Corporate Law

Private placement under Companies Act, 1957.

Synopsis

Srisankar .S

BC0150026

Third Year B.Com LL.B(hons)

Tamil Nadu National Law School

Introduction:

The Companies Act, 2013 has brought in significant number of changes in various aspects. One

such change was in regard to ‘Private Placement’ of securities which is important for raising funds

by companies. From the legal perspective, the word ‘private placement’ which sets out the terms

upon which securities are offered to potential private investors. In other words it can be referred to

a kind of offering of securities are offered to potential private investors.1

Statement of Problem:

Initially there was no specific provisions on private placement in the previous Companies act, 1956.

The lacuna in the provision of private placement in the case of Sahara Group2, other companies and

their promoters3 to indulge in man practice. Over a subsequent period of time, in order to ensure a

better control and compliance over private placement, a number of exemptions which the private

companies were entitled were withdrew from the Companies Act, 1956.

1 With reference to Black’s Law Dictionary.

2 Sahara India Real Estate Corporation Limited & Ors v. SEBI & Anr. (2012) 10 SCC 603.
3 Referring to definition of ‘promoter’ section 2 (69) of Companies Act, 2013.
Scope, Objectives and Significance:

For the purpose of this study the paper analysis the basic concept of ‘private placement’. The initial

position of ‘private placement’ in the Companies Act, 1956. The paper gives a detailed study and

impact of with help of case law such as Sahara India Real Estate Corporation Limited & Ors v.

SEBI & Anr. The project further examines the changes which took place in regard to ‘private

placement’. The paper aims to the critically analyst the impact of the changes which have been im-

plemented.

Research Questions:

The paper sheds light on the following questions:

• On what basis did my companies misuse the initial provision of the ‘private placement’ under

Companies Act, 1956.

• Whether the changes made in the 2013 amendment were effective in curbing loopholes and may

practises?

Chapter 1: The definition scope and practical implications of ‘private placement’ from the perspec-

tive of management aspect.

This chapter looks into the perspective of ‘private placement from the perspective of management

and commerce’. This chapter looks into the rules and regulations with regard to the same subject

matter to a significant extent outside the legal context.

Chapter 2: Private Placement and its position before the Companies Act, 1956
This chapter briefs on who the initial position of ‘private placement’ was used under the companies.

The chapter also critically analysis the short coming of the initial position. This will be analysed

with the help of relevant cases. This chapter gives exclusive reference to section 42 of the Compa-

nies Act, 1957.4

Relevant cases:

Sahara India Real Estate Corporation Limited & Ors v. SEBI & Anr.:

This is one of the land mark judgements which has completely changed the perspectives of the

SEBI’s powers, and

Chapter 3: Private Placement and its position after Companies Act, 2013.

This chapter briefs and the changes which may been made in the regard to the same topic and the

implementation of the new guideline with the help of recent cases. The very basic dispute in the

case was whether the issuance of the Optional Fully Convertible Debentures5 was placed in a public

or a private platform.

Chapter 4: Critical analysis of the ‘private placement’ in Companies Act and proposed recommen-

dations.

The chapter examines with the help of a few case on whether the significant changes which with the

help of recent cases. The chapter concludes with the help of some opinion on the current situation in

regard to the same aspect.

4Section 42 of Companies Act, 2013 “Offer or invitation for subscription of securities on private
placement”
5Optionally convertible debentures are debt securities which allow an issuer to raise capital and in
return the issuer pays interest to the investor till the maturity.
Chapter 5: Conclusion

The first chapter seeks to look into the original position of the private placement furthermore it list

out the loopholes and the with the relevant case laws, briefing the need for significant amount of

change. The second chapter looks into the new changes which were brought out. The third chapter

concludes whether the changes made were effective or whether there still exist lacuna.

Sources:

• Companies Act,1956

• Companies Act, 2013

Books Referred:

• General Principles of Modern Company Law, Gower & Davies

• Company Law, Brenda Hanningan

• Company Law, Derek French, Stephen Mayson & Christopher Ryan

• Company Law, Avtar Singh

Articles referred:

• CS C.S Dhanapal, Private Placement and its concept

• Iragavarapu Sridhar, A brief Outlook on Major changes affecting private companies.