Private Placement — Section 42 MCA Filing

Section 42 of the Companies Act, 2013 governs the private placement of securities — an offer or invitation to subscribe to securities made to a select group of identified persons other than through a public offer, a rights issue, an ESOP, a bonus issue or a qualified institutional placement. Under Section 42(1A), the offer requires a prior special resolution of the company (or, for non-convertible debentures within limits already approved by a single special resolution for the year, a Board resolution may suffice). Section 42(2) caps the number of identified persons at 200 in a financial year (excluding qualified institutional buyers and employees under an approved stock option scheme), aggregated across all kinds of securities offered.

The offer is made in Form PAS-4 (Private Placement Offer and Application Letter), prescribed under Rule 14 of the Companies (Prospectus and Allotment of Securities) Rules, 2014, and application money must be received only through a banking channel and kept in a separate bank account in a scheduled bank, not to be utilised except for adjustment against allotment of securities or repayment under Section 42(6). Allotment must be completed within 60 days of receipt of the application money under Section 42(7); amounts not refunded within 15 days thereafter (where allotment is not made) carry interest at 12% per annum.

Once allotment is made, the company must file a return of allotment in Form PAS-3 with the Registrar within 15 days under Section 42(9) — the follow-on filing covered separately under this firm's post-allotment compliance service. Default under Section 42(10) attracts a penalty of ₹1,000 per day of default for the company and every officer in default, subject to a maximum of ₹25 lakh.

Private placement is the issue of shares or securities to a select group of investors under the Companies Act 2013 — the offer to the identified persons under Section 42 of the Act read with the Companies (Prospectus and Allotment of Securities) Rules 2014, with the valuation and the pricing, the offer letter, the resolution, the allotment, and the filings with the ROC and the MCA — the PAS-3 for the allotment and the PAS-4 for the offer, within the timelines the Rules prescribe. The private placement is the primary route for the startup and the growth funding — the investment rounds from the angels, the VCs and the strategic investors.

The private placement is how most private companies raise the equity — the funding round structured under Section 42 of the Act, with the offer to the identified investors, the pricing supported by the valuation, the resolutions and the filings that make the allotment lawful, and the lock-in and the disclosure conditions. The compliance is the machinery that makes the round valid — a defect in the process can make the allotment void, which is the risk the Rules are designed to prevent.

The cost of a defective private placement is the invalid allotment: the offer to more persons than the section allows, the filings missed within the timelines, the pricing without the valuation — each a defect that can unwind the round the company raised, with the refunds and the consequences.

This service is for companies raising capital by private placement. We structure the round under Section 42 and the Rules 2014 — the offer, the pricing and the valuation — prepare the resolutions, the offer letters and the disclosures, file the PAS-4 and the PAS-3 within the timelines, manage the allotment and the share certificates, and complete the post-allotment filings so the round is valid end to end.