## Private Placement of Securities [Section 42]

### 1. Meaning

Private Placement means any offer of securities or invitation to subscribe to 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 satisfying the specified conditions.

### 2. Key Provisions

#### (i) Prior approval by Special Resolution

The proposal must be approved in advance by shareholders through a special resolution — separately for each offer/invitation.
An explanatory statement in Form PAS-4 must be annexed to the notice of the general meeting, disclosing:
(a) Particulars of the offer including date of Board resolution;
(b) Kinds of securities offered and price;
(c) Basis or justification of price (including premium);
(d) Name and address of valuer;
(e) Amount the company intends to raise;
(f) Material terms, time schedule, purposes/objects, contribution by promoters/directors, terms of assets charged as security.

#### (ii) Number of Identified Persons

A private placement shall be made only to a select group of persons identified by the Board ("identified persons").
Number shall not exceed 50 or such higher number as may be prescribed.
Excluded from the count:
Qualified Institutional Buyers (QIBs); and
Employees receiving securities under ESOP.
Rule 14, Companies (Prospectus and Allotment of Securities) Rules, 2014: The aggregate number cannot exceed 200 persons in a financial year.
Reconciliation: Section 42 says "not exceed 50 or such higher number as prescribed" — the prescribed higher number is 200. Hence, maximum = 200 in a financial year.

#### (iii) Multiple Issues Allowed

A company may, at any time, make more than one issue of securities to such class of identified persons as may be prescribed — but the number cannot exceed 50 (or higher number prescribed = 200).

#### (iv) Offer Letter & Application Form

The company shall issue the private placement offer and application in the prescribed form and manner to identified persons — whose names and addresses are recorded by the company.

#### (v) No Right of Renunciation

The private placement offer and application shall NOT carry any right of renunciation (i.e., the offer is non-transferable to others).

### 3. Summary Table — Private Placement Limits

Item	Limit
Identified persons in one offer	Max 50 (or higher as prescribed = 200)
Aggregate persons in a financial year	200 (excluding QIBs & ESOP employees)
Approval required	Special resolution for EACH offer
Renunciation right	NOT available
Offer document	Form PAS-4 (explanatory statement)

Worked example

### Example 1

Example 1 (Counting persons): ABC Ltd. makes a private placement to: 150 individual investors + 60 QIBs + 30 employees under ESOP. Identified persons for Section 42 = 150 (QIBs and ESOP employees are EXCLUDED). Since 150 ≤ 200, the placement is valid.

### Example 2

Example 2 (Multiple tranches): XYZ Ltd. in FY 2026-27 makes three tranches of private placement — 80 + 70 + 60 = 210 persons. This exceeds the aggregate cap of 200. Hence the third tranche violates Section 42 read with Rule 14.

### Example 3

Example 3 (Renunciation): Mr. A receives a private placement offer letter from PQR Ltd. He wants to assign the offer to his friend Mr. B. He CANNOT do so — no right of renunciation exists in a private placement.

⚠️ Common exam mistakes

Confusing the per-offer cap (50) with the financial year aggregate cap (200) — the prescribed higher number is 200.
Including QIBs and ESOP employees in the count — they are excluded.
Passing one special resolution to cover multiple offers — separate special resolution required for EACH offer.
Allowing renunciation — the private placement offer is strictly non-renounceable.
Treating a private placement as a public offer — it is offered to identified persons only, not the public at large.
Forgetting the disclosure of price basis/justification including premium in Form PAS-4.

Bare-Act text Section 42 · The Companies Act, 2013 read with Rule 14 of Companies (Prospectus and Allotment of Securities) Rules, 2014 · click to expand

Section 42(2): A private placement shall be made only to a select group of persons who have been identified by the Board (herein referred to as 'identified persons'), whose number shall not exceed fifty or such higher number as may be prescribed [excluding the qualified institutional buyers and employees of the company being offered securities under a scheme of employees stock option in terms of provisions of clause (b) of sub-section (1) of section 62], in a financial year subject to such conditions as may be prescribed.

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Private Placement of Securities (Section 42)

Worked example

⚠️ Common exam mistakes