Private Placement = An offer or invitation to subscribe or issue securities to a selected group of persons by a company (NOT a public offer).
Must satisfy all conditions under Section 42 — non-compliance can make it a deemed public offer.
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## 2. Identified Persons
Offer can be made only to identified persons selected by the Board of Directors.
Right of renunciation is NOT applicable in private placement.
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## 3. Prohibited Offerees
No offer can be made to:
Body corporate or national from countries sharing a land border with India unless approved by the Government.
Approval from Foreign Exchange Management (Non-debt Instruments) must be attached.
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## 4. Numerical Limits — '200-Person Rule'
Rule
Detail
Maximum identified persons
200 in a financial year
Application
Per kind of security (separately)
Excluded
QIBs and ESOPs
Special treatment
NBFCs and Housing Finance Companies have separate regulatory limits
### Crossing the Limit
If the offer exceeds 200 persons → Deemed Public Offer with all attendant compliance obligations.
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## 5. Resolution Required (Rule 14)
Step
Resolution
Board approval
Board Resolution
Shareholder approval
Special Resolution
Exception
Only Board Resolution needed for issue of Non-convertible Debentures within Section 180(1)(c) limits
### Explanatory Statement Must Include
Date of BR
Kinds of securities offered and the issue price
Justification for the pricing (including any premium)
Name and address of registered valuer
Total amount intended to be raised
Terms of issuance, timeline, purpose, promoter/director contributions, asset charged as security
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## 6. Offer and Application Process
Aspect
Requirement
Offer form
PAS-4 (offer cum application letter)
Time to issue PAS-4
Within 30 days of recording names
Payment mode
Cheque, DD, or banking channels — NO CASH
Joint holders
Pay from the bank account of the first-named applicant
Use of money
NOT until allotment AND return of allotment is filed
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## 7. Separate Bank Account
All funds received → Separate bank account, used only for:
Allotment, OR
Repayment (if securities not allotted)
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## 8. Allotment Timeline
Event
Time
Allot securities within
60 days from application receipt
If not allotted, refund within
15 days
Interest on delayed refund
12% p.a.
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## 9. Filing with ROC
Filing
When
First filing: Copy of BR + SR
Before offering securities
Second filing: Return of Allotment
Within 15 days of allotment
Default penalty
₹1,000/day, max ₹25 lakh
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## 10. Prohibition on Further Offer
A further private placement offer is allowed only after the previous offer is:
Completed (allotment done), OR
Withdrawn, OR
Abandoned
Multiple offers to the SAME identified persons are allowed.
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## 11. Other Prohibitions
No public advertisement or media channels to inform the public.
No right of renunciation in PAS-4.
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## 12. Penalty for Non-Compliance with Section 42
Item
Amount
Penalty
Amount raised OR ₹2 crore — whichever is lower
Refund
All funds + interest within 30 days of penalty
Status
Deemed Public Offer (full public offer compliance applies)
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## Master Comparison: Public Offer vs Private Placement
Feature
Public Offer
Private Placement
Audience
General public
Identified persons (max 200)
Prospectus
Required
PAS-4 (offer letter)
Renunciation
Allowed
NOT allowed
Advertisement
Allowed
Prohibited
Listing
Mandatory
Optional
Allotment time
Per SEBI rules
60 days
Return of allotment
PAS-3 (30 days)
15 days
Worked example
### Example 1
Example 1: XYZ Ltd makes a private placement of equity shares to 150 persons and debentures to 100 persons in FY 2025-26.
Answer: The 200-person limit applies SEPARATELY to each kind of security. Equity offer to 150 ≤ 200 (OK); Debenture offer to 100 ≤ 200 (OK). Compliant. QIBs and ESOP recipients would be excluded from this count.
### Example 2
Example 2: ABC Ltd makes a private placement to 250 persons in a single offering.
Answer: Exceeds 200 limit → Deemed Public Offer. Company must comply with full prospectus, listing, and other public offer provisions. Non-compliance triggers penalty: lower of amount raised or ₹2 crore.
### Example 3
Example 3: PQR Ltd allots shares in a private placement on 1 May and uses the money for working capital on 5 May, before filing return of allotment.
Answer: Violation. Company cannot utilise monies until allotment AND return of allotment is filed with ROC. This is a Section 42 default attracting penalty.
### Example 4
Example 4: A company receives application money on 1 April but allots only on 15 June (75 days).
Answer: Beyond the 60-day allotment limit. Company must refund within 15 days with 12% p.a. interest on delayed period.
### Example 5
Example 5: A company sends private placement offers to 50 persons, then while that offer is open, issues another offer to a different 50 persons.
Answer: Violation of Section 42 — further private placement is allowed only after previous offer is completed, withdrawn or abandoned.
⚠️ Common exam mistakes
Counting QIBs and ESOPs within the 200-person limit — they are EXCLUDED.
Applying the 200 limit to ALL securities combined — it applies per KIND of security separately.
Confusing the 12% interest for private placement refund (Sec 42) with 15% for minimum subscription refund (Sec 39).
Forgetting that allotment must be within 60 days for private placement.
Missing the prohibition on cash payment — only banking channels are allowed.
Thinking PAS-4 carries right of renunciation — it does NOT.
Using money before filing return of allotment — strictly prohibited.
Allowing public advertisement — strictly prohibited for private placement.
Forgetting that for NCDs within Sec 180(1)(c) limits, only BR is needed (not SR).
Bare-Act text Section 42 · Companies Act, 2013 · click to expand
Section 42 — Issue of shares on private placement basis: (1) A company may, subject to the provisions of this section, make a private placement of securities. (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 QIBs and ESOPs), in a financial year subject to such conditions as may be prescribed. (3) A company making private placement shall issue private placement offer and application in such form and manner as may be prescribed to identified persons, whose names and addresses are recorded by the company in such manner as may be prescribed. (4) Every identified person willing to subscribe to the private placement issue shall apply in the private placement and application issued to him along with subscription money paid either by cheque or demand draft or other banking channel and 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 expiry 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. (10) Subject to sub-section (11), 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 raised through the private placement or two crore rupees, whichever is lower, and the company shall also refund all monies with interest as specified in sub-section (6) to subscribers within a period of thirty days of the order imposing the penalty.