Section 42 of the Companies Act,2013 and Rule 14 of Companies (Prospectus and Allotment of Securities) rules, 2014 deals with Private Placement.
"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 this section.
Conditions:
1. The offer or invitation for subscription of securities is to a select group of persons.
2. The offer or invitation is other than by way of public offer.
3. The offer or invitation is through issue of a Private Placement letter.
4. 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
5. The offer of securities or invitation to subscribe securities, shall be made to such number of persons not exceeding 50 or shall be made to not more than 200 persons in the aggregate in a financial year. [excluding QIBs and employees of the company being offered securities under a scheme of employees stock option as per provisions of clause (b) of sub-section (1) of section 62]
6. The value of such offer or invitation per person shall be with an investment size of not less than Rs.20,000/- of face value of the securities.
7. 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.
8. 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with respect to any offer or invitation made earlier have been completed or that offer or invitation has been withdrawn or abandoned by the company.
9. 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.
10. 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 60th day.
11. Monies received on application shall be kept in as separate bank account in a scheduled bank and shall not be utilised 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.
12. No company offering securities under this section shall release any public advertisements or utilise any media, marketing or distribution channels or agents to inform the public at large about such an offer.
Form and Manner of 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.
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.
Record of Private Placement:
The Company shall maintain a complete record of Private placement in Form PAS-5.
Filing of Private Placement offer Letter:
A copy of 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 30days of circulation of the private placement offer letter.
The date of private placement offer letter shall be deemed to be the date of circulation of private placement offer letter.
Filing of Return of Allotment of Securities:
A return of allotment of securities shall be filed with the Registrar within 30 days of allotment in Form PAS-3 and 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.
Exempted Companies (in terms of Offer & Value of securities):
1. NBFCs which are registered with the Reserve Bank of India under Reserve Bank of India Act, 1934; and
2. HFCs 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.
Penalty:
If a company makes an offer or accepts monies in contravention of this section,
The company, its promoters and directors shall be liable for a penalty which may extend to the amount involved in the offer or invitation or Rs.2 Crores, whichever is higher, and
The company shall also refund all monies to subscribers within a period of 30 days of the order imposing the penalty.
Points to noted:
a. 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
b. 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 prescribed number of 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 recognised 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 Public offer.
c. 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
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