Can a Company Launch a New Private Placement Before Filing PAS-3 for the Previous Issue?

Private placement of securities under Section 42 of the Companies Act 2013 follows a strict statutory sequence. Questions regularly arise where a company has:

  • Closed a private placement offer,
  • Received subscription money,
  • Passed the Board resolution for allotment,

but has not yet filed Form PAS-3 for that allotment, and wants to start another private placement round.

This write-up explains, with reference to Section 42(3) and the proviso to Section 42(4), whether such a company can proceed with a fresh private placement and what limitations still apply, especially regarding utilisation of funds.

Can a company issue a new private placement offer under Section 42 even though PAS-3 for the earlier allotment is still pending?

In short:

  • Yes, a fresh private placement offer can be made once the earlier allotment is complete (through a valid Board resolution), even if PAS-3 is not yet filed.
  • No, the company cannot use the subscription money received in that earlier private placement until the return of allotment in PAS-3 is filed with the Registrar, as mandated by the proviso to Section 42(4).

The key is to understand that the law imposes two distinct conditions, each triggered at a different stage and governed by different sub-sections.

Statutory Framework Governing Private Placement

Key Provisions of Section 42

  1. Section 42(1) and Section 42(2) – Basic framework of private placement

    • Private placement can be made only to identified persons, captured in a proper record.
    • The offer per class of security in a financial year cannot exceed 200 persons, excluding:
      • Qualified Institutional Buyers, and
      • Persons receiving an offer under any employee stock option scheme.
    • Exceeding this limit converts the offer into a deemed public offer.

  2. Section 42(3) – Restriction on issuing a fresh offer

    • The company cannot make a new private placement offer while an earlier offer is still incomplete.
    • The restriction lifts when:
      • Allotment for the earlier offer is completed, or
      • The earlier offer is withdrawn or abandoned.

  3. Proviso to Section 42(4) – Restriction on utilisation of funds

    • Monies raised through private placement cannot be utilised unless:
      • Allotment is completed, and
      • The return of allotment is filed with the Registrar under Section 42(8) (i.e., in Form PAS-3).

  4. Section 42(6) – Time limit for allotment and refund

    • Allotment of securities must be completed within 60 days from receipt of application money.
    • If not allotted within 60 days, the money must be refunded within 15 days.
    • If the refund is delayed beyond 15 days, interest at 12% per annum becomes payable.

  5. Section 42(8) read with Rule 14 of the Companies (Prospectus and Allotment of Securities) Rules, 2014

    • A return of allotment in Form PAS-3 must be filed with the Registrar within 15 days of allotment.
    • The time limit was reduced from 30 days to 15 days by the Companies (Prospectus and Allotment of Securities) Third Amendment Rules, 2018.

  6. Section 42(9) and Section 42(10) – Penalties

    • Non-compliance with Section 42 attracts penalties on:
      • The company,
      • Its promoters, and
      • Its directors.
    • The penalty may extend up to the amount raised through the offer or ₹2 crore, whichever is higher, along with a requirement to refund all monies to subscribers within the prescribed time.

Distinct Roles of Section 42(3) and Section 42(4)

How the Two Sub-sections Operate

Section 42(3) and the proviso to Section 42(4) address different aspects of a private placement: