PRIVATE PLACEMENT

Section 42 of the Companies Act, 2013 allows any company, whether private or public, to make private placement of securities through issue of a “Private Placement Offer Letter” (PPOL). We have discussed provision of the Section earlier here.

In addition of Section 42, Rule 14 of the Companies (Prospectus and Allotment of Securities) Rules 2014 prescribes all fine prints of the 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 in accordance with sub-section (7) of section 42.

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.

A company shall not make a private placement of its securities unless -

(a) 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.

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) Such offer or invitation shall be made to not more than two hundred persons in the aggregate in a financial year.

Any offer or invitation made to qualified institutional buyers, or to employees of the company under a scheme of employees stock option as per provisions of clause (b) of sub-section (1) of section 62 shall not be considered while calculating the limit of two hundred persons.

Explanation.– For the purposes of this sub-rule, it is hereby clarified that -

(i) the restrictions under sub-clause (b) would be reckoned individually for each kind of security that is equity share, preference share or debentures;

(ii) the requirement of provisions of sub-section (3) of section 42 shall apply in respect of offer or invitation of each kind of security and no 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;

(c) The value of such offer or invitation per person shall be with an investment size of not less than twenty thousand rupees of face value of the securities;

(d) 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.

The monies payable on subscription to securities to be held by joint holders shall be paid from the bank account of the person whose name appears first in the application.

The company shall maintain a complete record of private placement offers in Form PAS – 5.

A copy of such 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 thirty days of circulation of the private placement offer letter.

Explanation.- For the purpose of this rule, it is hereby clarified that the date of private placement offer letter shall be deemed to be the date of circulation of private placement offer letter.

A return of allotment of securities under section 42 shall be filed with the Registrar within thirty days of allotment in Form PAS – 3 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.

The provisions related to Maximum 200 persona and minimum investment size of not less than twenty shall not be applicable to -

(a) non-banking financial companies which are registered with the Reserve Bank of India under Reserve Bank of India Act, 1934; and

(b) housing finance companies 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. These companies shall comply these provisions in case the Reserve Bank of India or the National Housing Bank have not specified similar regulations.