Difference between Private Placement and Preferential Allotment under Companies Act, 2013

Difference between Private Placement and Preferential Allotment under Companies Act, 2013

S.NO.	BASIS OF DIFFERENCE	PRIVATE PLACEMENT OF SHARES	PREFERENTIAL ALLOTMENT OF SHARES
1	Applicable Section of Companies Act,2013	Section 42	Section 62(1)(c)
2	Securities	Securities Section 2(81) of Companies Act, 2013 “Securities means the Securities defined in clause (h) of Section 2(81) of Securities Contracts (Regulation) Act, 1956.	Issue of Shares or Securities means equity shares, fully or partially convertible debentures or any other securities, which would be convertible or exchanged into Equity Shares. -
3	Rule	Rule 14 of Companies ( Prospectus and Allotment of Securities ) Rules, 2014	Rule 13 of Companies (Issue of Share Capital and Debentures) Rules, 2014
4	Offer Document	Prescribed Document i.e. Private Placement Offer Letter (PAS 4)	No such format is prescribed
5	Limit on Number of Allottees	Offer or Invitation of Securities shall be made to Maximum of 50 Persons at a time                    And 200 Persons in aggregate during a Financial Year and it shall exclude the following: 1.       QIBs and 2.       Employees who are being offered securities under Employee Stock Option Scheme under section 62(1)(b) of Companies Act,2013	The limit as applicable on Private Placement shall apply as it is as per Rule 13(1) of Companies ( Prospectus and Allotment of Securities ) Rules, 2014 http://www.mca.gov.in/Ministry/pdf/NCARules_Chapter3.pdf
6	Consideration	Payment through 1.      cheque, 2.       Demand Draft or 3.       other bank channels but  not by Cash.	Shares can be issued for Cash or for a Consideration other than Cash.
7	Bank Account	Separate Bank Account in a Scheduled Bank is required to keep the application money.	Not Required
8	Authorization in Articles	Not Required	Required.
9	Valuation Report	Not required.	Required.
10	Special Resolution	Prior Special Resolution is Required	Prior Special Resolution is Required
11	Allotment IMPORTANT:	Within 60 Days of receipt of Application money.	Allotment shall be made within 12 months of passing the Special Resolution.
12	Documents Involved	1.   PAS-4 (Private Placement Offer Letter) 2.   PAS-3 (e-Form required to be filed on MCA 21 portal 3.   PAS 5 (Record of Private Placement Offers to be maintained by the Company) http://www.mca.gov.in/MCA21/dca/downloadeforms/eformTemplates/NCA/Form_PAS-3.zip	E Form PAS-3 will be required to filed on MCA 21 portal as return of allotment -

Attachments for e-Form PAS-3:

      1.      List of allottees, separate list for each allotment is mandatory,

2.      Copy of Board or Shareholders’ resolution approving allotment of shares is mandatory in all cases

3.      Valuation Report from the registered valuer is mandatory in case obtained from valuer.

4.  Copy of Contract/Complete particulars of contract duly stamped is mandatory to attach in case securities are issued other than cash

5.      Complete record of private placement offers and acceptances in Form PAS-5 is mandatory in case of private placement

6.      Copy of the special resolution authorizing the issue of bonus shares is mandatory in case of bonus issue.

7.      Any other information can be provided as an optional attachment(s). 

Format of the list of allottees:

Table A

Name of the company
Date of allotment
Type of securities allotted
Nominal Amount per security (in Rs.)
Premium/ (Discount) amount per security (in Rs.)
Total number of allottees
Brief particulars in respect of terms and condition, voting rights etc.

Table B (List of allottees, applicable in case of allotment of securities payable in cash) S. No. Name & Occupation Z`of  Allottee  Address of Allottee Nationality of the Allottee Number of shares  allotted Total amount paid (including premium) (in Rs.) Total amount to be paid on calls (including premium) outstanding (in Rs.) 1 2 3 4 5 6 7 Total Ref : Form help Kit

Section 42 of Companies Act, 2013

42. Offer or invitation for subscription of securities on private placement.

(1) Without prejudice to the provisions of section 26, a company may, subject to

the provisions of this section, make private placement through issue of a private placement

offer letter.

(2) Subject to sub-section (1), the offer of securities or invitation to subscribe securities,

shall be made to such number of persons not exceeding fifty or such higher number as may

be prescribed, [excluding qualified institutional buyers and employees of the company being

offered securities under a scheme of employees stock option as per provisions of clause (b)

of sub-section (1) of section 62], in a financial year and on such conditions (including the

form and manner of private placement) as may be prescribed.

Explanation I.—If a company, listed or unlisted, makes an offer to allot or invites

subscription, or allots, or enters into an agreement to allot, securities to more than the

prescribed number of persons, whether the payment for the securities has been received or

not or whether the company intends to list its securities or not on any recognised stock

exchange in or outside India, the same shall be deemed to be an offer to the public and shall

accordingly be governed by the provisions of Part I of this Chapter.

Explanation II.— For the purposes of this section, the expression—

                (i) "qualified institutional buyer’’ means the qualified institutional buyer as defined

in the Securities and Exchange Board of India (Issue of Capital and Disclosure

Requirments) Regulations, 2009 as amended from time to time.

(ii) "private placement" means any offer of securities or invitation to subscribe

securities to a select group of persons by a company (other than by way of public

offer) through issue of a private placement offer letter and which satisfies the conditions

specified in this section.

(3) No fresh offer or invitation under this section shall be made unless the allotments

with respect to any offer or invitation made earlier have been completed or that offer or

invitation has been withdrawn or abandoned by the company.

(4) Any offer or invitation not in compliance with the provisions of this section shall be

treated as a public offer and all provisions of this Act, and the Securities Contracts (Regulation)

Act, 1956 and the Securities and Exchange Board of India Act, 1992 shall be required to be

complied with.

(5) All monies payable towards subscription of securities under this section shall be

paid through cheque or demand draft or other banking channels but not by cash.

(6) A company making an offer or invitation under this section shall allot its securities

within sixty days from the date of receipt of the application money for such securities and 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 date of completion of sixty days and if

the company fails to repay the application money within the aforesaid period, it shall be liable

to repay that money with interest at the rate of twelve per cent. per annum from the expiry of the

sixtieth day:

Provided that monies received on application under this section shall be kept in a

separate bank account in a scheduled bank and shall not be utilised for any purpose other

than—

(a) for adjustment against allotment of securities; or

(b) for the repayment of monies where the company is unable to allot securities.

(7) All offers covered under this section shall be made only to such persons whose

names are recorded by the company prior to the invitation to subscribe, and that such

persons shall receive the offer by name, and that a complete record of such offers shall be

kept by the company in such manner as may be prescribed and complete information about

such offer shall be filed with the Registrar within a period of thirty days of circulation of

relevant private placement offer letter.

(8) No company offering securities under this section shall release any public

advertisements or utilise any media, marketing or distribution channels or agents to inform

the public at large about such an offer.

(9) Whenever a company makes any allotment of securities under this section, it shall

file with the Registrar a return of allotment in such manner as may be prescribed, including

the complete list of all security-holders, with their full names, addresses, number of securities

allotted and such other relevant information as may be prescribed.

(10) If a 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 involved in the offer or invitation or two crore rupees, whichever is higher, and the

company shall also refund all monies to subscribers within a period of thirty days of the

order imposing the penalty.

Section 62 of Companies Act, 2013

62. Further issue of share capital

(1) Where at any time, a company having a share capital proposes to increase its

subscribed capital by the issue of further shares, such shares shall be offered—

(a) to persons who, at the date of the offer, are holders of equity shares of the

company in proportion, as nearly as circumstances admit, to the paid-up share capital

on those shares by sending a letter of offer subject to the following conditions,

namely:—

(i) the offer shall be made by notice specifying the number of shares

offered and limiting a time not being less than fifteen days and not exceeding

thirty days from the date of the offer within which the offer, if not accepted, shall

be deemed to have been declined;

(ii) unless the articles of the company otherwise provide, the offer aforesaid

shall be deemed to include a right exercisable by the person concerned to

renounce the shares offered to him or any of them in favour of any other person;

and the notice referred to in clause (i) shall contain a statement of this right;

(iii) after the expiry of the time specified in the notice aforesaid, or on

receipt of earlier intimation from the person to whom such notice is given that he

declines to accept the shares offered, the Board of Directors may dispose of

them in such manner which is not dis-advantageous to the shareholders and the

company;

(b) to employees under a scheme of employees’ stock option, subject to special

resolution passed by company and subject to such conditions as may be prescribed;

or

(c) to any persons, if it is authorised by a special resolution, whether or not

those persons include the persons referred to in clause (a) or clause (b), either for cash

or for a consideration other than cash, if the price of such shares is determined by the

valuation report of a registered valuer subject to such conditions as may be prescribed.

(2) The notice referred to in sub-clause (i) of clause (a) of sub-section (1) shall be

despatched through registered post or speed post or through electronic mode to all the

existing shareholders at least three days before the opening of the issue.

(3) Nothing in this section shall apply to the increase of the subscribed capital of a

company caused by the exercise of an option as a term attached to the debentures issued or

loan raised by the company to convert such debentures or loans into shares in the company:

Provided that the terms of issue of such debentures or loan containing such an option

have been approved before the issue of such debentures or the raising of loan by a special

resolution passed by the company in general meeting.

(4) Notwithstanding anything contained in sub-section (3), where any debentures

have been issued, or loan has been obtained from any Government by a company, and if that

Government considers it necessary in the public interest so to do, it may, by order, direct that

such debentures or loans or any part thereof shall be converted into shares in the company

on such terms and conditions as appear to the Government to be reasonable in the

circumstances of the case even if terms of the issue of such debentures or the raising of such

loans do not include a term for providing for an option for such conversion:

Provided that where the terms and conditions of such conversion are not acceptable

to the company, it may, within sixty days from the date of communication of such order,

appeal to the Tribunal which shall after hearing the company and the Government pass such

order as it deems fit.

(5) In determining the terms and conditions of conversion under sub-section (4), the

Government shall have due regard to the financial position of the company, the terms of

issue of debentures or loans, as the case may be, the rate of interest payable on such

debentures or loans and such other matters as it may consider necessary.

(6) Where the Government has, by an order made under sub-section (4), directed that

any debenture or loan or any part thereof shall be converted into shares in a company and

where no appeal has been preferred to the Tribunal under sub-section (4) or where such

appeal has been dismissed, the memorandum of such company shall, where such order has

the effect of increasing the authorised share capital of the company, stand altered and the

authorised share capital of such company shall stand increased by an amount equal to the

amount of the value of shares which such debentures or loans or part thereof has been

converted into.

Ref: Companies Act, 2013 # MCA

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Ravi Garg                                    

Company Secretary                    

91-7838204665,

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