Private placement of shares out of Promoters’ Quota ‑ Prohibition on private placement of shares or collecting unofficial premia - Companies Law - Circular : No. 7/92

Circular : No. 7/92 [No. 17/6/92 ‑ CL ‑ V], dated 6 ‑ 7 ‑ 1992 Subject:- Private placement of shares out of Promoters Quota ‑ Prohibition on private placement of shares or collecting unofficial premia It has come to the notice of Government that some companies utilise the services of brokers and other intermediaries for private placement of equity shares out of promoters quota or otherwise, insert advertisements in the print media and also mass‑mail literature/material/brochures superscribed by the caption Confidential/For private circulation only . It is also noticed that the rights of renunciation are floated in the market by the companies themselves, charging unofficial premia from the investing public. Under section 67(3) of the Companies Act, 1956 ( the Act ), no offer or invitation shall be treated as made to the public, only if the same can be regarded in all the circumstances, (a) as not being calculated to result, directly or indirectly, in the shares or debentures becoming available for subscription or purchase by persons other than those receiving the offer or invitation; or (b) otherwise as being a domestic concern of the persons making and receiving the offer or invitation. In the context of the above provisions of law, such offers cannot be treated as private placement and provisions relating to prospectus under the Act, are applicable. The companies concerned, their promoters and their intermediaries are hereby warned that making of so-called private placement of shares or collecting unofficial premia without recording the same in the books of account of the company, are serious contraventions of the Act and will invite penal action under the Act by the Government. It may be noted that marketing of rights of renunciation by a private company is prohibited under section 3(1)(iii)(c) of the Act, as it cannot make any invitation to the public to subscribe for its shares.