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Extension for Retention of Share Application Money under Private Equity Placement

Private Placement

As per Companies Act, 2013, the Company can raise money through three ways i.e public offer, private placement, right or bonus issue.

Private placement means the issue of shares to select group of investors, instead of inviting public at large.

Certain conditions to be fulfilled for private placement:

  • Private placement offer can be made to persons not exceeding 50 or not more than 200 persons in the aggregate in a financial year. Qualified Institutional Buyers and Employees are excluded from the count of 200 people.
  • All offers shall be made only to those persons whose names are recorded by the company prior to the invitation to subscribe.
  • Allotments can be made persons addressed to the persons whom the offer is made to with the Offer letter.
  • The value of such offer or invitation per person shall be with an investment size of not less than Rs.20,000/- of the face value of the securities.
  • All monies outstanding towards subscription of securities under this section shall be paid through cheque or demand draft or other banking channels but not by cash.
  • The price of the security has to be justified and it also requires a valuation report by a Registered Valuer (which can be a Company Secretary, Chartered accountant or a Cost Accountant).

Form and Manner of Private Placement:

  • Company shall make an offer or invitation to subscribe to securities through the issue of a private placement offer letter in Form PAS-4.
  • Private placement offer letter shall be accompanied by an application form serially numbered and addressed specifically to the person to whom the offer is made and shall be sent to him within 30 days of recording the names of such persons.
  • No person other than the person so addressed in the application form shall be allowed to apply through such application form and any application not conforming to this condition shall be treated as invalid.

Receipt of Application Money:

As per the Companies Act, 2013, The Company shall keep the Monies received on the application in a spate account in a scheduled bank. The money so received can be utilized for the following purpose only:

  • For adjustment against allotment of securities
  • For the repayment of monies where the company is unable to allot securities.

Further, if the share is issued to a non-resident then the company shall comply with the provisions of FEMA.

  • Reporting of Inflow:
    • An Indian company receiving investment from outside India for issuing shares under FDI scheme should report the details of the amount of consideration to the Reserve Bank through its AD within 30 days from the date of receipt in the Advance Reporting Form.
    • The above form shall be filed with a copy/ies of the FIRC/s evidencing the receipt of the remittance along with the KYC report on the non-resident investor from the overseas bank remitting the amount.

Record of Private Placement:

The Company has to maintain a complete record of Private placement in Form PAS-5.

The time frame within which shares have to be issued:

As per the Companies Act, 2013:

  • The Company shall allow the shares within 60 days from the date of receipt of the application money for such securities.
  • If the Company fails to allot within the time limit of 60 days it shall refund the application money to the applicant within 15 days from the date of completion of 60 days.
  • If the Company fails to repay in above stated period of 15 days than company shall refund that money with interest at the rate of 12%. p.a. from the expiry of the 60th day.

However, Company raising foreign investment shall also comply with the provisions of FEMA:

  • The equity instruments should be issued within 180 days from the date of receipt of the inward remittance or by debit to the NRE/FCNR (B) /Escrow account of the non-resident investor.
  • However, the equity instruments are not issued within 180 days from the date of receipt of the inward remittance or date of debit to the NRE/FCNR account, the amount of consideration so received should be refunded immediately to the non-resident investor by outward remittance through normal banking channels or by credit to the NRE/FCNR/Escrow account, as the case may be.
  • Non-compliance with the above provision would be reckoned as a contravention under FEMA and could attract penal provisions.

Exceptional case: Permission to keep share application money beyond 180 days

The company who fails to allow within the time limit of 180 days from the receipt of the money, may make an application to RBI to grant relaxation on the clause of allotment.

On merits of the case, RBI may grant some relaxation for refund/allotment of shares for the amount of consideration outstanding beyond a period of 180 days from the date of receipt of consideration.

Filing of Private Placement offer Letter:

  • A copy of record along with the private placement offer letter in Form PAS-4 shall be filed with the Registrar with the applicable fees and where the company is listed, with the Securities and Exchange Board within 30days of circulation of the private placement offer letter.
  • The date of private placement offer letter shall be deemed to be the date of circulation of private placement offer letter.

Filing of Return of Allotment of Securities:

A return of allotment of shares shall be filed with the Registrar within 30 days of allotment in the Form PAS-3 and with the prescribed fees along with a complete list of all security holders containing-

  • the full name, address, Permanent Account Number and E-mail ID of such security holder;
  • the class of security held;
  • allotment date of security ;
  • the number of securities held, nominal value and amount paid on such securities;

However, in case of shares issued to non-resident shall in addition to above comply below provisions.

  • The Indian company shall file Form FC-GPR through its AD Category I bank, within 30 days from the date of issue of shares.
  • FC-GPR shall be duly filled up and signed by Managing Director/Director/Secretary of the Company and submitted to the Authorised Dealer of the company along with below documents:
    • A certificate from the Company Secretary of the company certifying the compliances of provisions.
    • A certificate from SEBI registered Merchant Banker or Chartered Accountant indicating the manner of arriving at the price of the shares issued to the person resident outside India

Exempted Companies (in terms of Offer & Value of securities):

  • NBFCs which are registered with the Reserve Bank of India under Reserve Bank of India Act, 1934;
  • HFCs which are registered with the NHB only If they are complying with regulations made by Reserve Bank of India or National Housing Bank in respect of offer or invitation to be issued on private placement basis.

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