Company often fall short of funds and think for sources or ways to raise from. Out of many ways, one is through private placement.
“Private Placement” means any offer or invitation to subscribe or issue of securities to a 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 section 42 of the Companies Act, 2013.
As per section 42 of the Companies Act, 2013, Private Placement,
- 1. Private placement shall be made only to a select group of persons identified by the Board which shall not exceeding 50 or higher number prescribed. However, such number shall not include qualified institutional buyers and employees of the company being offered securities under a scheme of employee’s stock option plan.
- 2. Private placement offer and application are made to identified person whose names and addresses are recorded by the company. It does not carry any right of renunciation.
- 3. Every identified person willing to subscribe shall apply in the application issued to such person along with subscription money either by cheque or demand draft or other banking channel but not by cash.
- 4. The company receiving the money shall not utilize unless allotment is made and the return of allotment is filed with the Registrar.
- 5. Fresh offer or invitation under this section can only be made if the allotments with respect to any offer or invitation made earlier by the company have been completed or that offer or invitation has been withdrawn or abandoned by the company.
- 6. Allotment of securities should be made within sixty days from the date of receipt of the application money. 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 expiry of sixty days. In case of failure repay the application money within the said period, company shall be liable to repay that money along with the interest at the rate of 12% per annum from the expiry of the sixtieth day.
- 7. Monies received on application under this section shall be kept in a separate bank account in a scheduled bank.
- 8. Raised money shall not be utilised for any purpose other than-
- 8.1 for adjustment against allotment of securities; or
- 8.2 for the repayment of monies where the company is unable to allot securities.
- 9. Company issuing securities through private placement cannot release any public advertisements or utilise any media, marketing or distribution channels or agents to inform the public at large about such an issue.
- 10. Company after making allotments shall within 15days of allotment file a return with the Registrar for same which includes a complete list of all allottees, with full names, addresses, number of securities allotted and such other relevant information as may be prescribed.
- 11. In case company defaulted in filing the return of allotment with the Registrar within prescribed period, the company, its promoters and directors shall be liable to a penalty for each default of Rs. 1,000 for each day during which such default continues but not exceeding Rs. 25Lakhs.
- 12. If 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 raised through the private placement or Rs. 2crore, whichever is lower; and the company
- 13. shall also refund all monies with interest at the rate of 12% p.a. to the subscribers within a period of 30days of the order imposing the penalty.
- 14. If any private placement issue is not made in compliance of the provisions of this section shall be deemed to be a public offer and all the 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 applicable.
Now-a-day, company opting to raise funds from private placement thinks of out-sourcing its compliance process. Sometimes the outsourced person does the work properly and sometimes not. If the compliance process is not done properly by the outsourced person and any default is made, company has to bear its consequences. The same has been recently seen in one of the case in which outsourced person did not complied all the requirements of the law, default made due to which company becomes liable to pay the penalties. Therefore, it is more advisable for companies raising money through private placement not to outsource the compliance process.
