Note: Below article is based on Draft Rules
Private placement means any 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 section 42.
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 200 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 Chapter III of the Companies Act, 2013.
CONDITIONS AND PROCEDURE FOR PRIVATE PLACEMENT [SECTION 42]
Provisions regarding Private Placement are covered under Chapter III, Part II of the Companies Act, 2013
CONDITIONS FOR PRIVATE PLACEMENT
· A private placement offer cannot be made to more than 200 people in aggregate in a financial year excluding “qualified institutional buyers” and employees of the company being offered securities under a scheme of employee's stock option as per provisions of clause (b) of sub-section (1) of section 62.
"Qualified institutional buyer'' means the qualified institutional buyer as defined in the Securities and Exchange Board of India (Issue of Capital and Disclosure Requirements) Regulations, 2009 as amended from time to time.
· If a company, whether listed or unlisted makes an offer to allot or invites subscription, or allots, or enters into an agreement to allot, securities to more than 200 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 Chapter III.
· No fresh offer or invitation 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with respect to any offer or invitation made earlier have been completed or that offer or invitation has been withdrawn or abandoned by the company.
· Any allottee under a private placement offer/invitation shall not transfer his/its securities to more than 20 persons during a quarter and the company shall not register any transfer which is not in conformity with this requirement.
· The number of such offers or invitations shall not exceed 4 in a financial year and not more than once in a calendar quarter with a minimum gap of 60 days between any 2 such offers or invitations.
· The value of such offer or invitation shall be with an investment size of not less than Rs. 50,000/- per person.
· No company offering securities under this section shall release any public advertisements or utilize any media, marketing or distribution channels or agents to inform the public at large about such an offer.
· Any offer or invitation not in compliance with the provisions of this section shall be treated as a public offer and all provisions of 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 with.
PROCEDURE FOR PRIVATE PLACEMENT
i. Identify the person(s) to whom the private placement offer/invitation has to be made - All offers covered under this section shall be made only to such persons whose names are recorded by the company prior to the invitation to subscribe, and that such persons shall receive the offer by name.
ii. Prepare the private placement offer letter - A private placement offer letter needs to be prepared as per Form No. 3.4. It shall be accompanied by an application form addressed specifically to the person to whom the offer is made. and shall be sent to him.
iii. Seek member’s approval- The proposed offer of securities or invitation to subscribe securities needs to be approved by the shareholders of the Company, by way of a Special Resolution, for each of the Offers/ Invitations.
iv. Circulate the offer letter - The offer letter and the application form addresses specifically to the proposed allottee shall be sent to him, either in writing or in electronic mode, within 30 days of recording the names of such persons as specified above. 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 so received shall be treated as invalid.
v. Maintain record of private placement offers - The company shall maintain a complete record of private placement offers and acceptances of such offers in Form No. 3.5.
vi. File information with ROC - A copy of the record maintained by the company along with the private placement offer letter in Form No. 3.3 shall be filed with the Registrar with fee and with the Securities and Exchange Board, where the company is listed, within a period of 30 days of circulation of the private placement offer letter.
vii. Receive acceptances and payment - All monies payable towards subscription of securities under this section shall be paid through cheque or demand draft or other banking channels but not by cash. Further, the payment to be made on subscription of securities shall be made from the bank account of the person subscribing to such securities. In case of joint holders, it shall be paid from the bank account of the person whose name appears first in the application.
viii. Open separate bank account for keeping subscription money - Monies received on application under this section shall be kept in a separate bank account in a scheduled bank and shall not be utilized 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.
ix. Make allotment of securities - A company making an offer or invitation under this section shall allot its securities within 60 days from the date of receipt of the application money for such securities and if the company is not able to allot the securities within that period, it shall repay the application money to the subscribers within 15 days from the date of completion of 60 days 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 12% p.a. from the expiry of the sixtieth day.
x. File return of allotment with Registrar - A return of allotment of securities under section 42 shall be filed with the Registrar in Form No. 3.3 with necessary fees along with a complete list of all security holders containing-
(i) full name, address, PAN, and E-mail id of such security holders;
(ii) class of security held;
(iii) date of becoming security holder;
(iv) number of securities held; nominal value and amount paid up on such securities; and particulars of consideration received.
xi. Issue share certificates and update minutes book and registers.
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