(Under Companies Act,2013 read with The Companies (Prospectus and Allotment of Securities) Rules,2014)
(Section 42 & Rule 14)

[Submitted by CA.V.M.V.S.Rao,
Nellore, Andhra Pradesh]

May 11, 2014

  • A Company (including a private company) may make an offer or invitation to subscribe to securities (not only shares) through issue of private placement offer letter in Form PAS-4.
  • Name of the Persons to whom the offer is made to be recorded by the Company before such invitation to subscribe in private placement offer.
  • No fresh offer of invitation under private placement 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with respect to any offer or invitation made earlier have been completed or that offer or invitation has been withdrawn or abandoned by the company.
  • Form PAS 4 shall be sent to the persons whose name is recorded within 30 days of recording the name of such persons along with application serially numbered.
  • The Company shall maintain a complete record of private placement offers in Form PAS-5.
  • Form PAS-4 & Form PAS-5 shall be filed with registrar within 30 days of date of private placement offer letter.
  • Form PAS 4 shall be made to not more than 200 persons in the aggregate in a financial year.
    • Qualified Institutional Buyers or Employees under stock option shall not be considered while calculating the limit of 200 persons.
    • The restriction would be reckoned individually for each kind of security that is equity share, preference share or debenture.
  • The monies payable on subscription of securities shall not to be made in Cash.
  • Under private placement, the Company shall allot securities within 60 days from the date of receipt of the application money.
    • If the Company is not able to allot the securities within 60 days, it shall repay the application money to the subscribers within 15 days from the date of completion of 60 days.
    • If the Company fails to repay the share application money within 75 days from the date of receipt of application money, it shall be liable to repay the money with interest @12% pa from the expiry of 60 days.
  • The application money received shall be kept in a separate bank account in a scheduled bank and shall not be utilized for any other purpose.
    • The Company shall keep the record of the Bank Account from where such payments for subscriptions have been received.
  • No Advertisement or utilise print media , marketing or distribution channels or agents to inform the public at large about such private placement offer.
  • A Return of Allotment in Form PAS-3 shall be filed with the registrar within 30 days of allotment of securities with prescribed fee.
  • Penalty for contravention of provisions of Section 42
    • Amount involved in the offer/invitation or 2 Crores whichever is higher (Minimum Penalty 2 Crores) and
    • Refund of subscription money within a period of 30 days of the order imposing the penalty.

Procedure in brief for further issue of shares:-

  1. Identify the person(s) to whom the private placement offer/invitation of shares has to be made.
  2. Take decision on number of fresh shares that needs to be issued.
  3. Obtain certificate for valuation of shares from Chartered Accountant.
  4. Prepare draft EGM notice for passing special resolutions stating two things:-
    1. Shares may be issued in any manner to any persons (other than right issue);
    2. Proposing to issue through private placement.
  5.  Explanatory statement needs to be given with the reasons or justification for price at which the offer or invitation is being made shall be disclosed.
  6.  Pass Board Resolution for convening EGM and approving draft notice of EGM and explanatory statement.
  7.  Hold EGM and pass Special Resolutions (3/4th of the members should vote for resolution in order to pass this as a special resolution).
  8.  File Form MGT-14 (earlier Form No.23) with ROC with a copy of special resolution passed.
  9.  Prepare private placement offer letter in Form PAS-4 and issue with application form to the list of persons. Such application should be serially numbered and addressed specifically to the persons to whom the offer is made.
  10.  Pass Board Resolution (only in Boarding Meeting) for issue of shares, Letter of offer and for opening of separate bank account for getting application money.
  11.  Issue letter of offer and maintain record in Form PAS-5.
  12.  Get share application money. The payment to be made for subscription shall be made from the bank account of the persons subscribing to shares.
  13.  Pass Board Resolution (only in Board Meeting) for allotment of shares.
  14.  File Return of Allotment in Form PAS-3 with a copy of CA Certificate, List of Allottees and Copy of Board Resolution.
  15.  Issue Share Certificates after payment of stamp duty in Form SH-1 and
  16.  Make entry in register of members in Form MGT-1.