The new Companies Act will ensure that innocent investors will not be cheated the way they were by. However, the provisions are severe and small companies will face unnecessary problems in raising funds through group companies or other family members and relatives
Companies raise funds for working capital, capital expenditure, and general corporate purposes by issuing securities. Securities do not necessarily mean shares—it may be bonds, debentures, preference shares, and convertibles. Companies raise such funds by issuing securities either by way of public offers or through private placements. Public offers are few and far between. This option is available only to listed companies, and given the level of preparation involved, companies cannot afford to go public every now and then. Hence, the most common way of raising capital by companies is through private placements, which is the issue of securities other than public or rights offers. All offers of securities by private companies are private placements.
The Sahara case highlighted abuse of this provision—some Rs20,000-plus crores were raised from a few million investors. But it was still termed private placement. In response, the Companies Bill, 2012, passed by the Lok Sabha on 18 December 2012 and Rajya Sabha on 20 December, has tightened the provisions pertaining to private placements. But the rules are now so stringent that it may choke companies’ attempts to flexibly raise capital.
What adds to the rigours of the section is that that section is applicable to all securities—debt and equity, and to all companies, public and private.
‘Private Placement’ under the Companies Act, 2012
Part II of Chapter III of the Companies Bill 2012 (on notification, Bill to be called Companies Act, 2012) deals exclusively with private placements. The process of private placements has greatly tightened under the Act. Every offer of securities other than public, rights or bonus offer amounts to a private placement and shall be governed by the Section 42. The Section also requires issue of private placement offer letters for every privately placed offer of securities.
Explanation II (ii) to sub section (2) of section 42 of the Act defines “private placement” as:
“Private Placement” means any offer of securities or invitation to subscribe securities to a select group of persons by a company (other than by way of public offer) through issue of a private placement offer letter and which satisfies the conditions specified in this section.
In terms of Section 42(2) of the Act, a company can make allotment of securities to a maximum of 49 persons in a private placement offer during a financial year. Whiles counting the maximum limit of allottees, qualified institutional buyers (QIBs) and employees who have been issued securities under ESOP may be excluded.
Section 42(4) of the Act makes it very clear that all offers or invitations which do not comply with the provisions of the Section 42 shall be deemed public offers. The explanation to sub-section (2) of the said section also clarifies that any offer to more than 49 persons, whether the payment for the securities has been received or not or whether the company intends to list its securities or not on any recognised stock exchange in or outside India, shall be deemed to be a public offer and shall be regulated by the provisions of the Act as prescribed for a public offer. In addition, compliance with applicable provisions SCRA and SEBI will also be required.
It is important to note here that no exception has been provided to any class of companies, including the NBFCs (non-banking finance companies). However, the limit of 50 subscribers can be extended as and when so deemed fit by the central government. Unless specified, NBFCs and other small private companies will be facing big time as the section covers all companies, whether small or big, private or public.
The provisions on the private placements are applicable to all companies, including small and private companies. This is evident from the language of Section 23 (2) which specifically burdens private companies with compliance of Section 42 in case of private placement offers.
It is important to note here that the Act has relaxed certain provisions for “small companies”; however, no such exemption has been provided to even small companies for making allotments through private placements.
The effect of the Sahara ruling is apparent from the extremely stringent provisions of Section 42 of the Act prescribed for private placements by ALL companies. The compliances/procedure for a privately placed offer is explained below:
The authority to approve the private placements—whether is to be approved by board or the members—has not been specified in the Section. However, adding to other harsh and rigorous provisions on private placements, the Section has prescribed severe monetary penalties for promoters and directors of companies making default in compliance with the prescribed provisions. Section 42(10) lays down the penalty as amount involved in the offer or Rs2 crore—whichever is higher—and, in addition, the company shall also be liable to refund whole monies to the subscribers so raised under the relevant privately placed offer.
Last December, the finance ministry issued Unlisted Public Companies (Preferential Allotment) Amendment Rules, 2011 (the Rules) and made the preferential allotment rules as applicable to public companies more stringent. The private placement provisions as contained in the Act appear to have been prepared incorporating the provisions of the Rules. The difference between the two is that the Rules are applicable to public companies only and the provisions of the Act on private placement will apply to all companies. The other point of difference is that the Rules require consent of members by way of special resolution for making preferential allotments whereas the Act is silent on such authority approving the private offers. Once the Act comes into force, one will have to wait and watch that whether the Rules will be repealed or the public companies will be required to comply with both the Act as well as the Rules.
 Small companies has been defined in section 2(85) as companies other than public companies having:
Besides cheating and conspiracy, Kalmadi and gang will also be charged with the offences of forgery under the IPC and criminal misconduct by public servants under the Prevention of Corruption Act
New Delhi: Sacked chief of Commonwealth Games (CWG) Organising Committee Suresh Kalmadi will face trial for allegedly abusing his office and causing loss of over Rs90 crore to exchequer in a games-related graft case before a Delhi court which ordered today framing of cheating and conspiracy charges against him, reports PTI.
Special CBI Judge Talwant Singh fixed 10th January for framing of charges against Kalmadi and nine others.
Besides cheating and conspiracy, they will also be charged with the offences of forgery under the Indian Penal Code and criminal misconduct by public servants under the Prevention of Corruption Act.
"Charges under section 120B (criminal conspiracy), read with 201 (destruction of evidence), 420 (cheating), 467, 468, 471 (relating to forgery), 506 (criminal intimidation) of the IPC and section 13(1)(d) read with section 13(2) (criminal misconduct by public servants) of the PC Act is ordered to be framed against all the accused," the court said.
The judge, however, said since accused Swiss firm, Swiss Timing Omega, which was allegedly awarded the contract at exorbitant rates, is not appearing in the court despite proper service of summons, its "trial is separated."
"Investigating Officer is directed to file a copy of charge sheet separately against accused number 11 (Swiss Timing Omega)," the court said.
The accused have been charge sheeted by the CBI for "illegally" awarding a contract to install Timing, Scoring and Results (TSR) system for the 2010 CWG to Swiss Timing at an inflated rates causing a loss of over Rs90 crore to the public exchequer.
Besides Kalmadi and Bhanot, the other accused in the case are OC's Director General VK Verma, Director General (Procurement) Surjit Lal, Joint Director General (Sports) ASV Prasad and Treasurer M Jayachandran. They are no more associated with the sporting body.
Out of 40 consumer district forums across Maharashtra, 19 are dysfunctional due to vacant posts of presidents and members, the Mumbai Grahak Panchayat said in its PIL
Mumbai: Irked with the lackadaisical attitude of Maharashtra government regarding vacancies in consumer redressal forums across the state, the Bombay High Court on Friday directed it to complete the selection process of candidates for the vacant posts by 31 January 2013, reports PTI.
A division bench of acting Chief Justice DD Sinha and Justice KK Tated was hearing a public interest litigation (PIL) filed by NGO Mumbai Grahak Panchayat which stated that out of 40 consumer district forums across Maharashtra, 19 are dysfunctional due to vacant posts of presidents and members.
The bench, which has been directing the government since May this year to fill up these vacancies, was irked with the State Consumer Redressal Commission registrar's affidavit seeking extension of time to fill up vacancies.
According to the affidavit, out of 40 posts for presidents of district forums across the state, 34 are lying vacant and the total number of vacancies in the posts for non- judicial members is 55.
The affidavit stated that interviews have already been held for filling up of the posts of presidents.
The bench then directed the government to complete the selection process of vacant posts by 31 January 2013 and issue appointment orders within three weeks thereafter.
The court also said that henceforth, when a person retires, the state government should issue advertisements to fill up the post three months in advance.