Companies Amendment act, 2017
A business cannot run without funds. In case of an incorporated company, initial capital always comes from subscribers to the memorandum. After that company can raise funds by Loans/borrowings or issue of further securities.

To issue further shares there are following ways: (i) Right Issue of Shares (ii) Private Placement of Shares (iii) Preferential Allotment of Shares. In this editorial author shall talk about the provisions of Private Placement of Shares after Amendment in Companies Act, 2013.

Companies Act, 2017 has substituted entire Section 42 for Private Placement of Shares. MCA by notification dated 07th August, 2018 has notified these rules and shall be in effect w.e.f. 07th August, 2018. Therefore, all the private placements on or after 07.08.2018 shall be as per New section 42.

MCA has also notified new rules in respect of Section 42 i.e. Rule 14. Rule 14 has been substituted completely by new rules notified on 07th August, 2018

MEANING: "private placement" means any offer or invitation to subscribe or issue of securities to a [1]select group of persons by a company (other than by way of public offer) through private placement offer-cum-application, which satisfies the conditions specified in this section 42 read with rules.


1.        Maximum No. of persons to whom offer can be made: 

§ An offer can be made under a Private Placement Offer Letter to not more than 200 people in a financial year.

§ The 200 people limit excludes Qualified Institutional Buyers and Employees of the Company being offered securities under a scheme of employee stock option in terms of provision of clause (b) of sub section 62(1)

A.     Whether Limit of 200 persons shall be calculated individually/ jointly for each type of securities?

The restriction of 200 persons would be reckoned ‘Individually’ for each kind of security that is ‘Equity Shares, Preference Shares or Debentures’.

If offer is made to more than 200 peoples:
If a company, whether listed or unlisted makes an offer to allot or invites subscription, or allots, or enters into an agreement to allot, 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 recognized 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 Chapter III.

[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 and the Securities and Exchange Board of India Act, 1992 shall be required to be complied with].

2.      Offer to Selected Group of Person:

The offer shall be made only to a Select Group of person, who has been identified by the Board.
B.     Whether Board can select group of persons and issue securities by Circular resolution?

As per Section persons should be identified by the Board. Board of Directors can identify the person by circular resolution as well as by passing of resolution in Board Meeting.
However, as per Section 179(3) Company have to hold Meeting of Board of Directors for issue of securities.

Therefore, one can opine that board of Director should hold a meeting of Board of Directors to identify the persons and issue of securities.
C.     Whether Company needs to file e-form MGT-14 passing of Board resolution for issue of securities?

As per Section 117 every resolution passed u/s 179(3) required to file with ROC in e-form MGT-14 within 30 days of passing of Board Resolution.
However, Private Companies are exempted to file such resolution in e-form MGT-14 due to Exemption notification dated 05th June, 2015.
3.      Offer to be previously approved by Special Resolution:
As per rule, a Company shall not make an offer or invitation to subscribe to securities through Private Placement unless the proposal has been previously approved by the shareholders of the Company, by a special resolution for each of the offers and invitations.

Company has to file e-form MGT-14 within 30 days of passing of special Resolution.

Company shall issue private placement offer cum application letter only after the relevant special resolution or board resolution has been filed with ROC in e-form MGT-14. (rule 8)

D.    Whether Company can issue Private Placement offer letter before filing of e-form MGT-14?

As per rule 8, Company can’t issue private placement offer letter before filing of e-form MGT-14.
If Company issue private placement offer letter before filing of MGT-14 then it shall be non compliance of Rule 8.

If a company or any officer of a company or any other person contravenes any of the provisions of this Act or the rules made thereunder, and for which no penalty or punishment is provided elsewhere in this Act, the company and every officer of the company who is in default or such other person shall be punishable with fine which may extend to ten thousand rupees, and where the contravention is continuing one, with a further fine which may extend to one thousand rupees for every day after the first during which the contravention continues.

4.      Use of Allotment Money:
A company shall not utilize monies raised through private placement unless allotment is made and the return of allotment (i.e. e-form PAS-3) is filed with the Registrar in accordance with sub-section (8).

This is major change by Amendment Act, 2017. After amendment without filing of e-form PAS-3 for allotment of Shares Company can’t use the funds received from subscription.

5.      Offer counted separately for each kind of security:

The restriction under Rule 2 would be reckoned individually for each kind of security that is equity share, preference share or debenture.

6.      No Renunciation:

As per sub section 2, the private placement offer can application shall not carry any right of renunciation.
As per rule 3, No person other than the person so addressed in the private placement offer cum application letter shall be allowed to apply through such application form.

 Therefore, it is clear that right of private placement of shares can’t be renounced.

7.       Separate Bank Account:

ü  The payment for subscription should be through the bank account of the person subscribing to the securities.
ü  The company should keep a record of the bank account from where such payments have been received.
ü  No cash transaction is permitted.
ü  The money so received shall be kept in a separate bank account of the company and utilized only for allotment (or repayment).
ü  Payment may be made either by Cheque or Demand Draft or other banking channel.
Note: this provision shall not be applicable in case of “issue of shares for consideration other than cash”. 

8.      No further offer till completion of earlier offer:

As per Sub section 5, No fresh offer or invitation under this section shall be made unless the allotment with respect to any offer or invitation made earlier have been completed.

E.      If a Company give offer for Equity shares, such offer is pending. Whether Company can issue offer for Preference shares simultaneously?

As per language of sub section 5, if any offer of any security is pending, company is not allowed to issue other security until unless allotment is made for pending offer or invitation has been withdrawn or abandoned by the Company.

Exemption Condition: Subject to maximum number of identified person under section 42(2) a Company may, at any time, make more than one issue of securities (that is, of equity share, preference share or debenture) to such class of identified persons as may be prescribed.
In a welcome move Companies would be allowed to make offer ‘Multiple Security Instruments Simultaneously’.

if the number of persons to whom the offer is made does not exceed 200, then the company may, at any time, make more than one issue of securities to such class of identified persons. Prima facie, it appears that this proviso allows a company to make simultaneous offers of different kinds of securities as long as the number of applicants doesn’t cross 200.

In other words, a group of investors in a private equity transaction can be termed as a ‘class of identified persons’ (as provided under proviso of revised sec 42(5)) and then they can be offered two different types of securities simultaneously or some can be offered one type of security and some can be offered a different type of security 

9.      Where jointly, the money from the bank account first person:

That 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.

Minimum amount of offer for an individual: (omitted)

The most important amendment is the one carried out in the revised rules w.r.t. value of offer or invitation per person. The earlier rules prescribed a restriction on the value of offer / invitation, per person to be a minimum investment size of Rs. 20,000/- of face value of such securities. This created a huge issue especially for angel and venture capital transactions wherein the number of shares issued to investors was less but at a very high premium. This restriction has now been done away with. In other words, there is no minimum investment size in case of private placement of securities u/s 42 read with Rule 14.
10.   No advertisement of offer:
No company offering securities under this section shall release any public advertisements or utilize any media, marketing or distribution channels or agents to inform the public at large about such an offer.
11.  Mode to issue offer letter:

The offer letter shall be sent to persons, either in writing or in electronic mode within 30 days of recording the name of such person.

12.  Valuation report:

The price of the security has to be justified and the inference is that, it requires a valuation report by a Registered Valuer.

13.  Days in which share should be issued:

Allotment has to be carried out within 60 days of receiving of money.

14.   If not allotted within 60 days:

If allotment is not made within 60 days then till 75th day the monies have to be repaid. Failure to repay has a liability of interest at 12% pa.

15.  Minimum gap between two offers.

There is no condition in the Act or rule regarding minimum gap between two offers. A company can come with new offer after completion of earlier offer.

16.  Maximum no. of offers in a Financial year:

There is no condition in the Act or rule regarding maximum Number of Private Placement offers in a financial year. According to this company can come with private placement offer in a financial year any no. of times. But remember an offer can’t be made more than 200 peoples in a financial year.

17.  Non-compliance:

If conditions of Section-42 read with rule 14(1) of Companies (Prospectus and Allotment of Securities) Rules, 2014 has not been complied with than that can lead to a penalty of INR 2 crores or the amount involved in the offer, whichever is lower.

18.  Filing of e-form PAS-3: 
Return of allotment shall be filed with ROC within 15 days of allotment in PAS-3 along with a complete list of allottee containing:
    §  The full name, address, PAN and email ID or 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.

F.      Provisiosn of this section shall not applicable on following Companies?

ü  NBFC Companies
ü  Housing Finance Companies

Call Meeting of Board Director:
ü   Issue Notice of Board Meeting to all the directors of company at least 7 days before the date of Board Meeting.
ü   Attach Agenda of Board Meeting along with Notice.

Hold the Board Meeting:
ü  Check the quorum of Board Meeting.
ü  Identify the person to whom you will issue shares.
ü  Prepare list of such persons.
ü  Prepare Private Placement offer-cum-application.
ü  Pass Board Resolution for approval of offer-cum-application.
ü   Issue Notice of General Meeting. (As per Section- 101(1) issue notice of General Meeting at least 21 days before General meeting).
ü  Notice shall specify place, date, day and the hour of the meeting and shall contain a statement on the business to be transact in the such meeting. [Section-101(2)]
ü  Authorize a director of company to issue notice of General Meeting.

Hold Extra Ordinary general Meeting:
ü  Check the quorum of Meeting.(Section-103).
ü  Present Offer Letter in PAS-4 before the members of the meeting.
ü  Pass Special Resolution for Private Placement of Shares..

Circulate offer-cum-application:
ü  Offer letter shall be accompanied by an application form serially numbered and addressed specifically to the person to whom the offer is made.
ü  Offer Letter sent either in writing or electronic mode.
ü  Issue offer letter within 30 days of General Meeting/recording the name of such person.

File Form with Registrar:
ü  File MGT-14 with Registrar within 30 days of passing of Special Resolution.
ü  Notice of General Meeting along with Explanatory Statement.
ü  Certified True copy of Special Resolution.
ü  Minutes of General Meeting

Open Separate Bank Account:
ü   The payment to be made for subscription to securities shall be made from the bank account of the person subscribing to such securities.
ü   The company shall keep the record of the Bank Account from where such payment for subscription has been received.

File Form with Registrar:
ü  File PAS-4 & 5 with Registrar within 30 days of circulation of offer letter.

Call Board Meeting after receiving of allotment of money.
ü  Issue Notice of Board Meeting to all the directors of company at least 7 days before the date of Board Meeting. [Section-173(3)]
ü   Attach Agenda of Board Meeting along with Notice.

Hold the Board Meeting:
ü  Check the quorum of Board Meeting.
ü  Present List of Allottes before the Meeting.
ü  Pass Board Resolution for allotment of shares (within 60 days of receiving of money).
ü  Pass Resolution for issue of Share Certificate in same Meeting.
ü  Authorize to two directors and a authorize person to sign share certificate.

File form with ROC:
ü  File PAS-3 with Registrar of Company.
Ø  List of Allottes.
Ø  Board Resolution for allotment of Shares.

Issue Share Certificate:
ü  Issue Share Certificate in Form- SH-1 (As per Section-56 with in 2 (two) months from the date of allotment of shares.

v  Special Resolution for Issued of Debenture: In case of Offer or invitation for non-convertible debenture, it shall be sufficient if the company passes a single Special Resolution of all the offers or invitation made for debenture during a year. No need to pass Resolution again and again for the Private Placement of Debenture in a year.

v Date of private placement offer-cum-application shall be deemed to be the date of circulation of private placement offer letter.

The Company Amendment Act, 2017 has made changes with intent to liberalize the business model that India propagates. The ease in raising funds for companies and reducing the time taken in the process shall inevitably increase the allure of investing in India. Without prejudice, it can indubitably be stated that government’s ease of doing business campaign is on the right track.

(Author – CS Divesh Goyal, GOYAL DIVESH & ASSOCIATES Company Secretary in Practice from Delhi and can be contacted at Disclaimer: The entire contents of this document have been prepared on the basis of relevant provisions and as per the information existing at the time of the preparation. Although care has been taken to ensure the accuracy, completeness and reliability of the information provided, I assume no responsibility therefore. Users of this information are expected to refer to the relevant existing provisions of applicable Laws. The user of the information agrees that the information is not a professional advice and is subject to change without notice. I assume no responsibility for the consequences of use of such information. IN NO EVENT SHALL I SHALL BE LIABLE FOR ANY DIRECT, INDIRECT, SPECIAL OR INCIDENTAL DAMAGE RESULTING FROM, ARISING OUT OF OR IN CONNECTION WITH THE USE OF THE INFORMATION


  1. Plz clarify whether
    the offer made to not more than 200 person or 50 person?

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