PRIVATE PLACEMENT

Submitted to: Submitted by:

Prof. (Dr.) Aparajita Bhatt Vaibhav Banerjee

Vikrrant Singh

INTRODUCTION
According to the Companies Act, 2013, primarily there are four modes of increasing the share
capital. The four modes are:

(a) Public issue

(b) Right issue
(c) Bonus issue
(d) Private Placement

As per the definition provided in the Companies Act, “Private Placement” means any offer of
securities (Not Only Shares) or invitation to subscribe securities to a select group of persons by a
company through the issue of a private placement offer letter.1 Section 42 of the Companies Act,
2013 read with Rule 14 of the Companies (Prospectus and Allotment of Securities) Rules, 2014
contains regulations and disclosure requirements that are to be followed for a private placement
of securities. An offer, which does not comply with the provisions of this section would be
treated as a public offer and would have to comply with the requirements of the securities
contracts (Regulation) Act, 1956 and SEBI Act, 1992.2

Initially, there were many lacunas in the law concerning private placement which were used by
the companies to circumvent the requirements laid down in Section 42 of the act. One of the
main points of concern regarding private placement is the right to renounce securities offered to
a member in pursuance to a right issue. Rights issue is used by companies to circumvent the
disclosure requirement concerning private placement. Another issue is with offer of securities
through different offers simultaneously. Initially such offers were prohibited unless the
allotments with regard to any earlier offer or invitation have been completed or it has been

1
S 42, The Companies Act 2013.
2
Sahara India Real Estate Corpn Ltd v SEBI [2013] 1 SCC 1
withdrawn or abandoned.3 The Ministry of Corporate Affairs tried to take care of these issues in
the 2018 amendment by increasing the level of self-regulation of companies but even after the
amendment, there are certain grey areas that can be used to circumvent the disclosure
requirement of the Companies act.

OBJECTIVES OF RESEARCH

 To analyze the impact of the 2018 amendment on section 42 of the companies act.
 To identify the situations in which disclosure requirements can be bypassed by the
companies.
 To identify whether adequate regulation is provided through statutes and judicial
decisions.

HYPOTHESIS

The provisions of the companies Act, 2013 does not provide adequate regulations and protection
regarding private placement.

RESEARCH METHODOLOGY

The researcher shall adopt a doctrinal methodology for this paper. Primary sources such as
statutes, rules and regulations, judicial precedents and newspaper reports shall be used to trace
trends regarding disclosure requirements for private placement. The researcher shall start by
referring to the relevant provisions in the act with respect to Private Placement. The researcher
shall then use secondary sources such as books and journal articles to further a detailed
understanding and analysis of the research questions. Authoritative blog posts (such as
IndiaCorpLaw etc.) shall also be used to analyze the said provisions.

RESEARCH QUESTION
1. Whether the wording of Section 62 can be used to circumvent the disclosure requirement
of Section 42?
2. Whether the gaps in the Indian law can be taken care off with the help of English law?

3
S 42(3), The Companies Act 2013.
 3. Whether the 2018 Amendment increases the disclosure effectiveness by reducing filing
of unnecessary information or not?

REVIEW OF LITERATURE
A company may make private placement through the issue of offer letters for private placement.
Provision of Section 42 read with Rule 14 of the Companies (Prospectus and Allotment of
Securities) Rules become applicable to such placement. The aim behind the introduction of
section 42 is to govern the unregulated field of issue of securities through private placement.

The Report of The Companies Law Committee February 2016 highlights the areas which can be
improved by an amendment. It points out how unnecessary disclosure requirement has a negative
impact on private equity investors as well as companies. It also highlights provisions which are
misused by the companies to circumvent various disclosure requirement that are laid down in
Section 42 of the companies Act.

The 2018 Amendment made various changes in Section 42 of the companies Act. It removed
unnecessary and burdensome disclosure requirements. Further, it also allows the
contemporaneous issue of different forms of securities which allows companies to issue different
types of securities simultaneously.

Vijay Sambamurthi in his Article4 discusses the impact of private placement regulations on
private equity investors and private companies. He follows the changes in the regulatory
framework governing private equity funds and investments in India. He seeks to lay down the
broad structure of the regulatory framework by tracing the legal developments in the legislations
which govern private equity funds and their investments.

4
Vijay Sambamurthi, ‘Recent Development in Indian Law: Impact on Private Equity Transactions’ (2016) 28 Nat’l
Sch India Rev 44
PROPOSED CHAPTERISATION

Chapter One- This chapter will lay down the foundation of the paper and will introduce the
concept of private placement under the Companies act and its evolution.

Chapter two- This Chapter explores the gaps and lacunas in the law concerning private
placement. The researcher will further examine the use of English legislation to fill these gaps
and make the law more effective.

Chapter three- This chapter concludes the findings of the researcher and contains suggestions
regarding alternate provisions that can be introduced for better regulation of issue of securities
through private placement.