Strategic Management and Corporate Finance · Raising of Funds - Private Funding

Private Placement under the Companies Act, 2013

Updated 11 October 2026 · Fact-checked

Private placement is an issue of securities to a select group of identified persons, not to the public, through a private placement offer-cum-application. Section 42 sets the person limit, payment mode, 60-day allotment, separate bank account, no advertising and return of allotment within 15 days. Breaking the person limit makes it a public offer.

Understand Private Placement under the Companies Act, 2013

A company needs money. It can offer securities to the public through a prospectus, or it can offer them to a small chosen group. The second route is private placement. It is faster and cheaper because there is no prospectus.

Section 23 says who can use it. A public company can issue securities by public offer, by private placement, or by rights or bonus issue. A private company can use only rights issue, bonus issue or private placement. So for a private company, private placement is the main way to raise outside money.

Section 42 defines private placement as an offer or invitation to a select group of persons, other than a public offer, made through a private placement offer-cum-application. The Board identifies the persons. The company records their names and addresses. The offer cannot carry any right of renunciation, so the offeree cannot hand the offer to someone else.

The law protects the line between private and public. The number of identified persons must not exceed fifty, or a higher prescribed number, in a financial year. Qualified institutional buyers and employees getting shares under an ESOP scheme are left out of the count. If you cross the limit, the offer is deemed a public offer, whether or not you intend to list.

The rest of Section 42 is a chain of controls: payment by banking channel, a separate bank account, allotment within 60 days, no public advertising, and a return of allotment filed with the Registrar. In an answer, walk through this chain in order. Details such as the form of the offer letter (PAS-4), the record of offerees (PAS-5), the special resolution and the valuation are in the Rules, so state them as prescribed requirements without section numbers.

Key rules to remember

Person limit: Identified persons ≤ 50 (or higher number prescribed) in a financial year; Excludes qualified institutional buyers and employees under an ESOP scheme (Section 62(1)(b)). Breach means deemed public offer.
Allotment time limit: Allot within 60 days from receipt of application money; Otherwise repay within 15 days after the 60 days end.
Refund interest: 12% per annum from the expiry of the 60th day; Applies if repayment is not made within the 15 days.
Return of allotment: File with Registrar within 15 days of allotment; Must include a complete list of allottees with names, addresses and number of securities allotted.
Default in filing the return: Penalty ₹1,000 per day of default, maximum ₹25 lakh; Company, promoters and directors are liable.
Penalty for contravention: Lower of amount raised and ₹2 crore; Company must also refund all monies with interest within 30 days of the penalty order.
Payment mode: Cheque, demand draft or other banking channel; never cash; Money stays in a separate bank account in a scheduled bank until allotment and return are done.
Fresh offer rule: No fresh offer until earlier allotments are complete, or the earlier offer is withdrawn or abandoned; More than one issue is allowed to a prescribed class of identified persons, within the overall person limit.

How to solve Private Placement under the Companies Act, 2013 questions

Use this order for any case question on private placement. It mirrors Section 42 and keeps your answer in the provision, analysis, conclusion format.

1Identify the company type and the route. A private company cannot make a public offer, so check Section 23 first.
2Count the identified persons for the financial year. Exclude qualified institutional buyers and ESOP employees. Compare with fifty or the prescribed higher number.
3Check the offer: made to identified persons by name, in the prescribed offer-cum-application form, with names and addresses recorded, and no right of renunciation.
4Check how money was received: banking channel, not cash, and held in a separate account in a scheduled bank.
5Check timing: allotment within 60 days of receiving money, refund within 15 days after that, interest at 12% p.a. if late.
6Check conduct: no public advertisement, media, marketing or agents to reach the public; no fresh offer while an earlier one is open.
7Check filing: return of allotment with the Registrar within 15 days. Money cannot be used until allotment is made and the return is filed.
8Conclude with the consequence: compliant, penalty under sub-section (9) or (10), or deemed public offer under sub-section (11).

Quickest way: Section 42 checklist: people, payment, 60, 15, no ads

When to use it: Use when a short case gives dates, amounts or counts and asks whether the placement is valid.

People: count offerees against fifty, excluding QIBs and ESOP employees.
Payment: banking channel, separate account, no use before return is filed.
60: allotment within 60 days of receiving money.
15: refund within 15 days after day 60; return of allotment within 15 days of allotment.
No ads: no public advertisement or agents.
Name the consequence: deemed public offer for a person-limit breach; penalty for other breaches.

Common mistakes in Private Placement under the Companies Act, 2013

Counting every offeree, including QIBs and ESOP employees, towards the limit.
Students remember the number fifty and forget the exclusion.
Fix: Always write: fifty excluding qualified institutional buyers and employees under an ESOP scheme, or such higher number as prescribed.
Saying a breach of the person limit only attracts the sub-section (10) penalty.
Students mix up the penalty provisions.
Fix: Sub-section (11) overrides (9) and (10): an issue not complying with the person limit is deemed a public offer, and the Companies Act, SCRA and SEBI Act apply.
Confusing the two 15-day periods.
Both rules use fifteen days.
Fix: One is refund within 15 days after the 60 days expire. The other is filing the return within 15 days of allotment. Write each with its trigger.
Allowing the offeree to transfer the offer to a friend.
Students think of rights issues, where renunciation exists.
Fix: A private placement offer carries no right of renunciation. Only the identified person can apply.
Using the application money before filing the return.
Students stop at allotment.
Fix: The proviso to sub-section (4) bars use of the money until allotment is made and the return is filed with the Registrar.
Treating a company's intent not to list as proof the issue is private.
Students link public offer with listing.
Fix: Explanation III: exceeding the prescribed number makes it a public offer whether or not the company intends to list.

Worked examples

Example 1

Sundaram Textiles Pvt. Ltd. offers equity shares by private placement. It receives application money on 1 March 2027 from identified persons. It allots no shares by 30 April 2027 and does not repay the money. Advise on the allotment deadline, the refund deadline and the interest.

Show the solution

Allotment must be within sixty days from receipt of the application money.
From 1 March 2027, 60 days end on 30 April 2027 (March has 31 days, so 30 days remain after 1 March plus 30 days in April... counting 31 days of March after day one gives 30 days in March from 1 March to 31 March; add 30 for April: day 60 is 30 April 2027).
Check: 1 March + 60 days. 31 March is day 30, and 30 April is day 60. So the deadline is 30 April 2027.
If it cannot allot, the company must repay within fifteen days from the expiry of the sixty days, that is by 15 May 2027.
If it fails to repay by then, it must repay with interest at 12% per annum from the expiry of the sixtieth day, that is from 30 April 2027.

Answer: Allotment deadline: 30 April 2027. Refund deadline: 15 May 2027. If it misses the refund deadline, it owes 12% p.a. interest from 30 April 2027, and the application money must have stayed in a separate account in a scheduled bank.

Example 2

Kaveri Industries Ltd., an unlisted public company, offers shares in one financial year to 40 individuals, 6 qualified institutional buyers and 15 employees under an ESOP scheme. Is the limit of fifty breached? Also, the company releases a newspaper advertisement about the issue. State the consequences.

Show the solution

Count only persons who count toward the limit: 40 individuals.
QIBs (6) and ESOP employees (15) are excluded under sub-section (2).
40 is not more than 50, so the person limit is not breached, assuming no higher or lower prescribed condition applies.
The advertisement breaches sub-section (7), which bars public advertisements, media or agents to inform the public at large.
The issue then involves a contravention of Section 42, so sub-section (10) applies: the company, promoters and directors are liable to a penalty up to the amount raised or ₹2 crore, whichever is lower, and the company must refund all monies with interest within 30 days of the penalty order.

Answer: The person limit is not breached because only 40 persons count. The advertisement contravenes Section 42(7), so the penalty under sub-section (10) and the refund with interest apply. It is not automatically a deemed public offer, since that follows from breach of sub-section (2).

Exam tips

Write the structure: provision, facts, conclusion. Cite Section 42 and the sub-section for each point.
In date questions, show the day count and name the trigger for each period.
Always link person-limit breach to sub-section (11), deemed public offer. It is the most tested consequence.
Mention the prescribed forms and resolutions in practical answers, but do not quote section numbers you are not sure of.
For a private versus public company question, begin with Section 23.

Practice questions from Raising of Funds - Private Funding

Private Placement under the Companies Act, 2013 in other exams

The same ground in other exams, if you are preparing for more than one or want another angle on it.

Private Placement under the Companies Act, 2013: frequently asked questions

What is the maximum number of persons in a private placement?

The number of identified persons must not exceed fifty, or such higher number as is prescribed, in a financial year. Qualified institutional buyers and ESOP employees are not counted. Going over the limit makes the issue a deemed public offer.

Can a private company raise money through a public offer?

No. Under Section 23, a private company can issue securities only by rights issue, bonus issue or private placement. Public offer through a prospectus is open to public companies.

What happens if allotment is not made within 60 days?

The company must repay the application money within 15 days after the 60 days expire. If it still does not repay, it owes interest at 12% per annum from the expiry of the sixtieth day.

Is private placement the same as preferential allotment?

Not exactly. Preferential allotment is a related route for a select group, studied under its own topic. Private placement under Section 42 is the general route for offering securities to identified persons through an offer-cum-application. Study both together and compare their conditions.