Private Placement of Securities under the Companies Act, 2013 Presentation By CA Anil Sharma

Prospectus & Allotment of Securities Chapter III – Sections 23 to 42 Part I – Public Offer – Sections 23 to 41 Part II – Private Placement – Section 42 the Companies (Prospectus and Allotment of Securities) Rules, 2014. Friday, December 07, 2018

Share Capital & Debentures Chapter IV – Sections 43 to 72 Share Capital – Sections 43 to 70 Debentures - Sections 71 & 72 The Companies (Share Capital and Debentures) Rules, 2014. Friday, December 07, 2018

Section 23 – Issue of Securities By public company Through prospectus to public (Public offer) Private placement Right issue Bonus issue By private company Friday, December 07, 2018

Securities Sec 2(81) – means the securities as defined in Section 2(h) of the Securities Contracts (Regulation) Act, 1956. 2(h) “securities” include— (i) shares, scrips, stocks, bonds, debentures, debenture stock or other marketable securities of a like nature in or of any incorporated company or other body corporate; (ia) derivative; (ib) units or any other instrument issued by any collective investment scheme to the investors in such schemes;] (ic) security receipt as defined in clause (zg) of section 2 of the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002; (id) units or any other such instrument issued to the investors under any mutual fund scheme;] (ii) Government securities; (iia) such other instruments as may be declared by the Central Government to be securities; and (iii) rights or interest in securities; Friday, December 07, 2018

Section 24- Powers to SEBI Relating to issue and transfer of securities and non- payment of dividend by listed companies & cos intending to get their securities listed – to be administered by SEBI Others by the Central Government. So far as ‘intending to list’ unlisted companies are concerned, SEBI now has jurisdiction over their private placements. This clarity was lacking in section 55A of CA, 1956- otherwise no change in provisions. Friday, December 07, 2018

Section 42- Offer or invitation for subscription of securities on private placement No reference or definition of ‘private placement’ in CA,1956. In terms of section 67 of CA,1956 where shares or debentures were available for subscription or purchase only to those receiving the offer/invitation, it was considered as ‘private placement’ and was out side the preview of ‘public issue’. The section 67 was examined by Apex Court in the case of Sahara Real Estate Corporation Ltd Vs. SEBI dealing with ‘public issue’ in the garb of private placement. This decision lead to bringing in section 42 in CA,2013. Friday, December 07, 2018

Section 67 of the CA, 1956 Sub-section (3) No offer or invitation shall be treated as made to the public …if the offer or invitation can properly be regarded, in all the circumstances - (a) as not being calculated to result, directly or indirectly, in the shares or debentures becoming available for subscription or purchase by persons other than those receiving the offer or invitation ; or (b) otherwise as being a domestic concern of the persons making and receiving the offer or invitation : Provided that nothing contained in this sub-section shall apply in a case where the offer or invitation to subscribe for shares or debentures is made to fifty persons or more. Friday, December 07, 2018

Section 42- Private Placement means Offer to select group of people, whose names are recorded prior to invitation, Offer is through issue of private placement letter, Offer is made to not more than 200 persons (excluding QIB and ESOP) (Rule 14(b)) and Limit of 200 number is with reference to financial year. the value of such offer or invitation per person shall be with an investment size of not less than twenty thousand rupees of face value of the securities. Friday, December 07, 2018

Section 42-Other conditions for Private Placement Applicable to all whether listed company or not. No fresh offer unless earlier offers have been completed. Securities to be allotted in 60 days. Money to be kept separately till the allotment is completed. Company not to release any advertisement for such offer. Friday, December 07, 2018

Rule 14- Private Placement Offer Letter Private placement offer letter in Form PAS-4. To be accompanied by an application form serially numbered and addressed specifically to the person to whom the offer is made To be sent either in writing or in electronic mode, within thirty days of recording the names of such persons in accordance with sub-section (7) of section 42. The proposed offer of securities or invitation to subscribe securities has to be previously approved by the shareholders of the company, by a Special Resolution, for each of the Offers or Invitations: The explanatory statement annexed to the notice for the general meeting shall disclose the basis or justification for the price (including premium, if any) at which the offer or invitation is being made. Friday, December 07, 2018

Rule 14(3) Record of Private Placement The company shall maintain a complete record of private placement offers in Form PAS-5. a copy of such record along with the private placement offer letter in Form PAS-4 shall be filed with the Registrar within a period of thirty days of circulation of the private placement offer letter. the payment to be made for subscription to securities shall be made from the bank account only and the company shall keep the record of the Bank account from where such payments for subscriptions have been received. Friday, December 07, 2018

Rule 12- Return of allotment The company shall, within thirty days file with the Registrar a return of allotment in Form PAS-3 . Form PAS-3 to attach: a list of allottees stating their names, address, occupation, if any, and number of securities allotted to each of the allottees and the list shall be certified by the signatory of the Form PAS-3 as being complete and correct as per the records of the company. In the case of securities (not being bonus shares) allotted as fully or partly paid up for consideration other than cash, a copy of the contract, duly stamped, pursuant to which the securities have been allotted together with any contract of sale if relating to a property or an asset, or a contract for services or other consideration. A report of a registered valuer in respect of valuation of the consideration shall also be attached along with the contract . Form PAS 5 along with PAS 4. Friday, December 07, 2018

Section 62- Further issue of share capital Corresponding to Sections 81 and 94A of CA, 1956. Unlike section 81, section 62 applies to private limited companies also. Cut out dates for pre-emptive rights of existing rights as provided in section 81 are missing in Section 62. Second option of issue of further shares to others after passing ordinary resolution and after taking approval of the CG is missing in Section 62. Friday, December 07, 2018

Preferential Issue of shares It means an issue of shares or other securities, by a company to any select person or group of persons on a preferential basis and does not include shares or other securities offered through a public issue, rights issue, employee stock option scheme, employee stock purchase scheme or an issue of sweat equity shares or bonus shares or depository receipts issued in a country outside India or foreign securities Friday, December 07, 2018

Rule 13- Issue of shares on preferential basis For the purposes of section 62(1)(c), If authorized by a special resolution passed in a general meeting, shares may be issued by any company in any manner whatsoever including by way of a preferential offer, to any persons whether or not those persons include the persons referred to in clause (a) or clause (b) of sub-section (1) of section 62. Friday, December 07, 2018

Rule 13- Issue of shares on preferential basis For the purposes of section 62(1)(c), shares may be issued by any company in any manner whatsoever including by way of a preferential offer, and such issue on preferential basis should also comply with conditions laid down in section 42. Friday, December 07, 2018

Preferential offer means an issue of shares or other securities, by a company to any select person or group of persons on a preferential basis and does not include shares or other securities offered through: public issue, rights issue, employee stock option scheme, employee stock purchase scheme an issue of sweat equity shares bonus shares depository receipts issued in a country outside India or foreign securities; Friday, December 07, 2018

Shares & Other Securities under Rule 13 Means: equity shares, fully convertible debentures, partly convertible debentures or any other securities, which would be convertible into or exchanged with equity shares at a later date. Friday, December 07, 2018

Requirements for Preferential offer The preferential offer of shares or other securities shall be subject to compliance with the following requirements: the issue is authorized by its articles of association; the issue has been authorized by a special resolution of the members the securities allotted by way of preferential offer shall be made fully paid up at the time of their allotment. the company shall make the required disclosures in the explanatory statement to be annexed to the notice of the general meeting pursuant to section 102 of the Act the allotment of securities shall be completed within a period of twelve months from the date of passing of the special resolution. if the allotment of securities is not completed within twelve months from the date of passing of the special resolution, another special resolution shall be passed for the company to complete such allotment thereafter. Friday, December 07, 2018

Requirement for Preferential offer The preferential offer of shares or other securities shall be subject to compliance with the following requirements: the price of the shares or other securities to be issued either for cash or for consideration other than cash, shall be determined on the basis of valuation report of a registered valuer; where convertible securities are offered on a preferential basis with an option to apply for and get equity shares allotted, the price of the resultant shares shall be determined beforehand on the basis of a valuation report of a registered valuer and also complied with the provisions of section 62 of the Act; where shares or other securities are to be allotted for consideration other than cash, the valuation of such consideration shall be done by a registered valuer who shall submit a valuation report to the company giving justification for the valuation. Friday, December 07, 2018

Preferential allotment Relevant section- Section 62 (1)(c). Section 62 refers to Rule 13 of the Companies (Share Capital and Debentures) Rules, 2014. Rule 13 refers to Section 42. Section 42 refers to Rule 14 of the Companies (Prospectus and Allotment of Securities) Rules, 2014. Friday, December 07, 2018

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