The Companies Amendment Act, 2017 revised assent of President on January 3, 2018. The Central Government can appoint different dates for enforcing different provisions of Companies (Amendment) Act, 2017.
The Ministry of Corporate Affairs (MCA) vide notification dated August 7, 2018 has enforced revised section 42 of Companies Act, 2013 along with revised Rule 14 of Companies (Prospectus and Allotment of Securities) Rules, 2014.
Major highlights of amended section with corresponding rules are as follows:
- Fresh Requirement of identification of persons by Board has been introduced to whom private placement shall be made.
- A common private placement offer cum application form, i.e. Form PAS-4 has been revised and includes a section of application letter that needs to be filed in by the applicant. And required to be submitted along with subscription money paid either by cheque, demand draft or other banking channel but not by cash.
- The explanatory statement annexed to notice of general meeting should provide the following details:
(i) particulars of the offer including date of passing of Board resolution;
(ii) basis or justification for the price (including premium, if any) at which the offer or invitation is being made; (this was also included in earlier provisions);
(iii) name and address of valuer who performed valuation;
(iv) amount which the company intends to raise by way of such securities;
(v) material terms of raising such securities, principle terms of assets charged as securities;
(vi) Other details which were required to be disclosed as per Rule 13 of Companies (Share Capital and Debentures) Rules, 2014 has now been included in this rule and the same are proposed time schedule, purposes or objects of offer, contribution being made by the promoters or directors either as part of the offer or separately in furtherance of objects and kinds of securities offered and the price at which security is being offered.
- In case of offer or invitation for non-convertible debentures, where the proposed amount to be raised through such offer or invitation does not exceed the limit as specified in section 180(1)(c), no requirement to pass special resolution as prescribed in Rule 14(1) and relevant Board resolution under 179(3)(c) would be adequate.
- However, if such offer or invitation exceeds the limit as specified in section 180(1)(c), it shall be sufficient if the company passes a special resolution only once in a year for all the offers or invitations for such debentures during the year.
- The Form PAS-4 shall be issued post filing of special resolution or Board Resolution (E-Form MGT-14) with ROC (also applicable to private companies)
- The requirement related to value of offer or invitation per person of Rs. 20,000/- of face value of the securities has been done away with.
- The restriction on use of Share Application Money has been revised. Now the share application money will not be used until the allotment is made and the return of allotment, in E-form PAS- 3, is filed with the Registrar of Companies.
- Earlier, there was no such restriction on rights of renunciation of the private placement offer has been made by the issuer company, however, the same has been introduced now.
- Earlier there was also a restriction that no fresh offer or invitation can be made unless the allotment w.r.t. any earlier offer has been completed or the offer has been withdrawn or abandoned. Now a carve out has been provided that in case the number of persons to whom the offer is made does not exceed 200, the company may, at any time, make more than one issue of securities to such class of identified persons.
- Earlier, Form PAS-5, i.e. complete record of private placement was filed along with offer letter in Form PAS-4. Now the requirement of filing Form PAS-5 along with Form PAS-4 has been done away with. In other words, both forms PAS-4 and PAS-5 will not be filed to ROC from now onwards.
- Earlier, E-form PAS-3 was required to be filed within 30 days of allotment of securities, the time limit has been revised to 15 days.
- Further, Separate penal provisions for non-filing of E-form PAS- 3 has been introduced and the company, its promoters and directors shall be liable with a penalty Rs. 1,000/- per day but not exceeding Rs. 25 Lakh.
- The penalty amount has been revised from ‘the amount involved in the offer or invitation or Rupees Two Crore, whichever is higher” to ‘the amount involved in the offer or invitation or Rupees Two Crore, whichever is lower”.
- The above changes has been made to remove the difficulties faced with regard to the offer letter, size of minimum investment, making of a fresh offer etc. Also the purpose was check the gross misuse of earlier provisions relating to private placement under the Companies Act, 1956, and felt that such requirements, which were procedural in nature and did not cause great difficulty, ought to be retained.
Hope this article will help you in understanding the amendment made in provision of Private Placement!
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