Section 42 of the Companies Act, 2013
Section 42 of the Companies Act, 2013 deals with the Private Placement of Securities.
📘 Section 42 – Offer or invitation for subscription of securities on private placement
This section outlines the process and rules for issuing securities (like shares or debentures) to a selected group of people (not the public) through private placement.
🔍 Key Provisions:
Definition of Private Placement:
Private placement is the offer or invitation to subscribe to securities to a select group of persons (not exceeding 200 in a financial year), identified in advance by the company.
This does not include public offers or rights issues.
Special Resolution Required:
A special resolution must be passed by the shareholders for each private placement.
The resolution must include:
The offer size.
Type of securities.
Identity of the investors.
Private Placement Offer Letter (Form PAS-4):
The offer must be made through a private placement offer letter.
It can only be sent to the identified persons.
The offer cannot be advertised publicly or made to more than 200 persons in a financial year (excluding qualified institutional buyers and employees under ESOP).
Use of funds:
The money received must be:
Paid through banking channels (not cash).
Kept in a separate bank account.
Used only for the purpose stated in the offer.
Allotment of securities:
Securities must be allotted within 60 days from the date of receiving the application money.
If not, the company must refund the money within 15 days. Failure to do so attracts interest at 12% per annum.
Filing with ROC:
A return of allotment (Form PAS-3) must be filed with the Registrar within 15 days of allotment.
Penalties:
If the company contravenes this section, it may face:
A penalty of ₹2 crores or the amount involved in the offer, whichever is higher.
The company must also refund all the money collected to subscribers with interest.
✅ Purpose:
To ensure transparency and compliance in raising capital from a select group without involving the public, while protecting investor interests.
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