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Companies Act, 2013 · Chapter III · Prospectus and allotment of securities
Section 42 of the Companies Act, 2013 Issue of shares on private placement basis
In force Change proposed — not yet law Explainer reviewed 23 October 2026
Who it applies to
- Companies raising money from investors, friends or promoters outside a rights issue
- Directors and promoters of the issuing company
What the section says
- An offer may be made only to 'identified persons' chosen by the Board, up to 50 or the higher number prescribed in a financial year, excluding qualified institutional buyers and employees under an ESOP scheme (s.42(2)). The PAS Rules prescribe a limit of 200 persons in aggregate per financial year.
- The offer letter cannot carry a right of renunciation (s.42(3)), and an offer to more than the prescribed number is deemed a public offer (Explanation III and s.42(11)).
- Application money must come by cheque, demand draft or other banking channel, never cash, and be kept in a separate bank account in a scheduled bank. It cannot be used until allotment is made and the return of allotment is filed (s.42(4), (6)).
- Securities must be allotted within 60 days of receiving application money. Otherwise the money must be refunded within the next 15 days, failing which interest at 12% a year runs from the 60th day (s.42(6)).
- No fresh offer can be made until the earlier offer is allotted, withdrawn or abandoned (s.42(5)). No public advertisement or marketing channel may be used (s.42(7)).
- A return of allotment with the full list of allottees must be filed with the Registrar within 15 days of allotment (s.42(8)).
Penalty for breach
| Who | Consequence |
|---|---|
| Company, promoters and directors: late return of allotment | Penalty of ₹1,000 for each day of default, up to ₹25 lakh |
| Company, promoters and directors: offer or money accepted in contravention | Penalty up to the amount raised or ₹2 crore, whichever is lower, plus refund of all money with interest within 30 days of the order |
Section 42(9) and (10), as substituted by the Companies (Amendment) Act, 2017 w.e.f. 7 Aug 2018.
Related sections
Sections this one refers to:
Common questions
How many people can a private company offer shares to under private placement?
Section 42(2) says 50 or a higher prescribed number per financial year, excluding QIBs and ESOP employees. The Companies (Prospectus and Allotment of Securities) Rules prescribe 200 persons in aggregate in a financial year.
Can private placement money be used before allotment?
No. It must stay in a separate scheduled-bank account and can be used only after allotment is made and the return of allotment is filed with the Registrar.
What is the time limit for allotment in a private placement?
60 days from receipt of application money. If not allotted, refund within 15 days after that, failing which 12% a year interest applies from the 60th day.
Type a section number (185, 10A) or a plain topic
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Talk to us →Section number, heading and status: Companies Act, 2013 as consolidated on India Code (amendments to about 2020–21). Sources for this page: Companies Act, 2013: India Code consolidated text. Reviewed 23 October 2026. General information, not legal advice; confirm on the official sources before relying on a provision.