Private Placement Process as per Companies Amendment Act 2017

The Private Placement section 42 has been completely substituted by the Amendment Act, 2017. The summary of the changes is categorized below:

A Proviso enabling the companies to make more than one issue at any time to such identified persons have been inserted; though the term Private Placement means Issuance of Shares to Persons who have been identified by the board of directors.

A new proviso barring any right of renunciation being attached to the private placement offer letter and application has been inserted;

Return of Allotment (Form PAS-3) needs to be filed within 15 days of allotment which was previously within 30 days;

Restriction on utilizing the money till allotment has been extended further to filing of return of allotment with Registrar have been provided;

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 brief process for private placement of securities is as under:

Private placement is of securities by any offer or invitation to a select group of persons or Identified Persons whose names and addresses are recorded by the company to subscribe or issue of securities (other than by way of public offer) by offer-cum-application.

Securities shall be issued only to Max 50 persons at a time or such higher number as may be prescribed (Persons exclude in the above calculation: qualified institutional buyers and employees of the company whom already shares are issued under ESOP.)

Offer of securities to more than 50 persons, whether the payment for the securities has been received or not the same shall be deemed to be a public offer.

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.

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with respect to any offer or invitation made earlier have been completed or that offer or invitation has been withdrawn or abandoned by the company.

Subscription money shall be made through cheque, demand draft or any other banking channel, not by cash.

A Company shall make allotment within 60 days from the date of receipt of application money and if Company fails to allot securities within time then it shall repay the application money within 15 days and after 15 days interest shall be paid @12% p.a from the expiry of sixtieth day.

Provided that a separate bank account has to be opened for private placement and application money should be submitted in that account only and that money should be used only for 2 purposes:

a) For allotment of securities.

b) For repayment of money if company is unable to allot securities

Company shall not utilise monies raised through private placement UNLESS allotment is made and the return of allotment is filed with the Registrar in Form PAS – 3.

Return of allotment in Form PAS 3 to be filed with ROC within 15 days of allotment. The format of Offer letter and application form are likely to be introduced by the department with the new Rules.