# Private Placement — Operational Compliance Requirements (Section 42)
Once a company makes a private placement offer under Section 42, several strict procedural compliances govern application money, allotment, refund, and use of funds.
## 1. Deemed Public Offer
If a company (listed or unlisted) makes an offer or invitation to more than the prescribed number of persons (200 in a financial year), it is deemed a public offer. The company must then follow Chapter III provisions (prospectus rules), not the private placement route.
## 2. Mode of Subscription
Every identified person willing to subscribe must:
- Apply through the private placement application issued to them, and
- Pay subscription money via cheque / demand draft / banking channel only (cash is prohibited).
## 3. Restriction on Use of Money Before Allotment
A company shall not utilise monies raised through private placement unless:
1. Allotment is made, and
2. The return of allotment is filed with the Registrar (ROC).
## 4. No Fresh Offer Until Earlier One is Closed
No fresh offer or invitation can be made unless:
- Allotments for any earlier offer are completed, OR
- The earlier offer has been withdrawn / abandoned.
## 5. Allotment Timeline
| Stage | Time Limit |
|---|---|
| Allotment of securities | Within 60 days from receipt of application money |
| If allotment fails — refund | Within 15 days from expiry of the 60 days |
| If refund delayed beyond that | Interest @ 12% p.a. from expiry of the 60th day |
## 6. Separate Bank Account
Monies received under Section 42 shall be kept in a separate bank account in a scheduled bank, and used only for:
- (a) Adjustment against allotment of securities; or
- (b) Repayment where the company is unable to allot.
## 7. No Public Advertisement
Securities under Section 42 cannot be advertised publicly or marketed via any media, distribution channel, or agent to inform the public at large.
## 8. Penalty for Contravention [Section 42(10)]
If a company makes an offer or accepts monies in contravention of Section 42:
- Penalty on company, promoters, and directors = amount raised through private placement OR ₹2 crore, whichever is LOWER.
- Company must also refund all monies with interest to subscribers within 30 days of the order imposing the penalty.
## 9. Return of Allotment [Section 42(8) read with Rule 14(6)]
Return of allotment in Form PAS-3 to be filed with the Registrar within 15 days from date of allotment. The return must contain a complete list of allottees with:
- (a) Full name, address, PAN, and Email ID of each holder;
- (b) Class of security held;
- (c) Date of allotment;
- (d) Number of securities, nominal value, amount paid, and particulars of consideration if for non-cash.
## 10. Default in Filing Return of Allotment [Section 42(9)]
For default in filing the return, the company, its promoters and directors are liable to a penalty of:
- ₹1,000 for each day the default continues,
- Subject to a maximum of ₹25 lakh.