PRIVATE PLACEMENT CS Vasudeva Rao Devaki D V Rao & Associates Madhapur, Hyderabad Mobile: +91 9989345999 Email: csvasudevarao.devaki@gmail.com

Introduction The procedure for further issue of capital in 2013 Act is tedious and involves huge compliances. Previously, the Private Companies were exempted from complying with these stringent compliances but now even they are under the net of huge compliances. Securities Definition - Securities as defined in clause (h) of section 2 of the Securities Contracts (Regulation) Act, 1956.

Applicable Provisions The Provisions pertaining to Private Placement is provided in Section 42 and Rule 14 of the Companies (Prospectus and Allotment of Securities) Rules, 2014. Meaning of Private Placement As defined in S. 42 of the 2013 Act- 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.

Unlisted Public Company Private Placement Can be done by whom? (S. 23) Private Placement Private Company Listed Public Company Unlisted Public Company

Conditions For Private Placement Private Placement Offer Letter Company shall make an offer or invitation to subscribe to securities through issue of Private Placement offer letter in Form PAS – 4. 2. Application form to accompany offer letter Offer letter shall be accompanied by an application form. It should be serially numbered. Addressed specifically to the person to whom the offer is made. It shall be sent either in writing or in electronic mode within 30 days of recording the names of such persons. No person other than the person addressed can apply in the application not confirming to this condition shall be treated as invalid.

Private Offer to be previously approved by special resolution. 3. A company shall not make a Private Placement of its securities unless- Private Offer to be previously approved by special resolution. Explanatory Statement to give full justification for the price. Need of special resolution once a year for non convertible debentures. Only one special resolution will be sufficient for all the offers made in a year for non convertible debentures. 4. Offer to maximum of 200 persons in aggregatte in a financial year Offer or invitation shall be made to not more than 200 persons in the aggregate in a financial year. 5. Above 200 persons exclusive of certain entities (Rule 2) Offer or invitation made to QIB’s or to employees of the company under a scheme of Employee stock option shall not be considered while calculating the limit of 200 persons.

6. All the monies towards subscription of securities shall be paid through cheque or DD or other banking channels but not by cash. 7. Securities to be allotted within 60 days of receiving of the application money. 8. If unable to allot within 60 days, it shall repay the application money within 15 days after the 60th day. 9. If the Company fails to repay the application money within the aforesaid time period, then it shall pay interest of 12 % P.A. from the expiry of 60th day. 10. The entire Application Money should be kept in a separate bank account in a scheduled bank and can be used only for allotment or for repayment.

11. Offer counted separately for each kind of security While counting the limit of 200, it shall be reckoned individually for each kind of security that is equity share, preference share, or debenture. 12. No further offer till completion of earlier offer No fresh 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 / withdrawn /abandoned by the company. 13. Offer per person of investment if Rs. 20,000. The value of such offer or invitation per person shall be with an investment size of not les than 20,000 of face value of the securities. 14. Payment from subscribers bank account The payment for subscription to securities shall be made from the bank account of the person subscribing to the securities. Company to keep the record of the Bank account from where such payments for subscriptions have been received.

Contd… 15. Company to keep record in Form PAS – 5 The Company to maintain a Complete record of Private Placement offers in Form PAS 5. Copy of the record along with the Private Placement offer letter shall be filed in Form PAS 4 with the ROC within 30 days of Circulation of private placement offer letter. If the Company is listed, to be filed SEBI within 30 days of Circulation of private placement offer letter. Explanation: The date of private placement offer letter shall be deemed to be the date of circulation of private placement offer letter.

Contd… 16. The Company offering security cannot give public advertisement or use any marketing media to inform the public at large about the offer. 17. Return of allotment to Registrar A return of allotment to be filed with the registrar within 30 days of allotment in Form PAS 3 along with a complete list of all security holders containing: The full name, address, Permanent Account Number and E-mail ID of such security holder The class of security held The date of allotment of security 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.

Exemption NBFC registered with RBI Exemption to provisions of clauses (b) and (c) of sub-rule (2) of rule 14 shall not be applicable to – NBFC registered with RBI Housing Finance Companies registered with National Housing Bank If they are complying with regulations made by RBI or National Housing Bank in respect of offer or invitation to be issued on private placement basis. Companies shall comply with sub-clauses (b) and (c) of sub-rule (2) in case the Reserve Bank of India or the National Housing Bank have not specified similar regulations.

Procedure 1. Board Meeting Identify the persons to whom Private placement offer/ invitation has to be made. 2. Prepare offer letter and application form addressing the persons individually. 3. General Meeting The proposed offer to be approved by members individually, by way of special resolution 4. Circulate the offer letter to the proposed allotee within 30 days of recording the name. 5. Company to maintain a complete record of private placement offers and acceptance of such offers. 6. Copy of the record maintained by the company and offer letters to be filed with ROC within 30 days of circulation of private placement offer letter 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.

Contd… 7. Receive consideration of the allotment in separate bank account 8. Allot securities within 60 days from the date of receipt of money 9. File Return of Allotment PAS -3 with the ROC 10. Issue Share certificates

Penalty 1. If the company offers or accepts money in contravention of this section, the Company, promoters, Directors shall be liable for penalty which may extend to the amount involve in the offer/ invitation or Rs. 2 Crore, whichever is higher. 2. The Company shall also refund the money to the subscribers within a period of 30 days of the order imposing the penalty.

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