CORPORATE FINANCE LAW

PROJECT ON

“RAISING OF CAPITAL THROUGH PRIVATE PLACEMENT OFFER; RISK

FACTORS INVOLVED AND ITS COMPARISON WITH PREFERENCIAL
ALLOTMENT”

Submitted by

KRITI KHARE

BA0140029

Project Submitted to

Prof. M.L. SHANKAR KAARMUKILAN

(Faculty of Law)

TAMIL NADU NATIONAL LAW UNIVERSITY

(A State University established by Act No. 9 of 2012)

NavalurKuttapattu, Srirangam (TK), Tiruchirappalli – 620009.

APRIL 2017
 TABLE OF CONTENT

CHAPTER 1: INTRODUCTION..........................................................................................................3
CHAPTER 2: COMPANIES ACT, 2013..............................................................................................4
CHAPTER-3: DIFFERENCE BETWEEN PRIVATE PLACEMENT AND PREFERENTIAL
ALLOTMENT UNDER COMPANIES ACT, 2013..............................................................................9
CHAPTER 4: CONTENTS OF PRIVATE PLACEMENT OFFER LETTER....................................11
CONCLUSION...................................................................................................................................18
BIBLIOGRAPHY...............................................................................................................................19

2
 CHAPTER 1: INTRODUCTION

Any business needs funds in order to make it successful or atleast run that business. Initially,
the money comes from subscription of capital by the members but as the company grows, it
definitely need for funds. The company raises funds by various other met hods namely,
Public issue, Rights issue, Bonus issue and Private placement. A Public issue can either be an
initial public offer (“IPO”) or a follow-up public offer (“FPO”). With an IPO, an unlisted
public company can make either a fresh issue of securities or offer its existing securities for
sale for the first time to the public while an FPO allows an already listed company to make a
fresh issue of securities to the public. Both IPO and FPO are governed by stock market
regulator, SEBI, and the corresponding laws and regulations. A public or a private company
can also increase its share capital base through a rights issue where it can issue fresh
securities to existing shareholders in a particular ratio depending on the number of securities
held prior to the issue. This route is best suited for companies who intend to raise capital
without diluting stake of their existing shareholders. Under a bonus issue, a company can
issue fully paid-up bonus shares to its members out of its free reserves, security premium
account or capital redemption reserve. With bonus issues, the total number of issued shares
increases i.e. to say that the shareholder base of the company increases but, the ratio of
number of shares held by each shareholder remains the same. A private placement of
securities is an offer by a company, to a select group of persons to subscribe its securities.

The companies Act, 1956 and SEBI guidelines and regulation govern the laws and regulation
relating to private placement offer. The Act, 1956 did not define the term 'private placement'
rather certain offers of shares or debentures/invitation to subscribe for shares or debentures to
any section of the public were not regarded as public issues under section 67(3) the Act, 1956
i.e where shares or debentures are available for subscription or purchase only to those
receiving the offer/invitation and offer/invitation is a domestic concern of the issuer and those
receiving the offer/invitation, were termed as private placement. However, as per the proviso
to section 67(3) of the Act, 1956, when a company made an offer or invitation to subscribe
for shares or debentures to 50 or more persons, such offers was treated as made to public.

3
 CHAPTER 2: COMPANIES ACT, 2013

A. Provision under Act, 2013

Chapter III, Part II of the Act, 2013 deals exclusively with private placements. Section 42 1
defines 'private placement' which can be said in consonance with the interpretation of the
Supreme Court as "any offer of securities or invitation to subscribe securities to a select
group of persons by a company (other than by way of public offer) through issue of a private
placement offer letter and which satisfies the conditions specified in this section including the
condition that he offer or invitation is made to not more than 50 or such higher number of
persons as may be prescribed (excluding QIB's and employees offered securities under
ESOP) in a financial year".

A company may make an offer or invitation to subscribe to securities through issues of a

private placement offer letter in form PAS-4. (given under the companies prospectus and
Allotment of securities rule 2014) The section further provides that a 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, either in writing
or in electronic mode, within thirty days of recording the names of such persons2. 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.

There are certain restriction to the same, that is a company shall not make a private placement
of securities unless the proposed offer of securities has been previously approved by the
shareholders of the company, by a special resolution, for each of the offers or invitations.
Also unless in the explanatory statement annexed to the notice for the general meeting the
basis or justification for the price at which the offer or invitation is being made shall be
disclosed, private placement shall not be made. The said offer or invitation is limited to two
hundred person in the aggregate in a financial year.

The requirement of provisions shall apply in respect of offer or invitation of each kind of
security and no offer or invitation of another kind of security shall be made unless allotments
with respect of any other kind of security is completed. 3 (SECTION 42 SUBSECTION (3))
1
Section 42, Companies Act, 2013
2
Section 42 (7), Companies Act, 2013
3
Section 42 (3), Companies Act, 2013

4
Further the value of such offer per person shall be with an investment size of not less than
twenty thousand rupees of face value of the securities.

The provision shall not be applicable to the Non-Banking financial companies which are
registered with the Reserve Bank of India under RBI Act, 1934 and Housing Finance
companies which are registered with the National Housing Bank Act, 1987, if they are
complying with the regulations made by Reserve Bank of India or National Housing Bank in
respect of offer to be issued on private placement basis.4

It is also to be noted that the provisions for private placement applies to the issue of
"securities" and not "shares". Thus the new provisions have widened the scope and cover a
whole host of instruments such as shares, bonds, debentures and other marketable securities
etc. The Act, 2013 under section 42(4) mandates a company to comply with the provisions of
SEBI Act & SCRA, if any offer or invitation is not in compliance with the provisions of the
section and such offer or invitation shall be treated as a public offer.

The section stipulates that all the money payable towards subscription of securities by private
placement shall be paid through cheque or demand draft or other banking channels but not by
cash and also all the securities under private placement are to be allotted within a period of 60
days from the receipt of application money. If the company is no t able to allot the
securities within the specified period, the application money is to be refunded within a period
of 15 days from completion of sixty days’ time. The money raised by the issue of offer or
invitation shall be in a separate bank account and cannot be used until allotted. Every
company making any allotment under the said section shall submit with the Registrar the
particulars of every private offer within 30 days of circulation of offer letter.

B. Form PAS 4 not required to be filed for Issue of Preferential Shares

The Ministry of Corporate Affairs (MCA) has introduced ‘The Companies (Share capital and
Debentures) Amendment Rules, 2015. Under these rules, amendment has been made to The
Companies (Share capital and Debentures) Rules, 2014 i.e. Issue of shares on Preferential
basis.5

Before the first proviso of Rule 13(1), 6 MCA has inserted new proviso vide this notification
which reads as under: “Provided that in case of any preferential offer made by a company to
4
Rule 14(5) , Companies(prospectus and Allotment of Securities) Rules,2014
5
Rule 13 of ‘The Companies (Share capital and Debentures) Rules, 2014
6
Rule 13 (1), Companies (Share Capital & Debenture) Rules, 2014

5
one or more existing members only, the provisions of sub-rule (1) and Rule 14 (3) of
Companies (prospectus and allotment of securities) Rules, 2014 shall not apply.”

As per this newly inserted proviso, in case of any preferential allotment made by a company
to existing members, there is no requirement of making open offer in Form PAS 4 and filling
thereof with the RoC/ SEBI is not required. However, complete record of private placement
offers is required to be maintained in Form PAS 5 because the proviso has been newly
inserted.

In the first proviso of Rule 13(1) words “Provided that…” have been substituted to “Provided
further that…” therefore the proviso reads as under: ‘Provided further that the price of shares
to be issued on a preferential basis by a listed company shall not be required to be determined
by the valuation report of a registered valuer.’

C. Procedure For Private Placement7

A company must ensure that its articles of association authorize increase of share capital by
private placement. If not, appropriate approvals from Board and the shareholders to be sought
and resolutions to be passed.

a) Identification of Persons to whom the offer/invitation shall be made:  All Private

Placement offers shall be made to only those persons whose names are recorded by
the company prior to the invitation to subscribe and such persons shall receive the
offer by name.

b) Preparation of the Private Placement Letter of Offer: For every private placement an

Offer Letter is to be prepared as per Form PAS 4 of companies (Prospectus and
allotment of Securities) Rules 2014. The Letter of Offer shall contain such details
including – General information about the company, management perception of risk
factors, disclosures on the directors, litigations on the company as well as on the
directors etc., It shall contain the complete particulars of the offer containing all terms
and conditions as well as objects for making the private placement, amount to be
raised, time schedule, details of any security etc. It shall also contain the Financial
Position of the Company, Capital Structure, Profits, Dividends, Summary of financial
position for past three years, Audited cash flow statement, any change in accounting
policies, etc.
7
Form PAS -4, Rule 14, Companies (Prospectus and Allotment of Securities) Rules, 2014

6
c) Special Resolution: Prior approval of shareholders shall be taken by way of a Special
Resolution for each offer/ invitation for private placement. The explanatory statement
attached to the notice to the general meeting shall include the justification of the price
at which the offer is being made. In the case of non-convertible debentures, prior
approval of shareholders by a Special Resolution is required only once a year for all
the offers of such debentures during the year.

d) Circulation of the Offer Letter: The offer letter along with the application form
addressed specifically to the proposed allottees shall be sent either in writing or
electronic form within 30 days of recording the names of such persons as specified
above. Only the person to whom the application form is addressed shall be permitted
to subscribe using that particular application form.

e) Prepare And Maintain A Record Of Private Placement Offers : The Company shall
maintain a complete record under Form PAS 5 of the offer made under Private
Placement. The details shall include name of the person, father’s name, complete
address, contact details, signature of the officer designated to maintain the records etc.

f) ROC Filing – PAS 4 and PAS 5 : The Company shall file PAS 4 and PAS 5 within a
period of 30 days with the Registrar of Companies in such manner as prescribed
under the Act and Rules. The Company shall also file these forms with SEBI if the
company is listed.

g) Board Meeting and Allotment of Securities: The Company shall call a Board meeting
to consider the allotment of Privately Placed securities and make an allotment of
securities under Private Placement within 60 days from the date of receipt of
application money for such securities. If the company is unable to allot such securities
within that period of time, it shall repay the application money to subscribers within
15 days from the date of completion of 60 days. If however the company fails to
repay the allotment money within the 15 days period stated hereinabove, it shall be
liable to repay that money with an interest rate of 12% p.a. from the expiry of the 60
day period mentioned hereinabove.

h) ROC Filing PAS 3: The Company is required to file with the ROC a return of
allotment under form PAS 3 giving complete particulars of the list of allottees – full
name, address, PAN, email address, class of security, date of becoming a security

7
 holder, number of securities, nominal value of securities, amount paid up and
consideration received. The form shall also contain the requisite Board resolutions
and valuation reports, if any.

i) Issue Share Certificates: Once the above mentioned process is completed, the

Company shall issue share certificates to the respective allottees.

D. Private Placement Market:

Private Placement has evolved to be a preferred route for raising resources by both private
and public sector companies. In India, the route has gained importance during the last few
years, in lieu of the prolonged subdued conditions in the new issues market. In terms of
instruments, equity portion is more often prescribed through preference shares while the debt
portion is instrumented through bonds and debentures. Since, it is purely concerned with
private placement offer, no company offering securities under this section shall release any
public advertisements or utilise any media, marketing or distribution channels or agents to
inform the public at large about such an offer.

E. Penal Provision

If any company contravene or violates any provision of section 42 of companies Act 2013
while issuing securities through private placement, then the company, its promoters and
directors shall be liable for a penalty which may extend to the amount involved in the offer or
invitation or two crore rupees, whichever is higher, and the company shall also refund all
monies to subscribers within a period of thirty days of the order imposing the penalty.

8
CHAPTER-3: DIFFERENCE BETWEEN PRIVATE PLACEMENT AND
PREFERENTIAL ALLOTMENT UNDER COMPANIES ACT, 2013

To invite general public, for subscribing the shares of a company, it makes a public issue, by
way of an Initial Public Offering (IPO). However, when a company seeks to raise funds,
without making a public issue, then it has the option of the private placement, wherein, the
securities (shares and convertible debentures) are issued to private investors, not exceeding
200 members in a financial year.

There are two kinds of the private placement, namely, preferential allotment and qualified
institutional placement. There are instances when people juxtapose preferential allotment for
private placement. The preferential allotment is when the company allots securities to a few
select persons based on preference. This article excerpt deals with the difference between
private placement and preferential allotment.

Private Placement: The private placement implies selling of securities, i.e. debentures or
equity shares, to private investors, with the aim of raising funds for the company. According
to section 42 of the Companies Act 2013, the private placement is one in which a company
makes an offer to selected persons such as mutual funds or insurance companies by issuing a
Private Placement Offer Letter and satisfying the conditions thereon. The offer or invitation
to subscribe for securities can be made up to 200 persons or less, in a financial year, not
including qualified institutional buyers and securities issued to employees by way of
Employees Stock Option Plan (ESOP). If a company makes an offer or invitation to offer to
issue or enters into an agreement to issue shares to persons more than the limit prescribed
then it will be considered as a public issue and regulated accordingly.8

Preferential Allotment: It is used to mean the issue of specified securities by a company

listed on a recognized stock exchange, to any select person or group of persons, on
preferential basis. The offer is subject to the rules and regulations made by Securities and
Exchange Board of India, in this regard. However, when an unlisted company goes for
preferential allotment the rules of the Companies Act, 2013 will apply. 9 The offer can be
made to any person whether they are equity shareholders and employees of the company or
not. In relation to preferential allotment; the allotment is authorized by the company’s articles
of association. The company’s members must pass a special resolution, or it is approved by
8
Taxmann, Company Rules & Forms with Company Rules Ready Reckoner, Taxmann, 2014.
9
Companies (Share Capital & Debenture) Rules, 2014.

9
Central Government. The securities issued through preferential allotment should be fully
paid, when the issue is made. As per SEBI takeover code, a preferential allotment exceeding
25% of equity constitutes an open offer to the existing shareholders and shares issued to
promoters as preferential allotment are subject to a lock in period of three years, and so they
cannot transfer such shares. Nevertheless, the securities issued to other investors are subject
to lock-in period of one year only.

Therefore the key differences between private placement and preferential

allotment are;

1. Private Placement can be described as an offer or invitation to offer made to specified

investors by issuing securities, so as to raise funds. On the contrary, Preferential
Allotment is the issue of shares or debentures to a particular group of persons is made
by a listed company, to raise funds.

2. Private Placement is governed by section 42 of the Companies Act, 2013. Conversely,

in the case of Preferential Allotment section 62 (1) of the Companies Act, 2013 will
apply.

3. In the case of private placement, ‘Private placement offer letter’ is sent to the
investors for inviting them to subscribe for shares. As against, in the case of
preferential allotment, no such offer document is issued to people.

4. In private placement, application money can be received through cheques, demand

draft or any other banking modes but not cash. Unlike, preferential allotment in which
the money is received in cash or kind.

5. In private placement, the application money is kept in the separate bank account of a
scheduled commercial bank. On the contrary, no such account is required in case of
preferential allotment.

6. The private placement must be authorized by the articles of association of the

company. In contrast, no such authorization is required in case of preferential
allotment.

10
 CHAPTER 4: CONTENTS OF PRIVATE PLACEMENT OFFER
LETTER

Pursuant to section 42 and rule 14(1) of Companies (Prospectus and

Allotment of Securities) Rules, 2014.

The Private Placement Offer Letter shall contain the following:

i. General information
ii. Particulars about the offer
iii. Disclosure with regard to interest of directors, litigation, etc.
iv. Financial position of the company
v. Declaration by the directors

Three main areas of PPOL in relation with the flow of information and disclosure of these
information mentioned in the offer letter with inherent risk factors:

A. RISK FACTORS
Prospective investors should carefully consider the risk factors relating to the business of
the Company and the industry of the Company described below together with all other
information contained in PAS-4 before making any investment decision. These risks and
uncertainties are not the only issues that the Company faces; additional risks and
uncertainties not presently known to the Company or that the Company currently believes
to be immaterial may also have an adverse effect on the business, results of operations,
financial condition or prospects and cause the market price of the share to fluctuate
significantly and consequently adversely impact the prospective investment, upon a sale of
the share. Unless otherwise stated in the relevant risk factors set forth below, the Company
is not in a position to specify or quantify the financial or other risks mentioned herein. The
order of the risk factors appearing hereunder is intended to facilitate ease of reading and
reference and does not in any manner indicate the importance of one risk factor over
another. The prospective Investors must rely on their own examination of the Company and
this Issue, including the risks and uncertainties involved.

11
i. Internal Risk Factors:

a. There could be delays or defaults by a concession authority with respect to

payments upon termination under the tripartite agreement between the Company,
the concession authority and the concessionaire
Any lending or investment activity is exposed to credit risk arising from the risk of default
and non-payment by borrowers and other counterparties.
b. Changes may occur to the Company’s current interest rate policy of matching
fixed rate assets with fixed rate liabilities
The Company proposes to provide long term fixed rate facilities to borrower. In order to
ensure the absence of basis or interest rate risk, the Company presently proposes to raise
funds through the issuance of fixed rate, long term bonds. In case of a change at any point
in the future, in the aforesaid policy of matching fixed rate assets with fixed rate liabilities
of equivalent average maturity, the Company could face interest rate risks as well as a risk
of asset liability mismatches, which could adversely impact the business and financial
condition of the Company.
c. Changes could occur in the Company’s foreign exchange exposure policy
In the event the policy is changed and the Company borrows funds in foreign currency, the
Company could be exposed to the risk of fluctuations in foreign exchange rates and adverse
movements of the Indian rupee. Any such adverse movements of the rupee against foreign
currencies, could adversely impact the business and financial condition of the Company.
d. The Company’s ability to sustain itself is primarily dependent on the availability of
appropriate projects to lend to in future
e. Risk of lower market share due to increased competition
Significantly increased competition could result in a lower market-share in future years for
the Company.
f. Risks In Relation To The Issue Of Securities
1. Restrictions on payment of dividend and redemption
As per the provisions of the Companies Act, the dividends payable on the securities can
only be out of profits of the Company, calculated in accordance with the provisions of the
Companies Act or out of the profits of the Company for any previous fiscal year(s) arrived
at as laid down by the Companies Act. Further, where the profits (including accumulated
profits standing in the profit or loss account) are inadequate, dividends can be paid out of
free reserves, in accordance with the Companies Act and the rules made thereunder.

12
 Redemption of the securities can only be made out of the proceeds of a fresh issue of shares
made for the purpose of redemption or the profits of the Company that would otherwise
have been available for distribution as dividend. In case the Company does not have
adequate profits, the Company will not be able to pay the dividends on the securities.
Further, in case the Company does not have adequate profits or the Company is unable to
raise money by fresh issue of shares, the Company may be unable to redeem the securities
in accordance with their terms.
2. The Companies Act, 2013 has effected significant changes to the existing
Indian company law framework, which may subject the Company to higher
compliance requirements and increase in the Company’s compliance costs.
A majority of the provisions and rules under the Companies Act, 2013 have recently been
notified and have come into effect from the date of their respective notification, resulting in
the corresponding provisions of the Companies Act, 1956 ceasing to have effect. 10 The
Companies Act, 2013 has brought into effect significant changes to the Indian company law
framework, such as in the provisions related to issue of capital (including provisions in
relation to issue of securities on a private placement basis), disclosures in offer document,
corporate governance norms, accounting policies and audit matters, related party
transactions, introduction of a provision allowing the initiation of class action suits in India
against companies by shareholders or depositors, a restriction on investment by an Indian
company through more than two layers of subsidiary investment companies (subject to
certain permitted exceptions), prohibitions on loans to directors and insider trading and
restrictions on directors and key managerial personnel from engaging in forward dealing.
The Company is also required to spend, in each financial year, at least 2.0% of the average
net profits during three immediately preceding financial years towards corporate social
responsibility activities. Further, the Companies Act, 2013 imposes greater monetary and
other liability on the Company, the Directors and the Key Managerial Personnel for any
non-compliance.11 To ensure compliance with the requirements of the Companies Act,
2013, the Company may need to allocate additional resources, which may increase the
regulatory compliance costs and divert management attention. In accordance with Indian
law and practice, permissions for listing and trading of the securities issued pursuant to this
Issue will not be granted until after the securities have been issued and allotted. Approval
for listing and trading will require all relevant documents authorising the issuing of

10
The companies Act,1956
11
A Ramaiya, Guide to the Companies Act, 18th edition, Volume 1,Lexis Nexis

13
 securities to be submitted. There could be a failure or delay in listing the securities on the
Stock Exchange. Any failure or delay in obtaining the approval would restrict an investor’s
ability to trade in the securities.

ii. EXTERNAL RISK FACTORS

a. Risk of low trading volumes in secondary market and/ or improper
functioning of capital markets could restrict the liquidity of the securities in
the secondary market
There is no assurance that an active trading market for this instrument will develop or be
sustained after listing of the securities. The trading volume of the securities would be driven
by, amongst other things, market demand and supply and prices may fluctuate after listing
due to a wide variety of factors including but not limited to (i) the return on similar
securities available in the market (ii) interest rates prevalent in India, and (iii) the financial
performance, growth and results of operations of the Company. Holders of the securities
may also face risk of improperly functioning capital markets that could restrict liquidity in
the secondary market. 12
b. A slowdown in economic growth in India and the global financial markets
could cause the Company's business to suffer
The Company's performance and the quality and growth of its assets are dependent on the
overall growth of the Indian economy and global markets. A further slowdown in the Indian
economy and the global markets could affect its business, including its ability to grow its
asset portfolio, the quality of its assets, and its ability to implement its strategy. India's
economy and the global markets could be affected by a general rise in interest rates, or
various other factors affecting the growth of industrial, manufacturing and services sector
or general downtrend in the Indian and the world economy.

c. The nature and pace of policy and regulatory changes in the infrastructure
sector and infrastructure finance sector may have an impact on the
Company’s growth and financial results
The policy and institutional framework in the infrastructure sector and infrastructure
finance sector have been continuously evolving and the reform process is an on-going
phenomenon. The growth of the infrastructure industry in India, which directly impacts the
12
Taxmann, Company Rules & Forms with Company Rules Ready Reckoner, Taxmann, 2014.

14
 Company, is dependent on the establishment of stable government policies and prudent
regulation. Infrastructure development in India has historically been the preserve of the
Central and State Governments, and has been constrained by various factors such as
shortages of public funding, political considerations and issues of transparency and
accountability. The pace of regulatory change in some infrastructure sectors has not been as
rapid. The precise nature and pace of policy and regulatory change may have an impact on
the Company’s growth and financial results.
B. MATERIAL INTEREST OF THE DIRECTORS

Disclosure of material interest of the company in the PAS-4 form should be clearly
mentioned to the prospective investor of the company. Every director of the Company has to
disclose his interest by giving a notice in writing in Form MBP-1. 13

Definition of Interested Director: As per Section 2 (49) of the Companies Act, 2013,
“interested director” means a director who is in any way, whether by himself or through any
of his relatives or firm, body corporate or other association of individuals in which he or any
of his relatives is a partner, director or a member, interested in a contract or arrangement, or
proposed contract or arrangement, entered into or to be entered into by or on behalf of a
company.”

a. Applicability of Section 184:

This section applies to any contract or arrangement entered or to be entered into between

two companies where any of the directors of the one or both company or more of them
together hold(s) more than two per cent. of the paid-up share capital in the other company.

In other words, Section 184 is applicable to every director of a company, whether directly or
indirectly, concerned or interested in a contract or arrangement or proposed contract or
arrangement entered or to be entered into

All these Manner of disclosure is important so that the prospective investors can have an
idea over the working of the company with respect to the best interest of the company:

1. As per Rule 9 of Companies (Meetings of Board and its Powers) Rules, 2014 14, the
director shall disclose his concern or interest in any company or companies or bodies

13
Section 184, Companies Act 2013 read with Rule 9 of Companies (Meetings of Board and its Powers) Rules,
2014.
14
Rule 9 of Companies (Meetings of Board and its Powers) Rules, 2014

15
 corporate, firms, or other association of individuals, including his shareholding, if
any, by giving a notice in writing in Form MBP-1. The director shall not participate
at the meeting of the Board in which such a contract or arrangement is discussed in
which the director is interested.

2. Also, every Company shall maintain one or more registers in Form MBP-4 as
per rule 16 of Companies (Meetings of Board and its Powers) Rules, 2014  furnishing
particulars of company or companies or bodies corporate, firms, or other association
of individuals in which the director is, directly or indirectly, interested.

“It is an elementary principle of company law, that (apart from explicit power in the articles
of association) a director cannot vote for the adoption of a contract or on a matter in which he
is an interested party”. All material interests of the director in the company to be included in
the form so that the potential investors of the company will have the knowledge of the
transactions and have knowledge of other interest of directors with the best interest of the
company.15

C. RISK OF OUTFLOW OF INFORMATION

This private placement offer letter is not a prospectus nor a statement in lieu of prospectus.
The securities shall not be deemed to constitute an offer or an invitation to subscribe to the
securities to the public in general. Apart from PPOL, no offer document or prospectus has
been prepared in connection with the issue or in relation to the company.

This offer letter has been prepared to provide general information about the company and
other terms and conditions relating to the issue of the securities, to potential investors to
whom it is addressed and who are willing and eligible to subscribe to the securities. Each
investor contemplating the purchase of any securities should make its own independent
investigation of the financial condition and affairs of the company, and its own appraisal of
the creditworthiness of the company.

To make sure that the information provided in the offer letter doesn’t leak out or other person
take advantage of this offer letter, the company can have a non disclosure agreement or any
other preventive measure to stop the leakage of information. No person has been authorized
to give any information or to make any representation not contained in offer letter or in any

https://www2.deloitte.com/content/dam/Deloitte/za/Documents/governance-risk-
15

Compliance/ZA_ConflictsOfInterest_24032014.pdf

16
material made available by the company to any potential investor pursuant hereto and, if
given or made, such information or representation must not be relied upon as having been
authorized by the company. Any offer letter is not intended for distribution to any person
other than those to whom it is specifically addressed to and should not be reproduced by the
recipient. Only the person to whom a copy of offer letter is sent is entitled to apply for the
securities. Any application by a person to whom the application form has not been sent by the
company shall be rejected. The person who is in receipt of offer letter shall not distribute the
same in whole or part or make any announcement in public or to a third party regarding its
contents, without the prior written consent of the company.

17
 CONCLUSION

Companies Act, 2013 has brought about several changes with respect to Private Placements
which are especially welcome from the point of view of investors. By introducing a defined
process, timelines for issue and allotment, use of a separate/ escrow in bank account to
maintain transparency and refund mechanisms with interest and strict penalties for violating
regulations are some measures that will echo-well in the investor fraternity. Ofcourse, while
measures have been taken to protect investors it shall certainly involve stiffer compliance and
greater care on the part of companies.

Nevertheless, Private Placements as a means of raising capital shall continue to be used by

companies. The Indian economy is certainly seen as a bright spot amidst the global economy
and companies shall witness an investment interest from global as well as Indian prospective
investors. Private Placements are expected to run bullish in years to come owing to the future
business foray and the high leveraged financing structure of several sectors, compelling them
to look for alternate capital raising options. Private Placement will not only allow such
companies to remain private and raise fund in lesser time and costs but also choose their own
set of investors with like goals and enable them to make a return over a longer period of time.

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 BIBLIOGRAPHY
Primary Sources

 The Companies Act, 2013

 The Companies Act, 1956
 The Companies (Prospectus and Allotment of securities) Rules, 2014
 The Companies (Share Capital & Debenture) Rules, 2014

 The Companies (Meetings of Board and its Powers) Rules, 2014

 Sahara India Real Estate Corporation Ltd. and others v. Securities and Exchange
Board of India and another, [2012] 174 Comp Cas 154 (SC)

 A Ramaiya, Guide to the Companies Act, 18th edition, Volume 1,Lexis Nexis

 Taxmann, Company Rules & Forms with Company Rules Ready Reckoner,
Taxmann, 2014.

Secondary sources:

 https://www.sebi.gov.in/legal/circulars/jan-2018/electronic-book-mechanism-for-
issuance-of-securities-on-private-placement-basis_37295.html

 https://blog.ipleaders.in/private-placement-shares/

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