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CS Executive · Capital Market and Securities Laws · Issue and Listing of Non-Convertible Securities

Meridian Finance Ltd made a private placement offer of NCDs to 70 identified persons (none being QIBs or employees under an ESOP) in a financial year, assuming the prescribed limit is fifty. What is the legal consequence under section 42 of the Companies Act, 2013?

The issue is deemed a public offer, so the Companies Act provisions on public offers and the Securities Contracts (Regulation) Act and SEBI Act apply to it. Exceeding the prescribed number of identified persons defeats private placement status for the whole issue.

  1. AOnly a penalty of Rs 1,000 per day applies, and the issue remains private
  2. BThe issue is deemed a public offer governed by the provisions on public offers and the SCRA and SEBI ActCorrect
  3. CThe issue becomes void and nothing further applies
  4. DThe excess twenty persons alone are treated as public subscribers

Explanation

A private placement not complying with the limit on number of persons under sub-section (2) is deemed a public offer, and the Companies Act, SCRA and SEBI Act apply. The per-day penalty relates to late filing of the return and does not replace this consequence.

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