1. That the Company will not become insolvent within
a period of one year from the date of the circular
2. That the deposits outstanding before 01.04.2014 have
been repaid / will be repaid and till repayment they
shall be unsecured and rank pari passu with the
unsecured liabilities
3. That in case of adverse change in credit rating,
depositors will be given chance to withdraw
deposits without any penalty
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4. That the deposits shall be used only for the purposes
indicated in the Circular
ACCEPTING DEPOSITS FROM MEMBERS
[SEC 73(2)]….(CONTD)
 Provide deposit insurance as prescribed:
1) Deposit insurance should be taken at least 30 days
before the date of acceptance or renewal of the deposit.
2) Deposit insurance to cover for payment of an amount
not less than Rs.20,000 for each depositor.
3) The deposit insurance to be taken by the company.
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Note: MCA has amended the Companies (Acceptance
of Deposits) Rules, 2014 to allow companies to accept
deposits without deposit insurance for one year i.e. till
31.03.2015.
ACCEPTING DEPOSITS FROM MEMBERS
[SEC 73(2)]….(CONTD)
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4) If the insurance cover is made ineffective,
the company shall either rectify the default
immediately or enter into a fresh contract
within 30 days and in case of noncompliance the amount of deposits covered
under the deposit insurance contract and
interest payable thereon shall be repaid
within next 15 days failing which it is liable
to pay interest @ 15% p.a. for the period of
delay and shall be liable for punishment in
accordance with the provisions of the Act.
ACCEPTING DEPOSITS FROM MEMBERS
[SEC 73(2)]….(CONTD)
 Certify that there is no default in repayment or payment
of interest
 Provide security, if required or else, to clearly state as
‘unsecured deposits’ on every circular, form ,
advertisement , etc.
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 For any grievance – depositors may apply to Tribunal
ACCEPTING DEPOSITS FROM MEMBERS
[SEC 73(2)]….(CONTD)
Exempted Deposits in the new Rules (only additional
items)
 Application money or advance money received for
subscription of security – if securities are either not
allotted within 60 days from the date of receipt of
application money or not refunded within 15 days from
the date of completion of 60 days, such amount shall
not be treated as an exempt deposit.
 Amount received from a relative of a director is not an
exempt deposit.
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 Amount received from a member in the case of a private
company is not an exempt deposit
ACCEPTING DEPOSITS FROM MEMBERS
[SEC 73(2)]….(CONTD)
 Debentures compulsorily convertible into shares of
the company within five years is an exempt
deposit.
 Any amount received against issue of commercial
paper or any other instruments issued in accordance
with the guidelines or notification issued by RBI is
an exempt deposit.
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 Any amount received as an advance for supply of
goods or services unless they are appropriated
against supply of goods and services within 365
days is not an exempt deposit.
ACCEPTING DEPOSITS FROM MEMBERS
[SEC 73(2)]….(CONTD)
Terms and conditions for acceptance of Deposits
1)
Period: Repayable not less than six months or not more than thirty
six months (may accept / renew deposits repayable no earlier than
three months not exceeding ten percent of the paid up share capital
and free reserves of the company)
2)
No company shall accept / renew any deposits from its members
more than 25% of the aggregate of its paid up capital and free
reserves. (outstanding at any point of time)
3)
No eligible company shall accept / renew:
a) Deposits from its members exceeding 10% of its paid up share
capital and free reserves. (outstanding at any point of time)
b) Deposits from public exceeding 25% of its paid up share capital
and free reserves. (outstanding at any point of time)
No government company can accept in excess of 35% of its paid up
capital and free reserves (outstanding at any point of time)
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4)
ACCEPTING DEPOSITS FROM MEMBERS
[SEC 73(2)]….(CONTD)
5) Rate of Interest and Brokerage: Not exceeding a rate
maximum permitted by RBI for acceptance of deposits
by Non-Banking Financial Companies. The person
who is authorised in writing by the company to
solicit deposits shall only be entitled to brokerage.
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6) The company shall not reserve a right to alter, to the
prejudice or disadvantage of the depositor, any of the
terms and conditions of the deposit, deposit trust deed
and deposit insurance contract after the issue of circular
and acceptance deposits.
DEPOSITS ACCEPTED BEFORE THE
COMMENCEMENT OF THE ACT (SEC 74)
 Company to file with ROC, within 3 months from the
commencement of the Act, that is by 30th June, 2014
(now extended to August 31, 2014) statement of all
deposits accepted and remaining unpaid, interest thereon
and details of arrangements made to repay all such
amounts;
•46
 Repay all deposits within one year from the
commencement of the Act or from the date on which
such payments are due, whichever is earlier
DEPOSITS ACCEPTED BEFORE THE
COMMENCEMENT OF THE ACT (SEC 74)
 The above condition shall not apply if the company
complies with the requirements under the Act and the
Rules and continues to repay the deposit and interest for
the remaining period of such deposit;
 Fresh deposits including renewals by eligible company
to comply with the requirements under the 2013 Act
•47
 Tribunal may allow further time for repayment
DEPOSITS ACCEPTED BEFORE THE COMMENCEMENT OF
THE ACT (SECTION 74 & 75)
•48
 For non-compliance, company, in addition to repayment with
interest, liable for fine up to Rs. 10 crore. Officer who is in
default will be punishable with imprisonment extending to
seven years or fine extending to Rs 2 crore or both. (Not
notified yet)
 In case deposits were accepted with fraudulent intent or
purpose and there is default in repayment, action under
section 447 (non compoundable) and every officer
responsible for accepting deposits be personally
responsible without limitation of liability. (Not notified yet)
 For failure by a company to repay deposits or pay interest, any
suit, proceedings or action may be taken by any person, group
of persons or any association of persons who had incurred
loss on that account – Class action suit. (Not notified yet)
Eligible Public company, that is, a public company having
networth of not less than Rs 100 crore or Turnover of not less
than Rs 500 crore and which has secured special resolution of
shareholders, and filed with RoC may accept deposits from
public, subject to :
 Complying with provisions under section 73(2) – issue circular,
etc
 Complying with the Companies (Acceptance of Deposits) Rules,
2014
 Obtaining rating from recognized credit rating agency every
year during the tenure of deposits – for networth, liquidity
and repaying ability,
 Informing the public of such rating
 Company accepting secured deposits from Public should
secure the deposits by creating a charge on its assets
within 30 days of such acceptance.
•49
ACCEPTANCE OF DEPOSITS FROM PUBLIC (SEC 76)
•50
THANK YOU