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More Rules! Private Placement = 64000?

Published on Wed, Sep 25,2013 | 11:19, Updated at Wed, Sep 25 at 12:25Source : 

September 2013

Apologies about the long break – I needed time to recover from all that rule-reading. Confronted by the release of the 2nd phase of Draft Rules, I have found courage to return to the task tonight.


I suppose this refers to ongoing related party dealings that will recur in coming future years

Matters To Be Stated In The Prospectus
(12) Related party transactions entered during last five years immediately preceding the year of issue of prospectus as well as transactions proposed to be entered with related parties in coming future years.

Isn't this the first time the companies act has provided GDR rules?

Global Depository Receipts
3.11. (1) For the purposes of section 41, following rules shall apply to the issuance of Global Depository Receipts
Definitions – For the purposes of rule 3.11, unless the context otherwise requires, ___
(i) "Scheme" means the Foreign Currency Convertible Bonds and Ordinary Shares (Through Depository Receipt Mechanism) Scheme, 1993 or any modification or re-enactment thereof;
(ii) Words and expressions occurring in these rules shall bear the same meaning as in the Act and the Foreign Currency Convertible Bonds and Ordinary Shares (Through Depository Receipt Mechanism) Scheme, 1993 or any modification or re-enactment thereof.
(2) Eligibility to issue depository receipts
(a) A company may issue depository receipts provided it is eligible to do so in terms of the Scheme and relevant provisions of Foreign Exchange Management Rules and Regulations.
(b) The authorized share capital of the company shall be sufficient for the company to issue new shares underlying depository receipts at the time of conversion of such receipts.
(3) Conditions for issue of depository receipts
(a) The Board of Directors of the company intending to issue depository receipts shall pass a resolution authorizing the company to do so.
(b) The company shall take prior approval of its shareholders by a special resolution to be passed at a general meeting or by postal ballot.
(c) Depository receipts shall be issued by an overseas depository bank appointed by the company and the underlying shares shall be kept in the custody of a domestic custodian bank.
(d) The company shall ensure that all the applicable provisions of the Scheme and the rules or regulations or guidelines issued by the Reserve Bank of India are complied with before and after the issue of depository receipts.
(e) The company shall appoint a merchant banker or a practicing chartered accountant or a practicing cost accountant or a practicing company secretary to oversee all the compliances relating to issue of depository receipts and the compliance report taken from such merchant banker or practicing chartered accountant or practicing cost accountant or practicing company secretary, as the case may be, shall be placed at the meeting of the Board of Directors of the company to be held immediately after closure of all formalities of the issue of depository receipts.

(4) Manner and form of depository receipts
(a) Depository receipts can be issued by way of public offering or private placement or in any other manner prevalent abroad and may be listed or traded in an overseas listing or trading platform.
(b) The depository receipts may be issued against issue of new shares or may be sponsored against shares held by shareholders of the company in accordance with such conditions as the Government and / or Reserve Bank of India may specify from time to time.
(c) The underlying shares shall be allotted in the name of the overseas depository bank and against such shares, the depository receipts shall be issued by the overseas depository bank abroad.

This was and has been a vexed issue. Not sure if the rules provide sufficient clarity because GDR holders can still vote vie depository in accordance with agreement with the company.

(5) Voting rights
(a) A holder of depository receipts may become a member of the company and shall be entitled to vote as such only on conversion of the depository receipts into underlying shares after following the procedure provided in the Scheme and the provisions of this Act.
(b) Until the conversion of depository receipts, the overseas depository shall be entitled to vote on behalf of the holders of depository receipts in accordance with the provisions of the agreement entered into between the depository, holders of depository receipts and the company in this regard.


1. Maximum private placement p.a. = (200 non QIB investors x 4) x (20x4) = 64000
2. Maximum private placement p.a.= (200 non QIB investors)x  (20x4) = 16000
It’s not clear to me if aggregate investors in a year is limited at 200 or that in each offer, limited to 4 offers,  200 investors can invest. I’m inclined to go with formula 2- ie. 16000 investors.  But if it is formula 1 – then that’s hardly a ‘private’ placement!

But I do appreciate the safeguards including a minimum investment size of Rs 50,000 (so no cash investments like Sahara claims for its OFCDs), the form to be addressed to the specific investor and the money to come from specific investor’s bank account. 


Part II– Private Placement
3.12. (1) (a) For the purposes of sub-section (1) of section 42, a company may make an offer or invitation of securities through issue of a private placement offer letter in Form No. 3.4.
(b) A private placement offer letter shall be accompanied by an application form addressed specifically to the person to whom the offer is made and shall be sent to him, either in writing or in electronic mode, within thirty days of recording the names of such persons in accordance with sub-section (7) of section 42:
Provided that no person other than the person so addressed in the application form shall be allowed to apply through such application form and any application not so received shall be treated as invalid.

(2) For the purposes of sub-section (2) of section 42, a company shall not make private placement unless:
(a) the proposed offer of securities or invitation to subscribe securities has been approved by the shareholders of the Company, by way of a Special Resolution, for each of the Offers/ Invitations;
(b) such offer or invitation shall be made to not more than two hundred persons in the aggregate in a financial year, excluding the qualified institutional buyers and employees of the company being offered securities under a scheme of employees stock option as per provisions of clause (b) of sub-section (1) of section 62;
Provided that any allottee under such offer/invitation shall not transfer his/its securities to more than 20 persons during a quarter and the company shall not register any transfer which is not in conformity with this requirement.
(c) the number of such offers or invitations shall not exceed four in a financial year and not more than once in a calendar quarter with a minimum gap of sixty days between any two such offers or invitations; and
(d) the value of such offer or invitation shall be with an investment size of not less than fifty thousand rupees per person.
(e) the payment to be made on subscription of securities shall be made from the bank account of the person subscribing to such securities:
Provided that monies payable on subscription to securities to be held by joint holders shall be paid from the bank account of the person whose name appears first in the application.
(5) The provisions of this rule shall not be applicable to any non-banking financial company which is registered with the Reserve Bank of India under RBI Act, 1934.

More tomorrow…I intend to be done with the rules by end of the week. Amen!


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