Private Placement of Securities under Companies Act 2013 By CS Preeti Sahu

Private Placement of Securities "The change in one of the modes of the issue of securities by Companies (Amendment) Act, 2017"

Dear Professional Colleagues,

The object of writing this article to make aware of the updated provisions regarding the private placement of securities as per the Companies Amendment Act 2017, which has come into force on August 07, 2018.

Governing Provisions
Section 42 and Rule 14 of the Companies (Prospectus and Allotment of Securities) Rules, 2014 of the Company Act 2013 deals with the provisions regarding the manner of issuing securities through a private placement. Since the entire section has been substituted by Companies Amendment Act 2017 w.e.f. 07-08-2018.

The provisions for Private Placement of Securities are as follows (major updates will be shown in highlighted form).


"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 the public offer) through private placement offer-cum-application, which satisfies the conditions specified in this section."


  • Private placement shall be made to selected Group of Persons identified by the Board, which shall not exceed 50 in number, which is subject to maximum ceiling of 200 for aggregate financial year, (Qualified Institutional Buyer and offer to employees under ESOP Scheme u/s 62(1)(b) of Co. Act 2013 will not consider in this limit);
  • The offer shall be approved by the shareholders through special resolution;
  •  Private Placement offer and application shall not carry the right of renunciation;
  • The Company shall issue offer cum application in Form PAS-4 and complete record of these offers shall maintain in Form PAS-5;
  • Money received against the allotment shall not be allowed to be paid in the cash and be kept in a separate account with the scheduled bank;
  • Company shall not utilize the raised money unless allotment has been made & return for the same file in Form PAS-3 with 15 days with ROC.
Procedure in case of a private company

Sr. No.

Documents involved



Draft PAS-4 & PAS-5, draft resolution to open account and draft notice of GM

Hold Board Meeting:

To identify persons to whom securities are allotted;

To approve draft private placement offer letter and record of a private placement (Form PAS-4 & PAS-5);

To open a separate bank account for receiving money;

To approve a notice of GM for approval of members.


Special resolution with an explanatory statement

Hold General Meeting and pass special resolution along with resolutions to approve the offer letter and authorize an officer of the company to give effect to the Private Placement.


File MGT-14 along with special resolution and explanatory statement.


Form PAS-4

Dispatch private placement offer letter along with application form to the proposed allotees.



Receive application money against the issue of securities in the bank account opened in the scheduled bank.


BR for allotment

Hold Board Meeting for Allotment of Securities and allot securities within 60 days of receiving application money.


List of allotees, BR for allotment and SR

File Form PAS-3 within 15 days of the allotment of securities along with Special Resolution and List of allotees.


Share Certificate

Issue corresponding Share Certificates and make respective entries in Register of Members.

Penal Provisions

Through amendment act, a separate penal provision has been inserted,

in case of default in filing of return of allotment within 15 days:

Liable person

Quantum of penalty

Company, Directors & Promoters

Rs. 1000 per day during which such default continues which is not exceeding Rs. 25 Lac.

In case of contravention of this section:

Company, Directors & Promoters

Amount raised


Rs. 2 Crore, whichever is lower


And, Company shall refund entire money with interest to subscribers within 30 days.

In conclusion, the author would like to add that this section has been made more governing by amendment act 2017, through which government has incorporated such changes by which it has become possible to prevent the misuse of the fund raised under this mode.
Advertise With Us

Click here to read the disclaimer

Write a Comment