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Chapter III of Act, 2013 deals with prospectus and allotment of securities. Part I deals with public offer and Part II
deals with private placement. Section 23 (1) provides the manner in which a public company may issue securities
viz.;
Section 23 (2) provides the manner in which private company may issue securities viz.;
1. by way of rights issue or a bonus issue in accordance with section 62 (1) (a) and section 63 respectively;
2. through private placement by complying with provisions of Part II.
Section 23 (2) provides the manner in which private company may issue securities viz.;
3. by way of rights issue or a bonus issue in accordance with section 62 (1) (a) and section 63 respectively;
4. through private placement by complying with provisions of Part II.
Private placement under Act, 2013
‘Private Placement’ has been explained in section 42 to mean any offer or invitation to subscribe or issue of
securities to a select group of persons by a company (other than by way of public offer) through private placement
offer-cum-application, which satisfies the conditions specified in the section.
While the marginal note refers to issue of shares, the meaning of private placement clearly refers to ‘securities’.
Given the intent under section 23 (1) and (2), it is clear and unambiguous that any private placement of securities
will be subject to compliance of provisions of section 42. It cannot be interpreted that ‘securities’ referred in Section
42 refers to the expression, “shares or other securities” explained in Rule 13 of Companies (Share Capital and
Debentures) Rules, 2014.
As stated above, the intent was only to exempt the requirement of seeking shareholder’s sanction if the company had
already obtained approval of shareholders u/s 180 (1) (c). Apart from this, compliance of entire section is required to
be ensured.
Conclusion
Companies should be careful and not interpret that section 42 shall not apply to private placement of debentures.
Otherwise, the company, its promoters and directors shall expose themselves to huge amount of penalty.