Private Placement under Section explained: this guide covers what it means, who it applies to, the step-by-step process, documents required, fees, due dates and penalties in India — so you can stay compliant with confidence and avoid costly mistakes.
Private placement is how an unlisted company raises money from investors. Section 42 makes it a tightly prescribed process, and attaches one of the harshest penalties in the whole Act to getting it wrong.
Worth stating the penalty up front, because it changes how carefully you read everything after it: the amount raised, or ₹2 crore, whichever is lower — on the company, its promoters and its directors personally — plus a refund of all monies with interest within thirty days.
A ₹2 crore round done wrong can attract a ₹2 crore penalty.
Offer to named, identified persons only — max 200 in a financial year, per kind of security. Registered valuer's report, special resolution, MGT-14, then PAS-4 individually addressed. Money into a separate scheduled bank account, never cash. Allot within 60 days, file PAS-3 within 15, and don't touch the money until PAS-3 is filed.
What counts as a private placement?
An offer or invitation to subscribe to securities made to a select group of persons, other than by way of public offer, through a private placement offer-cum-application letter.
The structural features:
- The offer goes to identified persons, selected by the Board in advance.
- Their names and addresses are recorded before the offer is made.
- The offer is made in Form PAS-4, addressed to each person by name.
- No public advertisement, media, marketing or distribution channel may be used.
That last one is Section 42(7) and it's absolute. A pitch deck circulated on a public forum, a LinkedIn post inviting investment, a listing on an investment platform open to the public — any of these takes you outside Section 42 and into deemed public offer under Section 42(11), which drags in the whole of Chapter III: prospectus, SEBI, listing consequences. That is a very different problem.
The 200-person limit
Not more than two hundred persons in the aggregate in a financial year, excluding qualified institutional buyers and employees offered securities under an ESOP under Section 62(1)(b).
Four things people get wrong:
- The limit counts per kind of security — separately for equity, separately for each class of preference share or debenture.
- It's on the number of persons offered, not the number who subscribe.
- It's separate from the 200-member cap in Section 2(68). Different provision, different purpose.
- An offer to more than 200 is deemed a public offer.
And on payment: every identified person willing to subscribe applies in the form issued to that person, with the subscription money paid by cheque, demand draft or other banking channel — never cash.
The ten steps
1. Get a registered valuer's report. Under Section 247, determining the price. Mandatory. For an issue to a non-resident, you also need an FDI-compliant valuation under FEMA pricing guidelines.
2. Board meeting. Approve the placement, identify the offerees by name and address, approve the draft PAS-4, approve the valuation, and convene the general meeting.
3. Special resolution. Required for each offer. The explanatory statement must disclose the particulars — date of the Board resolution, kind of securities, price, basis of valuation, number of securities, amount to be raised, and the material terms.
(One exception: for non-convertible debentures within the Section 180(1)(c) limits, one special resolution a year covers all offers in that year.)
4. File MGT-14 within thirty days of the resolution.
5. Issue PAS-4. Serially numbered and addressed specifically to each identified person, in writing or electronically, within thirty days of recording their names.
6. Maintain PAS-5. A complete record of the offers. You no longer file it with the ROC, but you must still keep it.
7. Open a separate bank account. Section 42(6): application money goes into a separate account in a scheduled bank and may only be used for adjustment against allotment, or for repayment where you can't allot. Money must come by banking channel from the subscriber's own account, and you must record which account it came from.
8. Allot within 60 days of receiving the application money. Can't? Repay within 15 days of the sixty days expiring. Don't repay in time and you owe 12% interest from the sixty-first day — and the money becomes a deposit under the Deposit Rules, pulling in Section 73 and the Section 76A penalties. Why that matters →
9. File PAS-3 within fifteen days of allotment, with a complete list of allottees — names, addresses, PAN, number of securities.
Note the difference: PAS-3 for a private placement is fifteen days. The general return of allotment under Section 39(4) is thirty.
10. Certificates and registers. Certificates within two months of allotment, entries in the Register of Members, and where Rule 9B applies, issue in dematerialised form.
The rule that catches out every first-time founder
Section 42(9): you cannot use the money until PAS-3 is filed.
Not until allotment. Not until the board approves. Until the return of allotment is filed with the Registrar. The money sits in the separate account and cannot move to your operating account before the PAS-3 SRN is generated.
Founders routinely see the money land and start spending. That's a contravention of Section 42, and the penalty is the one at the top of this article.
And one more: Rule 14(3) bars a fresh offer unless allotments on the earlier offer are complete, or that offer has been withdrawn or abandoned. You cannot run two rounds of the same security in parallel.
The penalty, in full
Section 42(10): where a company makes an offer or accepts money in contravention, the company, its promoters and directors are liable to a penalty extending to the amount raised, or ₹2 crore, whichever is lower — and the company must refund all monies with interest to subscribers within thirty days of the order.
Three things make it severe:
- It attaches to promoters and directors personally, not just the company.
- It's measured against the amount raised.
- The refund is in addition to the penalty, not instead of it.
Compliance checklist
- Registered valuer's report obtained before the Board meeting
- Board resolution identifying offerees by name and address
- Special resolution passed; explanatory statement carries every Rule 14 disclosure
- MGT-14 filed within 30 days
- Offer count within 200 persons per FY, per kind of security, excluding QIBs and ESOP employees
- PAS-4 serially numbered and individually addressed, issued within 30 days of recording names
- PAS-5 record maintained
- Separate scheduled-bank account; money only by banking channel from the subscriber's own account
- No advertisement, media, marketing or distribution channel used
- Allotment within 60 days
- PAS-3 within 15 days with the complete allottee list
- No utilisation before PAS-3 is filed
- Share certificates within 2 months; demat where Rule 9B applies
- Register of Members updated
- FC-GPR filed where the allottee is a non-resident
Key takeaways
- Names first, offer second. The Board identifies and records the offerees before PAS-4 goes out.
- 200 persons per financial year, per kind of security. Offered, not subscribed.
- Any public advertisement destroys the private placement and makes it a deemed public offer.
- Never cash. Banking channel, from the subscriber's own account.
- 60 days to allot, 15 days to refund, then 12% interest and deposit consequences.
- PAS-3 in 15 days, and no spending until it's filed.
- The penalty hits promoters and directors personally, up to the amount raised.
Read next
- Rights Issue under Section 62(1)(a)
- Share Certificates under Section 46
- Demat of Shares by Private Companies (Rule 9B)
- Form DPT-3: Return of Deposits
- Compliance Checklist for a Private Limited Company
Disclaimer: Positions stated as on 4 September 2026. Section 42 and the PAS Rules have been amended repeatedly, and placements to non-residents attract FEMA obligations not covered here. Take professional advice before making any offer.