Corp Law Notes

PRIVATE PLACEMENT
42. Offer or invitation for subscription of securities on private placement. —(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 offer letter.
(2) Subject to sub-section (1), the offer of securities or invitation to subscribe securities, shall
be made to such number of persons not exceeding fifty or such higher number as may be
prescribed, [excluding qualified institutional buyers 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], in a financial 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 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 Part I of this Chapter.
Explanation II. —For the purposes of this section, the expression—
(i) "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.
(ii) "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.
(3) 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has been withdrawn or abandoned by the company.
(4) 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 (42 of 1956) and the Securities and Exchange Board of India Act,
1992 (15 of 1992) shall be required to be complied with.
(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 offer 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 fifteen days from the date of completion of sixty days and if
the company fails to repay the application money within the aforesaid period, it shall be liable
to repay hat money with interest at the rate of twelve per cent. per annum from the expiry of
the sixtieth day:
Provided that monies received on application under this section shall be kept in a 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.
(7) 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, and that a complete record of such offers shall be kept by the
company in such manner as may be prescribed and complete information about such offer
shall be filed with the Registrar within a period of thirty days of circulation of relevant
private placement offer letter.
(8) 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.
(9) Whenever a company makes any allotment of securities under this section, it shall file
with the Registrar a return of allotment in such manner as may be prescribed, including the
complete list of all security-holders, with their full names, addresses, number of securities
allotted and such other relevant information as may be prescribed.
(10) 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 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.

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PRIVATE PLACEMENT

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