Do you know the Provisions of Private Placement?

1. INGREDIENTS OF PRIVATE PLACEMENT

Private Placement should be made only to a select group of persons not more than 50 (200 in aggregate in a financial year).

Following persons shall not be counted in the limit of 50 or 200, as the case may be-

Qualified Institutional Buyers*
Employees of the company being offered securities under a scheme of Employees Stock Option in terms of section 62 (1) (b).

Note:

The limit of 200 persons (in aggregate in a financial year) is not applicable to:

NBFC registered with RBI;

Housing finance companies registered with National Housing Bank;

If they are complying with the regulations made by the RBI or National Housing Bank.

But such companies shall comply with the condition regarding restriction on maximum number of identified persons to not more than 200 in a financial year if RBI or National Housing Bank have not specified similar regulations.

Restriction on number of identified persons shall be reckoned individually for each kind of security (i.e. equity share, preference or debenture).
Such persons shall be identified by the Board and called “Identified Persons”.

2. PRE-CONDITION FOR MAKING OFFER OR INVITATION:

A special resolution (SR) is required to be passed for each of the offers or invitations.

Where the proposed amount to be raised through such offer or invitation exceeds aggregate of its Paid-up share capital+ Free Reserves+ Securities Premium, such SR may be passed only one time in a year for all the offers or invitations.

Disclosure in Explanatory Statement annexed to the notice for shareholders’ approval:

Particulars of the offer and date of BR;
Kinds of securities and the price;
Basis or justification for the price;
Name and address of the valuer who performed valuation;
Amount to be raised by way of such securities;
Material terms of raising such securities, proposed time schedule, contribution being made by the promoters or directors either as part of the offer or separately in furtherance of objects, principle terms of assets charged as securities.

Exception to the pre-condition:

No such SR is required (i.e. only BR is required) for offer or invitation for Non-convertible debentures if the proposed amount to be raised through such offer or invitation together with the money already borrowed by the company does not exceed aggregate of its Paid-up share capital+ Free Reserves+ Securities Premium. However, the money borrowed should not include temporary loans obtained from the company’s bankers in the ordinary course of business.

3. OTHER PROVISIONS RELATED TO PRIVATE PLACEMENT

There is no right of renunciation in the offer and application.
Every identified person willing to subscribe to the issue shall apply in the application along with the subscription money paid by cheque, demand draft or other banking channel. Payment in cash is not allowed.
A company is not allowed to utilize monies raised through private placement unless the allotment is made and return of allotment in e-Form PAS-3 is filed with Registrar within 15 days of allotment.
The return of allotment in PAS-3 shall include a complete List of Allottees, with their full names, addresses, number of securities allotted.
In case of joint, subscription money shall be paid from the bank account of the person whose name appears first in the application. However, this condition shall not apply for considerations other than cash.
The offer cum application letter should be issued only after the relevant SR or BR has been filed with the Registrar

4. Restriction on fresh offer:

No fresh offer shall be made unless previous allotments with respect to any offer or invitation have been completed or that offer or invitation has been withdrawn or abandoned.

5. Is there any restriction on further issue in the same financial year through private placement?

No, there is no such restriction.

A company may make more than one issue of securities subject maximum number of identified persons as mentioned above.

6. Time limit for allotment:

Within 60 days of receiving application money

7. Repayment of money for failure to allot

In case of failure to allot securities within the prescribed time, money shall be repaid within 15 days from the expiry of 60days.

If company fails to repay the money within the prescribed period, it shall be liable to repay that money with interest at the rate of 12% per annum form the expiry of 60^th day.

8. Separate bank Account

Monies received on application shall be kept in separate bank account and shall not be utilized for any purpose other than:

For adjustment against allotment of securities.
For the repayment of monies if the company is unable to allot securities.

9. Restriction on advertisement etc.

A company issuing securities is not allowed to release any public advertisements or utilize any media channels etc to inform the public at large about the issue.

10. Offer Letter

The offer cum application letter should be in the form PAS-4 shall be sent either in writing or in electronic mode, within 30 days of recording the name of persons (in PAS-5).

11. Who can apply?

Only a person addressed in the offer cum application letter.

Note: Any application not conforming to this condition will be invalid.

12. Record of Private Placement

A complete record of private placement offers should be made in Form PAS-5.

13. Content of List of Allottees

List of allottees shall contain:

Full name, address, PAN and email id of such security holder;
The class of security held;
The date of allotment of security;
The number of securities, nominal value and amount paid on such securities; and particulars of consideration received if entire securities were issued for consideration other than cash.

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