A private placement is an issue of securities to a selected group of persons, not exceeding 200 in a financial year, other than through a public offer or a rights issue. Section 42 governs the route, and the offer-letter, allotment and filing discipline is stricter than the rights-issue regime.
The Offer Letter
The private placement must be made through an offer letter in Form PAS-4, and the offer must be made to identified persons. The offer letter must disclose the objects, the price, the valuation basis and the risk factors. The offer cannot be made to more than 200 persons in a financial year, and the persons to whom the offer is made must be identified.
The Allotment Window
The allotment must be made within 60 days from the date of receipt of the application money. If the allotment is not made within 60 days, the application money must be refunded within 15 days, with interest at 12% per annum. The 60-day window is mandatory, and a delay triggers the refund obligation.
The PAS-3 Filing and Penalty
The return of allotment in PAS-3 must be filed within 15 days of the allotment. A delay in filing PAS-3 attracts a separate penalty under Section 42(9), distinct from the penalty under Section 42(10). The penalty can extend to the amount raised through the private placement or ₹2 crore, whichever is lower, on the company, its promoters and directors, plus a mandatory refund of all money with interest. The ROC’s 2026 orders show penalties for a 46-day delay in PAS-3 filing, and reduced penalties where the company is a DPIIT-recognised startup.
The Practical Discipline
The company should maintain the offer letter, the application records, the allotment resolution and the PAS-3 filing. The 200-person limit should be tracked across the financial year, and the 60-day allotment window should be monitored from the date of receipt of the application money.
Call to Action: We advise companies on private-placement structuring, PAS-4 offer letters and PAS-3 filing compliance. For a private-placement review, contact office@anujdesaiassociates.com, Ph No. 9619456656, Website https://anujdesaiassociates.com, LinkedIn linkedin.com/in/ca-anuj-desai-122547230.