What is the legal process for private placement of shares under Section 42?

Question

My company wants to raise funds from a few select investors through a private placement. What compliance is required? I have been reading conflicting things online and I would like to understand what Indian law actually says about this, which Act and Section applies, what the realistic timelines and costs are, and what I should be doing right now to protect my position. If the matter can be resolved without litigation I would prefer that route, but I want to know what my rights are before I agree to anything or sign any document.

MyVakeel Legal Desk · Accepted Answer

What is the legal process for private placement of shares under Section 42? is governed in India primarily by Companies Act 2013, Section 42, Companies Act 2013, Section 62 and Companies (Prospectus and Allotment of Securities) Rules 2014, Rule 14. The short answer is set out below, followed by the practical steps most people in this situation need to take. Read it alongside the specific provisions named, because the exact relief available to you turns on the facts you can prove on paper.

Section 42 permits a company to issue securities through private placement to not more than 200 persons in a financial year, excluding qualified institutional buyers and employee stock option allottees.

The offer must be made only through a private placement offer letter in Form PAS-4, and application money must be received through banking channels, not cash, and kept in a separate bank account.

Rule 14 requires the company to pass a special resolution or board resolution as applicable and file the list of proposed allottees with the Registrar before making the offer.

Allotment must be completed within 60 days of receipt of application money, and Form PAS-3 must be filed with the Registrar within 15 days of allotment, along with the complete list of allottees.

Any contravention of Section 42, including offering to more persons than permitted, can render the company and its officers liable for penalty and requires refund of monies to subscribers.

What to do next: 1) Pass the requisite resolution and prepare the private placement offer letter in Form PAS-4; 2) Circulate the offer only to identified persons within the 200-person limit; 3) Collect application money through banking channels into a separate account; 4) Allot shares within 60 days and file Form PAS-3 within 15 days of allotment.

If the other side has already issued a notice, filed a case or set a deadline, treat the matter as time-sensitive — most remedies under Companies Act 2013, Section 42 carry limitation periods, and a delay you cannot explain weakens an otherwise strong case. You can post the details on the MyVakeel forum for a practising advocate to review, or book a paid consultation with a Bar Council verified lawyer in this practice area.