Who receives securities through private placement:
Financial institutions
Wealthy investors (HNIs)
Promoters
Relatives
Check:
Whether the company made any preferential allotment or private placement during the year.
If yes:
Whether Section 42 (private placement) and Section 62 (further issue) were complied with
Whether funds raised were used for the same purpose as stated in the offer document
If NOT complied → Report:
Amount involved
Nature of non-compliance
### Key Sections
Section
Subject
Section 42
Private Placement of Securities
Section 62
Further Issue of Share Capital (including preferential allotment)
### Distinction
IPO/FPO
Private Placement
Public offer — anyone can apply
Restricted to identified persons
Sec 62 (allotment)
Sec 42 + Sec 62
End-use monitored
Compliance + end-use monitored
Worked example
### Example 1
IPO Funds Diverted [Clause x(a)]:
ABC Ltd raised ₹50 crore through an IPO with the stated object of setting up a new factory. Of this, ₹15 crore was used to repay existing bank loans (not stated as an object in the prospectus).
Answer: The auditor reports under Clause 3(x)(a) that ₹15 crore of IPO proceeds were NOT applied for the stated purpose. Details of the diversion (₹15 crore used for loan repayment instead of factory construction) must be reported.
### Example 2
Private Placement Non-Compliance [Clause x(b)]:
XYZ Ltd made a private placement of debentures worth ₹10 crore without filing the required offer letter with the Registrar of Companies as mandated under Section 42.
Answer: The auditor must report under Clause 3(x)(b) that the company made a private placement of ₹10 crore but did not comply with Section 42 (offer letter not filed with ROC). Amount involved: ₹10 crore; Nature of non-compliance: procedural requirements of Section 42 not followed.
⚠️ Common exam mistakes
Confusing the sections — Section 42 is private placement; Section 62 is further issue of share capital. Both apply to preferential allotment.
Applying only Section 62 to private placements and forgetting Section 42 — CARO requires BOTH to be checked.
Assuming end-use only matters for public issues — both public offers AND private placements require the funds to be used for the stated purpose.
Missing the reporting requirement when there is merely a delay (not total non-utilization) — delay in utilization is also reportable under Clause (x)(a).
Bare-Act text Clause 3(x) · Companies (Auditor's Report) Order, 2020 (CARO 2020) · click to expand
3(x)(a) whether the company has raised moneys by way of initial public offer or further public offer (including debt instruments) during the year and if so, whether such moneys have been applied for the purpose for which such funds were raised, if not, the details together with delays or default and subsequent rectification, if any, as may be applicable, be reported; (b) whether the company has made any preferential allotment or private placement of shares or convertible debentures or convertible preference shares or fully or partly convertible debentures during the year, and if so, whether the requirements of section 42 and section 62 of the Companies Act, 2013 have been complied with and the funds raised have been used for the purposes for which the funds were raised, if not, provide the details in respect of the amount involved and nature of non-compliance.