# Private Placement under Section 42

## What is Private Placement?

Private placement is a mechanism by which a company can raise funds from a select group of identified persons (not the general public). It is governed by Section 42 of the Companies Act, 2013 read with Rule 14 of the Companies (Prospectus and Allotment of Securities) Rules, 2014.

## Core Rules to Remember

### 1. Right of Renouncement

Not applicable in private placement.
The identified person cannot transfer the offer to someone else.

### 2. Prohibited Offerees

No offer can be made to:

A body corporate or person from a country sharing a land border with India, unless approved by the Government.
Such offers must also comply with FEMA (Non-debt Instruments) Rules.

### 3. Limit of 200 Persons per Financial Year

The 200-person cap applies separately for each kind of security (e.g., equity, debentures).
Excluded from the count: Qualified Institutional Buyers (QIBs) and employees offered shares under ESOPs.
NBFCs and Housing Finance Companies have separate sectoral limits.

### 4. Deemed Public Offer

If the offer crosses 200 persons, it is deemed a public offer — triggering full prospectus and listing compliance.

### 5. Procedure (Rule 14)

1. Board Resolution – authorises the offer.

2. Explanatory Statement to be annexed, containing:

Date of Board Resolution
Kind of securities and issue price
Justification for price / premium
Name & address of Registered Valuer
Total amount to be raised
Terms, timeline, purpose, promoter/director contribution, assets charged

3. Special Resolution from shareholders.

Exception: Only a Board Resolution is needed for issue of Non-Convertible Debentures within the limits of Section 180(1)(c).

### 6. Offer Letter and Money Handling

PAS-4 (offer cum application letter) is to be issued within 30 days of recording the names of identified persons.
Payment only through banking channels (cheque/DD/electronic) — never cash.
In case of joint holders, money must come from the bank account of the first-named applicant.
Money received must be kept in a separate bank account and used only for allotment or refund.

### 7. Time Limits

Step	Time Limit
Allotment after receipt of application money	60 days
Refund if allotment not made	Within 15 days thereafter
Interest if refund delayed	12% p.a. from end of 60th day

### 8. Filings with ROC

Before offer: File copy of BR + SR.
After allotment: File Return of Allotment within 15 days.
Default in filing: ₹1,000 per day, max ₹25 Lakh.

### 9. Restrictions on Further Offers

A fresh offer can be made only after the earlier offer is completed, withdrawn, or abandoned.
However, multiple offers to the same identified persons are permitted.

### 10. Absolute Prohibitions

No public advertisement or media publicity.
No right of renunciation in the offer.

### 11. Penalty for Non-Compliance

Penalty: Amount raised or ₹2 Crore, whichever is LOWER.
Refund all monies with interest within 30 days of penalty.
Offer becomes a deemed public offer.

## Memory Aid

"PA-200-60-15-PAS-4" — Private Allotment, 200 persons, 60 days to allot, 15 days to refund, PAS-4 within 30 days.

Worked example

### Example 1

Example 1 — 200-person limit: ABC Ltd offers equity shares to 180 persons and NCDs to 150 persons in FY 2024-25. Is this a deemed public offer?

Answer: No. The 200-person limit applies separately to each type of security. Since equity (180) and NCDs (150) are each below 200, this is a valid private placement.

### Example 2

Example 2 — Delayed allotment: XYZ Ltd received ₹50 lakh on 1-April under private placement but did not allot shares by 60th day. By when must it refund, and what is the interest cost?

Answer: The 60-day window ends 31-May. From 1-June, interest at 12% p.a. starts running. The company must refund the entire ₹50 lakh with 12% interest within 15 days from end of the 60th day (i.e., by 15-June).

⚠️ Common exam mistakes

Treating the 200-person limit as a combined cap across securities — it applies separately per type of security.
Counting QIBs and ESOP allottees against the 200-person ceiling — they are excluded.
Believing penalty is 'higher of' amount raised or ₹2 Crore — it is the LOWER of the two.
Forgetting that money raised via private placement cannot be utilised until Return of Allotment is filed with ROC.
Allowing right of renunciation in private placement (it is expressly prohibited).

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

Section 42(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.

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Private Placement (Section 42) - Key Rules and Compliance

Worked example

⚠️ Common exam mistakes