[Opinion] RoC penalizes company & its directors for advertising Private Placement via Media
- Blog|News|Company Law|
- 2 Min Read
- By Taxmann
- |
- Last Updated on 14 March, 2023
Latest from Taxmann
[2023] 148 taxmann.com 195 (Article)
1. Private placement
Private placement of securities can be made only to select persons or identified persons (as identified by the board of directors of a company). A company making a private placement cannot offer its securities through any public advertisements or utilise any marketing, media, or distribution agents or channels to inform the public about such an offer. If the offer is advertised or marketed, it will be considered a public offer and not a private placement by the company.
2. Framework of Companies Act on private placement
Section 42 of the Companies Act, 2013 provides that a company can make a private placement to a select group of persons, other than by way of a public issue through a private placement offer letter. Rule 14 of the Companies (Prospectus and Allotment of Securities) Rules, 2014 provides the regulations relating to the private placement by companies. The companies making a private placement are prohibited in releasing any public advertisements or utilize any media, marketing or distribution channels or agents to inform the public at large about such an issue. The Rules state that the company should offer or invite to subscribe its securities through a private placement offer letter in Form PAS-4.
3. Relevant provisions of Companies Act 2013
The relevant provision on the matter of issue of shares on private placement basis is spelled out in section 42 of the Companies Act 2013. Sections 42 (7) of the Companies Act 2013 relating to this case reads that no company issuing securities under this section shall release any public advertisements or utilize any media, marketing or distribution channels or agents to inform the public at large about such an issue.
4. Penal provisions for default committed (if any) by the company
The penal provisions are also spelled out in the same section 42. sub-section (10) of section 42 of the Companies Act 2013, which says that subject to sub-section (11) if a company makes an offer or accepts monies in contravention of this section, the company, its promoters and directors shall be liable for a penalty which may extend to the amount raised through the private placement or two crore rupees, whichever is lower, and the company shall also refund all monies with interest as specified in sub-section (6) to subscribers within a period of thirty days of the order imposing the penalty.
5. Consequences of any default
To understand the impact of non-compliance/default committed, if any, by a company, while making the private placement, the regulator would initiate penal proceedings which would result in a heavy penalties on the company and its promoters and directors. To understand the impact, better we go through a decided case law on this matter on 1st March 2023 by the Registrar of Companies of NCT of Delhi & Haryana.
Click Here To Read The Full Article
Disclaimer: The content/information published on the website is only for general information of the user and shall not be construed as legal advice. While the Taxmann has exercised reasonable efforts to ensure the veracity of information/content published, Taxmann shall be under no liability in any manner whatsoever for incorrect information, if any.
Taxmann Publications has a dedicated in-house Research & Editorial Team. This team consists of a team of Chartered Accountants, Company Secretaries, and Lawyers. This team works under the guidance and supervision of editor-in-chief Mr Rakesh Bhargava.
The Research and Editorial Team is responsible for developing reliable and accurate content for the readers. The team follows the six-sigma approach to achieve the benchmark of zero error in its publications and research platforms. The team ensures that the following publication guidelines are thoroughly followed while developing the content:
- The statutory material is obtained only from the authorized and reliable sources
- All the latest developments in the judicial and legislative fields are covered
- Prepare the analytical write-ups on current, controversial, and important issues to help the readers to understand the concept and its implications
- Every content published by Taxmann is complete, accurate and lucid
- All evidence-based statements are supported with proper reference to Section, Circular No., Notification No. or citations
- The golden rules of grammar, style and consistency are thoroughly followed
- Font and size that’s easy to read and remain consistent across all imprint and digital publications are applied
Sign Up
To subscribe to our weekly newsletter please log in/register on Taxmann.com
Latest Books
Everything on Tax and Corporate Laws of India
To subscribe to our weekly newsletter please log in/register on Taxmann.com
