Important changes in Private placement of Securities

Ministry of Corporate Affairs (MCA) has vide notification dated 7 August 2018 notified section 10 of Companies (Amendment) Act, 2017.  Pursuant to this notification, revised section 42 of the Companies Act, 2013 has been made effective.  Section 42 of the Companies Act, 2013, deals with the offer and allotment of securities through Private Placement.

Furthermore, the rules for private placement are also amended.  The key highlights of the amendment are as follows:

1. If the Company has taken the shareholders’ approval u/s 180(1)(c) of the Act and if it’s within the limits, separate shareholders’ approval is not required for issuing Non-convertible debentures. Further, if the proposed amount of the offer is within the limits of sec 180(1)(c) Board resolution would be adequate
2. Private Placement offer letter cannot be circulated till Board Resolution/Special Resolution is filed with ROC
3. Private Placement offer letter (Form PAS-4) is not required to be filed with ROC
4. Offer or invitation to subscribe or issue of securities is to be made to a select group of persons which are identified by the Board (identified persons).
5. Right of Renunciation is prohibited
6. The limit of the minimum size of investment in the offer of securities of Rs. 20,000 (Rupees Twenty thousand) is removed
7. Return of allotment (Form PAS-3) is to be filed with RoC within 15 (fifteen) days instead of 30 (thirty) days from the date of the allotment
8. Company cannot utilize monies raised through private placement till the return of allotment is filed with Registrar of Companies (RoC)
9. In case of default in filing return of allotment = Company, its Promoters and Directors shall be liable to a penalty of  Rs. 1,000/- (Rupees one thousand) for each day during which such default continues but not exceeding Rs. 25,00,000/- (Rupees twenty-five lakhs)
10. If an offer is made or monies are accepted in contravention of the provisions of  this section- Company, its Promoters and Directors shall be liable for a penalty which may extend to the amount raised through the private placement or Rs, 2,00,00,000/- (Rupees two crore), whichever is lower (Earlier it was whichever is higher)
11. Any offer/invitation/issue of securities through private placement exceeding 50 identified person or more   shall be treated as a public offer and all the provisions of the Act and the Securities Contracts (Regulation) Act, 1956 and the Securities and Exchange Board of India Act, 1992 shall become applicable