Private Placement: CA, 2013 & Companies Amendment Bill, 2016

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CS Rahul Harsh
The Central government on Wednesday, 16th of March, 2016 introduced in the Lok Sabha Companies
Amendment Bill, 2016 to further amend the Companies Act, 2013 as part of eorts to address
diculties faced by stakeholders and improve the ease of doing business in the country.
This Article deals with Section 42 of the Companies Act, 2013 and is in Continuation of the Series of
Comparative Analysis of Companies Act, 2013 & Companies (Amendment) Bill, 2016 of both the
Existing and Proposed provisions. I have also incorporated a summary of Process of Private Placement as per the
revised provisions.
The 3 Part Comparative Analysis of Companies Act, 2013 & Companies (Amendment) Bill, 2016 can be
viewed from the Following Links:
Comparative summary of Process of Private Placement as per the Current Provisions and as per the
Proposed Companies (Amendment) Bill, 2016
Current Provisions

(1) Without prejudice to the provisions of section 26, a

company may, subject to the provisions of this section,
make private placement through issue of a private
placement oer letter.
(2) Subject to sub-section (1), the oer of securities or
invitation to subscribe securities, shall be made to such
number of persons not exceeding fty or such higher
number as may be prescribed, [excluding qualied
institutional buyers and employees of the company
being oered securities under a scheme of employees
stock option as per provisions of clause (b) of subsection (1) of section 62], in a nancial year and on
such conditions (including the form and manner of
private placement) as may be prescribed.
Explanation I.If a company, listed or unlisted,
makes an oer 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

Proposed Amendments
For section 42 of the principal Act, the following section
shall be substituted, namely:
42. (1) A company may, subject to the provisions of this
section, make a private placement of securities.
(2) A private placement shall be made only to a
select group of persons who have been identied
by the Board (herein referred to as identied
persons), whose number shall not exceed fty or
such higher number as may be prescribed [excluding
the qualied institutional buyers and employees of the
company being oered securities under a scheme of
employees stock option in terms of provisions of clause
(b) of subsection (1) of section 62], in a nancial year
subject to such conditions as may be prescribed.
(3) A company making private placement shall issue
private placement oer and application in such form
and manner as may be prescribed to identied
persons, whose names and addresses are
recorded by the company in such manner as may
be prescribed:
Provided that the private placement oer and

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intends to list its securities or not on any

recognised stock exchange in or outside India, the
same shall be deemed to be an oer to the public

application shall not carry any right of renunciation.

Explanation I.private placement means any oer or

and shall accordingly be governed by the

provisions of Part I of this Chapter.

invitation to subscribe or issue of securities to a select

Explanation II.For the purposes of this section, the

application, which satises the conditions specied in

expression
(i) qualied institutional buyer means the qualied
institutional buyer as dened in the Securities and
Exchange Board of India (Issue of Capital and
Disclosure Requirements) Regulations, 2009 as
amended from time to time.
(ii) private placement means any oer of securities or
invitation to subscribe securities to a select group of
persons by a company (other than by way of public
oer) through issue of a private placement oer letter
and which satises the conditions specied in this
section.

group of persons by a company (other than by way of

public oer) through private placement oer-cumthis section. (EXPLANATION ii(ii) As per current
provisions)
Explanation II.qualied institutional buyer means
the qualied institutional buyer as dened in the
Securities and Exchange Board of India (Issue of
Capital and Disclosure Requirements) Regulations,
2009, as amended from time to time, made under
the Securities and Exchange Board of India Act,
1992. (EXPLANATION ii(i) As per current
provisions)
Explanation III.If a company, listed or unlisted, makes

an oer to allot or invites subscription, or allots, or

enters into an agreement to allot, securities to more
(3) No fresh oer or invitation under this section shall be
than the prescribed number of persons, whether the
made unless the allotments with respect to any oer or
payment for the securities has been received or not or
invitation made earlier have been completed or that
whether the company intends to list its securities or not
oer or invitation has been withdrawn or abandoned by
on any recognised stock exchange in or outside India,
the company.
the same shall be deemed to be an oer to the public
and shall accordingly be governed by the provisions of
(4) Any oer or invitation not in compliance with the
provisions of this section shall be treated as a public
oer and all provisions of this Act, and the Securities

Part I of this Chapter. (EXPLANATION i As per

current provisions)

Contracts (Regulation) Act, 1956 (42 of 1956) and the

(4) Every identied person willing to subscribe to the
Securities and Exchange Board of India Act, 1992 (15 of
private placement issue shall apply in the private
1992) shall be required to be complied with.
placement and application issued to such person along
(5) 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.
(6) A company making an oer or invitation under this
section shall allot its securities within sixty 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 fteen days
from the date of completion of sixty days and if the

with subscription money paid either by cheque or

demand draft or other banking channel and not by
cash:
Provided that a company shall not utilise monies
raised through private placement unless allotment
is made and the return of allotment is led with the
Registrar in accordance with sub-section (8).
(5) No fresh oer or invitation under this section shall
be made unless the allotments with respect to any oer
or invitation made earlier have been completed or that
oer or invitation has been withdrawn or abandoned by

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company fails to repay the application money within the

the company: Provided that, subject to the maximum

aforesaid period, it shall be liable to repay that money

with interest at the rate of twelve per cent. per annum
from the expiry of the sixtieth day:

number of identied persons under subsection (2), a

company may, at any time, make more than one issue
of securities to such class of identied persons as may

Provided that monies received on application under this

section shall be kept in a separate bank account in a

be prescribed.
(6) A company making an oer or invitation under this

scheduled bank and shall not be utilised for any

purpose other than

section shall allot its securities within sixty days from

the date of receipt of the application money for such

(a) for adjustment against allotment of securities; or

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 fteen days

(b) for the repayment of monies where the company is

unable to allot securities.

from the expiry of sixty days and if the company fails to

repay the application money within the aforesaid

(7) All oers 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

period, it shall be liable to repay that money with

interest at the rate of twelve per cent. per annum from
the expiry of the sixtieth day:

such persons shall receive the oer by name, and that

a complete record of such oers shall be kept by the

Provided that monies received on application under

circulation of relevant private placement oer letter.

(a) for adjustment against allotment of securities; or

(8) No company oering securities under this section

(b) for the repayment of monies where the company is

unable to allot securities.

this section shall be kept in a separate bank account in

company in such manner as may be prescribed and
complete information about such oer shall be led with a scheduled bank and shall not be utilised for any
purpose other than
the Registrar within a period of thirty days of

shall release any public advertisements or utilise any

media, marketing or distribution channels or agents to
inform the public at large about such an oer.
(9) Whenever a company makes any allotment of
securities under this section, it shall le with the
Registrar a return of allotment in such manner as may
be prescribed, including the complete list of all security-

(7) No company issuing 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 issue.

holders, with their full names, addresses, number of

securities allotted and such other relevant information

(8) A company making any allotment of securities

under this section, shall le with the Registrar a
return of allotment within fteen days from the date

as may be prescribed.

of the allotment in such manner as may be

(10) If a company makes an oer 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 oer or
invitation or two crore rupees, whichever is higher, and
the company shall also refund all monies to subscribers
within a period of thirty days of the order imposing the
penalty.

prescribed, including a complete list of all allottees,

with their full names, addresses, number of securities
allotted and such other relevant information as may be
prescribed.
(9) If a company defaults in ling the return of allotment
within the period prescribed under sub-section (8), the
company, its promoters and directors shall be liable to
a penalty for each default of one thousand rupees for
each day during which such default continues but not

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exceeding twenty-ve lakh rupees.

(10) Subject to sub-section (11), if a company makes
an oer 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 raised through the private placement or
two crore rupees, whichever is lower, and the
company shall also refund all monies with interest
as specied in sub-section (6) to subscribers within
a period of thirty days of the order imposing the
penalty.
(11) Notwithstanding anything contained in sub-section
(9) and sub-section(10), any private placement issue
not made in compliance of the provisions of the
subsection
(2) shall be deemed to be a public oer and all the
provisions of this Act and the Securities Contracts
(Regulation) Act, 1956 and Securities and Exchange
Board of India Act, 1992 shall be applicable.
In a Nutshell the Proposed Changes bring the following Eects to the Private Placement Provision:
The Proposed Section 42 by Companies (Amendment) Bill 2016 is based on the recommendations made by the
Company Law Committee in its report on 1st February 2016. Though the Section has been re-drafted most of
the previous provisions have been retained. The major changes are as follows:
A new proviso barring any right of renunciation being attached to the private placement oer letter and
application has been inserted;
Restriction on utilizing the money till allotment has been extended further to ling of return of
allotment with Registrar have been provided;
Return of Allotment needs to be led within 15 days of allotment which was previously within 30 days;
The penalty for any contravention of section 42 has been lowered to Rs. 2 crores i.e. it shall be extended
to the amount raised through the private placement or two crore rupees, whichever is lower.
A Proviso enabling the companies to make more than one issues at any time to such identied persons
have been inserted; Though the Trm Private Placement means Issuance of Shares to Persons whose
have been identied by the board of directors, but to clear all doubts the same has now been
provided in the section.
THE REVISED PROCESS OF PRIVATE PLACEMENT ALONG WITH PROPOSED AMENDMENTS IN BRIEF
Private placement is of securities by any oer or invitation to a select group of persons or Identied
Persons whose names and addresses are recorded by the company to subscribe or issue of securities
(other than by way of public oer) by oer-cum-application.
Maximum No. of Persons: 50 at a time (maximum) 200 in a year (maximum).

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Maximum No. of Persons: 50 at a time (maximum) 200 in a year (maximum).

Any oer of securities to more than 50 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 A PUBLIC OFFER.
Private Placement shall not include:
(a) Any oer made to the qualied institutional buyers,
(b) Employees of the company being oered securities under Employees stock option scheme as per of provisions
of clause (b) of subsection (1) of section 62 of Companies Act, 2013.
No fresh oer or invitation under this section shall be made UNLESS the allotments with respect to any oer
or invitation made earlier have been completed or that oer or invitation has been withdrawn or abandoned
by the company.
Mode of Payment: By cheque or demand draft or other banking channel and NOT by cash.
Allotment of Securities: Within sixty days from the date of receipt of the application money for such
securities.
In case of failure to allot: Repay money within 15 days from expiry of 60 days from date of receipt of
application if fails to repay within 15 days then repay with interest of 12% from expiry of 60th day.
Company shall not utilise monies raised through private placement UNLESS allotment is made and
the return of allotment is led with the Registrar in Form PAS 3.
Prohibition: No company issuing 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
issue.
Filings: Maintain complete records of the oer in PAS 5. File PAS 4 & PAS 5 in Form GNL 2 with ROC
within 30 days of circulation of the oer letter. Return of allotment in Form PAS 3 to be led with ROC
within 15 days of allotment.
Author: CS Rahul Harsh is a Company Secretary in Employment from Kolkata and can be contacted at:
csrahulharsh@gmail.com

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