Chapter 3: Prospectus and Allotment of Securities - Test 1: answer key

Question 1 · 2 marks · Chapter 3: Prospectus and Allotment of Securities · hard

Scenario. Vayu Renewables Ltd, an unlisted public company, approved a private placement of equity shares by Board resolution dated 12 May 2026 and passed a special resolution on 5 June 2026, filed with the Registrar on 20 June 2026. On 25 June it recorded 212 names as identified persons. Its compliance note excluded 9 qualified institutional buyers and 6 employees offered securities under an ESOP, leaving 197 persons for the Section 42(2) limit. PAS-4 offer-cum-application letters were issued on 2 August 2026 to all 212 persons; one letter was addressed to 'Mr. A and/or his nominee' and permitted renunciation. Eighteen applicants paid application money in cash; the rest used banking channels. The company credited all application money to its current account and, before allotment and PAS-3 filing, spent Rs. 1.2 crore on capital expenditure. No valuation report was placed before the Board; the price was fixed at the last examined under statutory audit net asset value. Allotment was made on 10 September 2026 and PAS-3 was filed on 5 October 2026. The company also accepted an application from Ms. Meera, although the PAS-4 was addressed to her brother. One offeree was a body corporate incorporated in Bangladesh; no Government approval under the FEMA (Non-debt Instruments) Rules, 2019 was attached. The Board asserts that the issue is compliant because the countable persons were only 197.

How many persons are to be counted for the 200-person limit under Section 42(2), and is the Vayu Renewables offer within that limit?

1. 212 persons; the offer exceeds the limit because all recorded persons must be counted.
2. 197 persons; the offer is within the limit because QIBs and ESOP employees are excluded. (correct answer)
3. 203 persons; the offer exceeds the limit because only ESOP employees are excluded.
4. 191 persons; the offer is within the limit because only QIBs are excluded.

Answer: B — 197 persons; the offer is within the limit because QIBs and ESOP employees are excluded.

Explanation. Section 42(2) read with Rule 14(2) excludes qualified institutional buyers and employees offered securities under an ESOP from the 200-person calculation. Therefore, 212 minus 9 QIBs minus 6 ESOP employees equals 197 countable persons. The offer is within the limit on number. The company's other violations, such as cash payment and use of funds before PAS-3, do not alter this threshold calculation.

Where it goes wrong. Counting all 212 recorded persons and ignoring the express QIB and ESOP exclusions.

Authority. Section 42(2) of the Companies Act, 2013; Rule 14(2) of the Companies (Prospectus and Allotment of Securities) Rules, 2014

Question 2 · 2 marks · Chapter 3: Prospectus and Allotment of Securities · medium

What is the legal effect of the PAS-4 clause permitting 'Mr. A and/or his nominee' and of accepting Ms. Meera's application on a PAS-4 addressed to her brother?

1. Both are valid because private placement permits nominee applications with Board approval.
2. The nominee clause is valid, but Ms. Meera's application is invalid because she is not the addressee.
3. Both are invalid; a private placement offer cannot carry renunciation and only the addressee may apply. (correct answer)
4. Both are valid if the company subsequently ratifies them by a Board resolution.

Answer: C — Both are invalid; a private placement offer cannot carry renunciation and only the addressee may apply.

Explanation. The proviso to Section 42(3) expressly states that a private placement offer and application shall not carry any right of renunciation. Rule 14(3) requires the PAS-4 to be serially numbered and addressed specifically to the person to whom the offer is made, and no other person may apply through that form. Hence the renunciation clause is invalid and Ms. Meera's application, not being by the addressee, is also invalid.

Where it goes wrong. Assuming private placement offers can be freely transferred or that a Board resolution can cure a statutory prohibition.

Authority. Proviso to Section 42(3) of the Companies Act, 2013; Rule 14(3) of the Companies (Prospectus and Allotment of Securities) Rules, 2014

Question 3 · 2 marks · Chapter 3: Prospectus and Allotment of Securities · hard

Which statement correctly describes the consequences of accepting cash, crediting money to the current account, and spending Rs. 1.2 crore before PAS-3 filing?

1. The issue is automatically deemed a public offer under Section 42(11) because cash was accepted.
2. There is no violation because the money was ultimately used for the company's business purposes.
3. Only the directors are personally liable; the company and promoters face no penalty.
4. These are contraventions attracting penalty under Section 42(10), but they do not by themselves deem the issue a public offer. (correct answer)

Answer: D — These are contraventions attracting penalty under Section 42(10), but they do not by themselves deem the issue a public offer.

Explanation. Section 42(4) requires payment through cheque, demand draft or other banking channel, and not cash. The proviso to Section 42(4) and Section 42(6) require private placement monies to be kept in a separate scheduled bank account and prohibit utilisation until allotment and PAS-3 filing. These breaches attract penalty under Section 42(10). Section 42(11) deems an issue a public offer only where the violation is of Section 42(2), that is, the 200-person limit, and not merely because cash was accepted.

Where it goes wrong. Treating every private placement irregularity as an automatic deemed public offer under Section 42(11).

Authority. Section 42(4) of the Companies Act, 2013; Section 42(6) of the Companies Act, 2013; Section 42(10) of the Companies Act, 2013; Section 42(11) of the Companies Act, 2013

Question 4 · 2 marks · Chapter 3: Prospectus and Allotment of Securities · hard

PAS-3 was filed on 5 October 2026 for an allotment made on 10 September 2026. What is the correct penalty consequence under Section 42(9)?

1. Rs. 25,000, being the maximum fixed penalty for late filing of PAS-3.
2. Rs. 10,000, being Rs. 1,000 per day for the 10-day delay beyond the 15-day period. (correct answer)
3. Rs. 5,000, because the delay is computed from the date of the Board meeting.
4. No penalty, because PAS-3 was filed before the expiry of 30 days from allotment.

Answer: B — Rs. 10,000, being Rs. 1,000 per day for the 10-day delay beyond the 15-day period.

Explanation. Rule 14(6) requires PAS-3 to be filed within 15 days of allotment. For allotment on 10 September 2026, the due date was 25 September 2026. Filing on 5 October 2026 is a delay of 10 days. Section 42(9) imposes a penalty of Rs. 1,000 for each day of default, subject to a maximum of Rs. 25 lakh, on the company, its promoters and directors. Hence the penalty is Rs. 10,000.

Where it goes wrong. Using a 30-day return period instead of the special 15-day period applicable to private placement under Rule 14(6).

Authority. Section 42(8) of the Companies Act, 2013; Section 42(9) of the Companies Act, 2013; Rule 14(6) of the Companies (Prospectus and Allotment of Securities) Rules, 2014

Question 5 · 2 marks · Chapter 3: Prospectus and Allotment of Securities · medium

Scenario. Zenith Agro Tech Pvt Ltd, a private company, proposed a private placement of equity shares to raise Rs. 45 crore from 180 identified persons. Its Board resolution was passed on 10 July 2026 and a special resolution was passed at an extraordinary general meeting on 28 July 2026. The special resolution was filed with the Registrar on 25 August 2026, but PAS-4 offer-cum-application letters were issued to the 180 persons on 20 August 2026. Of these, 20 were qualified institutional buyers. The Board fixed the issue price on the basis of the last statutory balance sheet and did not obtain any valuation report from a registered valuer; the explanatory statement did not disclose the name or address of any valuer. Application money was received from 160 persons in September 2026 and kept in a separate account with a scheduled bank. The company allotted shares to 150 applicants within 60 days. The remaining 10 applicants were not allotted; their money was refunded 20 days after the expiry of 60 days, without interest. Before filing PAS-3, the company used Rs. 10 crore from the separate account for working capital. PAS-3 was filed within 15 days of allotment. A director contends that a private company need not pass a special resolution, need not obtain a valuation report, and need not pay interest if refund is made within 30 days.

Is Zenith Agro Tech Pvt Ltd correct in not obtaining any valuation report and in fixing the price only on the basis of its last statutory balance sheet?

1. Yes, because a private company is completely exempt from valuation requirements in private placement.
2. Yes, because the Board may fix any price if all identified persons consent to it.
3. No, because the explanatory statement must disclose the basis or justification for the price and the name and address of the valuer who performed the valuation. (correct answer)
4. No, because valuation by a registered valuer is required only when the issue exceeds Rs. 100 crore.

Answer: C — No, because the explanatory statement must disclose the basis or justification for the price and the name and address of the valuer who performed the valuation.

Explanation. Rule 14(1) requires the explanatory statement to the special resolution to disclose the basis or justification for the price, including any premium, and the name and address of the valuer who performed the valuation. A mere reliance on examined under statutory audit net asset value, without a registered valuer's report and without the prescribed disclosure, does not satisfy the private placement pricing and disclosure framework. The private company status does not dispense with Rule 14.

Where it goes wrong. Believing that private companies are exempt from the valuation and explanatory statement requirements under Rule 14.

Authority. Rule 14(1)(c) of the Companies (Prospectus and Allotment of Securities) Rules, 2014; Rule 14(1)(d) of the Companies (Prospectus and Allotment of Securities) Rules, 2014

Question 6 · 2 marks · Chapter 3: Prospectus and Allotment of Securities · medium

The special resolution was filed on 25 August 2026, but PAS-4 offer letters were issued on 20 August 2026. What is the status of the PAS-4 issue?

1. The PAS-4 issue is invalid because the special resolution was not filed with the Registrar before the offer letters were issued. (correct answer)
2. The PAS-4 issue is valid because the special resolution had already been passed on 28 July 2026.
3. The PAS-4 issue is valid because filing of the special resolution is only a post-issue formality.
4. The PAS-4 issue is invalid only if the Registrar subsequently rejects the special resolution.

Answer: A — The PAS-4 issue is invalid because the special resolution was not filed with the Registrar before the offer letters were issued.

Explanation. Rule 14(8) expressly provides that a company shall issue the private placement offer-cum-application letter only after the relevant special resolution or Board resolution has been filed with the Registry. Passing the resolution is not enough; filing must precede the issue of PAS-4. Since PAS-4 was issued on 20 August 2026 and the resolution was filed on 25 August 2026, the issue is contrary to Rule 14(8) and invalid.

Where it goes wrong. Confusing the date of passing the special resolution with the date of filing it with the Registrar.

Authority. Rule 14(8) of the Companies (Prospectus and Allotment of Securities) Rules, 2014; Section 42(3) of the Companies Act, 2013

Question 7 · 2 marks · Chapter 3: Prospectus and Allotment of Securities · hard

Ten applicants were not allotted shares, and their application money was refunded 20 days after the expiry of 60 days from receipt, without interest. What is the correct legal position?

1. No interest is payable because the refund was made within 30 days after the 60-day period.
2. Only simple interest at 9% per annum is payable from the date of application.
3. The company need not pay interest if it proves that the non-allotment was due to business reasons.
4. The company is liable to refund within 15 days from the expiry of 60 days and, on delay, to pay interest at 12% per annum from the expiry of the 60th day. (correct answer)

Answer: D — The company is liable to refund within 15 days from the expiry of 60 days and, on delay, to pay interest at 12% per annum from the expiry of the 60th day.

Explanation. Section 42(6) requires allotment within 60 days from receipt of application money. If the company cannot allot, it must repay the application money within 15 days from the expiry of 60 days. If repayment is delayed beyond that 15-day period, the company is liable to repay with interest at 12% per annum from the expiry of the 60th day. A refund made after 20 days is therefore delayed, and interest is payable.

Where it goes wrong. Assuming a 30-day refund window or a lower rate of interest than the statutory 12% per annum.

Authority. Section 42(6) of the Companies Act, 2013

Question 8 · 2 marks · Chapter 3: Prospectus and Allotment of Securities · hard

The company used Rs. 10 crore from the separate scheduled bank account for working capital before filing PAS-3. Is this permissible?

1. Yes, because the money was kept in a separate scheduled bank account.
2. No, because private placement monies cannot be utilised until allotment is made and the return of allotment is filed with the Registrar. (correct answer)
3. Yes, because a private company may use private placement proceeds for any business purpose after Board approval.
4. No, because the entire amount must remain untouched for at least 60 days after allotment.

Answer: B — No, because private placement monies cannot be utilised until allotment is made and the return of allotment is filed with the Registrar.

Explanation. The proviso to Section 42(4) prohibits a company from utilising monies raised through private placement unless allotment is made and the return of allotment is filed with the Registrar under Section 42(8). Maintaining a separate scheduled bank account does not permit pre-filing utilisation. Using Rs. 10 crore before PAS-3 filing is therefore a contravention of Section 42.

Where it goes wrong. Thinking that parking the money in a separate bank account by itself authorises its use before PAS-3 filing.

Authority. Proviso to Section 42(4) of the Companies Act, 2013; Section 42(8) of the Companies Act, 2013

Question 9 · 2 marks · Chapter 3: Prospectus and Allotment of Securities · hard

Scenario. Stellar Infra Ltd, a listed public company, decided in financial year 2026-27 to issue non-convertible debentures of Rs. 150 crore to 40 institutional investors, including 12 qualified institutional buyers, and preference shares of Rs. 80 crore to 190 persons. Fifteen persons were offered both kinds of securities. The NCD offer exceeded the borrowing limit in Section 180(1)(c). The company passed one special resolution on 15 April 2026 covering both the NCD offer and the preference share offer. It recorded the names of all offerees, issued PAS-4 for the NCDs, and completed NCD allotments on 30 June 2026. The preference share allotments were not completed. On 20 July 2026 the company issued a fresh PAS-4 for preference shares to the 190 persons; assume a separate special resolution for the preference shares had been passed and filed before that date. For the NCDs, PAS-3 was filed on 20 July 2026. One NCD offeree was a body corporate incorporated in Bangladesh; its PAS-4 was issued without any Government approval under the FEMA (Non-debt Instruments) Rules, 2019 and no approval was attached. The company secretary says that one special resolution can cover both offers, that the 200-person limit is to be applied to the aggregate of 40 plus 190, and that a fresh preference offer cannot be made until all NCD formalities are complete.

What is the legal effect of the single special resolution dated 15 April 2026 covering both the NCD offer and the preference share offer?

1. It validly covers both offers because a single special resolution can authorise all private placements in a financial year.
2. It is wholly invalid because a special resolution is never required for private placement of NCDs.
3. It may support the NCD offer if the NCD resolution is a previous resolution for all NCD offers in the year, but it cannot authorise the preference share offer; a separate special resolution is required for that offer. (correct answer)
4. It validly covers both offers because the total number of offerees is below 200.

Answer: C — It may support the NCD offer if the NCD resolution is a previous resolution for all NCD offers in the year, but it cannot authorise the preference share offer; a separate special resolution is required for that offer.

Explanation. Rule 14(1) ordinarily requires a special resolution for each private placement offer. It provides a limited relaxation for NCDs exceeding the Section 180(1)(c) limit: a previous special resolution once in a year is sufficient for all NCD offers during that year. There is no similar relaxation permitting the same resolution to authorise a preference share offer. Therefore, the preference share offer needs its own special resolution.

Where it goes wrong. Extending the NCD once-a-year special resolution relaxation to preference shares or to all securities.

Authority. Section 42(2) of the Companies Act, 2013; Rule 14(1) of the Companies (Prospectus and Allotment of Securities) Rules, 2014

Question 10 · 2 marks · Chapter 3: Prospectus and Allotment of Securities · medium

How is the 200-person limit under Section 42(2) applied to the 40 NCD offerees and 190 preference share offerees, 15 of whom are common?

1. The limit is applied separately to each kind of security; 40 NCD offerees and 190 preference offerees are each within 200. (correct answer)
2. The common 15 persons must be counted twice, taking the aggregate to 245 and breaching the limit.
3. The aggregate of 40 plus 190 equals 230, so the entire private placement is invalid.
4. Only the preference share offerees are counted because NCDs are debt securities and are outside Section 42.

Answer: A — The limit is applied separately to each kind of security; 40 NCD offerees and 190 preference offerees are each within 200.

Explanation. The Explanation to Rule 14(2) clarifies that the 200-person restriction is reckoned individually for each kind of security, namely equity shares, preference shares and debentures. Therefore, the NCD offer to 40 persons and the preference share offer to 190 persons are tested separately. Both are within 200; the fact that 15 persons are common does not convert this into a single 230-person offer.

Where it goes wrong. Aggregating different kinds of securities or double-counting common offerees for the 200-person limit.

Authority. Section 42(2) of the Companies Act, 2013; Explanation to Rule 14(2) of the Companies (Prospectus and Allotment of Securities) Rules, 2014

Question 11 · 2 marks · Chapter 3: Prospectus and Allotment of Securities · medium

A body corporate incorporated in Bangladesh was offered NCDs, but no Government approval under the FEMA (Non-debt Instruments) Rules, 2019 was obtained or attached to the PAS-4. What is the consequence?

1. The offer is valid because private placement to foreign bodies corporate does not require any approval.
2. The offer is valid because Bangladesh is not a land-border country for this purpose.
3. The offer is valid if the body corporate subsequently obtains approval before allotment.
4. The offer is non-compliant because a body corporate incorporated in a land-border country requires prior Government approval, which must be attached to the PAS-4. (correct answer)

Answer: D — The offer is non-compliant because a body corporate incorporated in a land-border country requires prior Government approval, which must be attached to the PAS-4.

Explanation. The proviso to Rule 14(1) prohibits an offer or invitation of securities to a body corporate incorporated in, or a national of, a country sharing a land border with India unless that body corporate or national has obtained Government approval under the FEMA (Non-debt Instruments) Rules, 2019 and the approval is attached to the private placement offer-cum-application letter. Bangladesh shares a land border with India, so the offer is non-compliant.

Where it goes wrong. Assuming all foreign investors are treated alike, or forgetting that the approval must be attached to PAS-4.

Authority. Proviso to Rule 14(1) of the Companies (Prospectus and Allotment of Securities) Rules, 2014; FEMA (Non-debt Instruments) Rules, 2019

Question 12 · 2 marks · Chapter 3: Prospectus and Allotment of Securities · hard

Can Stellar Infra Ltd issue a fresh PAS-4 for preference shares on 20 July 2026 after completing NCD allotments on 30 June 2026?

1. No, because a company cannot make more than one private placement in a financial year.
2. Yes, because the earlier NCD allotments were completed, so the bar under Section 42(5) is lifted, and the preference offer is separately within the 200-person limit. (correct answer)
3. No, because the NCD and preference share offers must be treated as a single offer.
4. Yes, but only if the NCD allottees consent to the preference share issue.

Answer: B — Yes, because the earlier NCD allotments were completed, so the bar under Section 42(5) is lifted, and the preference offer is separately within the 200-person limit.

Explanation. Section 42(5) prohibits a fresh private placement offer unless the allotments relating to the earlier offer have been completed, or that offer has been withdrawn or abandoned. The NCD allotments were completed on 30 June 2026, so the bar does not apply to the subsequent preference share offer. The 200-person limit is applied separately to preference shares, and the 190 offerees are within that limit.

Where it goes wrong. Reading Section 42(5) as a blanket one-private-placement-per-year rule instead of a bar tied to completion of the earlier offer.

Authority. Section 42(5) of the Companies Act, 2013; Rule 14(2) of the Companies (Prospectus and Allotment of Securities) Rules, 2014

Question 13 · 2 marks · Chapter 3: Prospectus and Allotment of Securities · medium

Scenario. Anekta Garments Ltd made a private placement offer of equity shares to 200 identified persons. The list included 25 qualified institutional buyers and 10 employees who were offered securities under an ESOP. How many persons are counted for the 200-person limit, and is the offer compliant on this ground?

Anekta Garments Ltd made a private placement offer of equity shares to 200 identified persons. The list included 25 qualified institutional buyers and 10 employees who were offered securities under an ESOP. How many persons are counted for the 200-person limit, and is the offer compliant on this ground?

1. 200 persons; the offer is exactly at the limit and compliant.
2. 175 persons; the offer is compliant because only non-employee investors are counted.
3. 165 persons; the offer is within the limit because both QIBs and ESOP employees are excluded. (correct answer)
4. 190 persons; the offer is compliant because only ESOP employees are excluded.

Answer: C — 165 persons; the offer is within the limit because both QIBs and ESOP employees are excluded.

Explanation. The proviso to Rule 14(2) excludes both qualified institutional buyers and employees of the company being offered securities under an ESOP from the calculation of the 200-person limit. Thus, 200 minus 25 QIBs minus 10 ESOP employees equals 165 countable persons. The offer is within the limit on the number of persons.

Where it goes wrong. Excluding only one of the two categories, usually QIBs, and counting the other.

Authority. Section 42(2) of the Companies Act, 2013; Rule 14(2) of the Companies (Prospectus and Allotment of Securities) Rules, 2014

Question 14 · 2 marks · Chapter 3: Prospectus and Allotment of Securities · hard

Scenario. Orchid Chem Ltd issued PAS-4 to 201 identified persons. Before the last date, 21 persons did not apply, and the company ultimately allotted shares to only 180 persons. The company claims there is no breach because the allottees are fewer than 200. Is the issue deemed a public offer?

Orchid Chem Ltd issued PAS-4 to 201 identified persons. Before the last date, 21 persons did not apply, and the company ultimately allotted shares to only 180 persons. The company claims there is no breach because the allottees are fewer than 200. Is the issue deemed a public offer?

1. Yes, because the offer itself was made to more than 200 persons, irrespective of how many ultimately applied or were allotted. (correct answer)
2. No, because only 180 persons were actually allotted shares.
3. No, because 21 persons did not apply, reducing the offerees to 180.
4. Yes, but only if the company intended to list its securities on a recognised stock exchange.

Answer: A — Yes, because the offer itself was made to more than 200 persons, irrespective of how many ultimately applied or were allotted.

Explanation. Explanation III to Section 42(3) provides that if a company makes an offer to allot or invites subscription to more than the prescribed number of persons, the issue is deemed to be an offer to the public, whether or not payment has been received and whether or not the company intends to list. The relevant number is the number of persons to whom the offer is made, not the number who apply or are allotted. Since PAS-4 was issued to 201 persons, the issue is deemed a public offer.

Where it goes wrong. Using the number of allottees or applicants instead of the number of persons to whom the offer was made.

Authority. Explanation III to Section 42(3) of the Companies Act, 2013; Section 42(11) of the Companies Act, 2013

Question 15 · 2 marks · Chapter 3: Prospectus and Allotment of Securities · hard

Scenario. Bluewave Ltd accepted application money in cash from five allottees in a private placement. All other requirements, including the 200-person limit, were complied with. Which statement is correct?

Bluewave Ltd accepted application money in cash from five allottees in a private placement. All other requirements, including the 200-person limit, were complied with. Which statement is correct?

1. The issue is automatically deemed a public offer because cash was accepted.
2. The issue is not deemed a public offer solely for the cash violation, but the company and responsible persons attract penalty under Section 42(10). (correct answer)
3. The issue is valid because cash payment is permitted if the Board approves it.
4. Only the five allottees are liable, and the company has no liability for accepting cash.

Answer: B — The issue is not deemed a public offer solely for the cash violation, but the company and responsible persons attract penalty under Section 42(10).

Explanation. Section 42(4) requires subscription money to be paid through cheque, demand draft or other banking channel, and not in cash. Accepting cash is a contravention attracting penalty under Section 42(10). However, Section 42(11) deems an issue a public offer only where the non-compliance is with Section 42(2), the 200-person limit. A cash violation by itself does not trigger the deemed public offer consequence.

Where it goes wrong. Assuming every contravention of Section 42 automatically converts the issue into a public offer.

Authority. Section 42(4) of the Companies Act, 2013; Section 42(10) of the Companies Act, 2013; Section 42(11) of the Companies Act, 2013

Question 16 · 2 marks · Chapter 3: Prospectus and Allotment of Securities · medium

Scenario. Helios Power Ltd proposed a private placement of non-convertible debentures up to Rs. 40 crore, which is within its Section 180(1)(c) borrowing limit. It passed only a Board resolution and filed it with the Registrar before issuing PAS-4. Is a special resolution required?

Helios Power Ltd proposed a private placement of non-convertible debentures up to Rs. 40 crore, which is within its Section 180(1)(c) borrowing limit. It passed only a Board resolution and filed it with the Registrar before issuing PAS-4. Is a special resolution required?

1. Yes, because every private placement, irrespective of the security, requires a special resolution.
2. Yes, because NCDs can never be issued through private placement without shareholder approval.
3. No, because private placement of NCDs is altogether outside Section 42.
4. No, because where the NCD offer is within the Section 180(1)(c) limit, a Board resolution under Section 179(3)(c) is adequate. (correct answer)

Answer: D — No, because where the NCD offer is within the Section 180(1)(c) limit, a Board resolution under Section 179(3)(c) is adequate.

Explanation. The second proviso to Rule 14(1) provides that a special resolution is not required for an offer of non-convertible debentures where the proposed amount does not exceed the limit specified in Section 180(1)(c). In such a case, the relevant Board resolution under Section 179(3)(c) is adequate, and PAS-4 may be issued after the resolution is filed with the Registrar.

Where it goes wrong. Applying the general special resolution requirement without noticing the express NCD relaxation in Rule 14(1).

Authority. Section 42(2) of the Companies Act, 2013; Rule 14(1) of the Companies (Prospectus and Allotment of Securities) Rules, 2014

Question 17 · 2 marks · Chapter 3: Prospectus and Allotment of Securities · hard

Scenario. Veda Foods Ltd allotted equity shares to 150 persons in June 2026. Some allotments under that equity offer are still pending. In September 2026, the company proposes a private placement of preference shares to 80 persons. Can it make the preference share offer?

Veda Foods Ltd allotted equity shares to 150 persons in June 2026. Some allotments under that equity offer are still pending. In September 2026, the company proposes a private placement of preference shares to 80 persons. Can it make the preference share offer?

1. No, because a fresh private placement offer cannot be made until the earlier offer's allotments are completed, withdrawn or abandoned, even if the new offer relates to a different kind of security. (correct answer)
2. Yes, because preference shares and equity shares are separate kinds of securities and are always treated as independent offers.
3. Yes, because 80 persons are within the 200-person limit for preference shares.
4. No, because a company cannot issue preference shares through private placement.

Answer: A — No, because a fresh private placement offer cannot be made until the earlier offer's allotments are completed, withdrawn or abandoned, even if the new offer relates to a different kind of security.

Explanation. Section 42(5) bars a fresh offer or invitation under Section 42 unless the allotments relating to any earlier offer have been completed, or that earlier offer has been withdrawn or abandoned. This bar is not confined to the same kind of security. Since the equity allotments were incomplete, the subsequent preference share offer is not permissible, even though 80 persons are within the per-security limit.

Where it goes wrong. Assuming the per-security 200-person rule also displaces the separate Section 42(5) bar on fresh offers.

Authority. Section 42(5) of the Companies Act, 2013

Question 18 · 2 marks · Chapter 3: Prospectus and Allotment of Securities · medium

Scenario. Terra Solar Ltd makes private placements only to qualified institutional buyers in multiple tranches during financial year 2026-27. It passed one special resolution in April 2026 covering all allotments to QIBs during that year. Is a separate special resolution required for each tranche?

Terra Solar Ltd makes private placements only to qualified institutional buyers in multiple tranches during financial year 2026-27. It passed one special resolution in April 2026 covering all allotments to QIBs during that year. Is a separate special resolution required for each tranche?

1. Yes, because each private placement offer requires a fresh special resolution without exception.
2. Yes, because QIBs are treated as public investors and each tranche is a public offer.
3. No, because a previous special resolution once in a year is sufficient for all allotments to QIBs during that year. (correct answer)
4. No, because private placement to QIBs does not require any shareholder resolution.

Answer: C — No, because a previous special resolution once in a year is sufficient for all allotments to QIBs during that year.

Explanation. The fourth proviso to Rule 14(1) provides that in the case of an offer or invitation of securities to qualified institutional buyers, it is sufficient if the company passes a previous special resolution once in a year for all allotments to such buyers during the year. Therefore, a separate special resolution for every QIB tranche is not required, although the other Section 42 conditions continue to apply.

Where it goes wrong. Applying the ordinary each-offer special resolution rule without considering the QIB-specific annual resolution relaxation.

Authority. Rule 14(1) of the Companies (Prospectus and Allotment of Securities) Rules, 2014

Question 19 · 2 marks · Chapter 3: Prospectus and Allotment of Securities · hard

Scenario. Nimbus Ltd allotted private placement securities on 1 April 2026 and filed PAS-3 on 30 April 2026. The statutory due date was 16 April 2026. What penalty is payable under Section 42(9)?

Nimbus Ltd allotted private placement securities on 1 April 2026 and filed PAS-3 on 30 April 2026. The statutory due date was 16 April 2026. What penalty is payable under Section 42(9)?

1. Rs. 30,000, being Rs. 1,000 per day for 30 days from allotment.
2. Rs. 14,000, being Rs. 1,000 per day for 14 days of delay, subject to the overall cap. (correct answer)
3. Rs. 1,00,000, being the fixed penalty for late filing of PAS-3.
4. No penalty, because PAS-3 was filed within 30 days of allotment.

Answer: B — Rs. 14,000, being Rs. 1,000 per day for 14 days of delay, subject to the overall cap.

Explanation. Rule 14(6) prescribes 15 days from allotment for filing PAS-3. For allotment on 1 April 2026, the due date was 16 April 2026. Filing on 30 April 2026 is a delay of 14 days. Section 42(9) imposes a penalty of Rs. 1,000 for each day during which the default continues, subject to a maximum of Rs. 25 lakh, on the company, its promoters and directors. The penalty is therefore Rs. 14,000.

Where it goes wrong. Using the general 30-day period for returns of allotment instead of the 15-day private placement period.

Authority. Section 42(8) of the Companies Act, 2013; Section 42(9) of the Companies Act, 2013; Rule 14(6) of the Companies (Prospectus and Allotment of Securities) Rules, 2014

Question 20 · 2 marks · Chapter 3: Prospectus and Allotment of Securities · hard

Scenario. Global Link Ltd offered private placement securities to a body corporate incorporated in the UAE. No Government approval under the FEMA (Non-debt Instruments) Rules, 2019 was obtained or attached to the PAS-4. Is the offer invalid on this ground?

Global Link Ltd offered private placement securities to a body corporate incorporated in the UAE. No Government approval under the FEMA (Non-debt Instruments) Rules, 2019 was obtained or attached to the PAS-4. Is the offer invalid on this ground?

1. Yes, because every foreign body corporate requires prior Government approval for private placement.
2. Yes, because no foreign entity can subscribe to Indian private placement securities.
3. Yes, because UAE is treated as a land-border country for FEMA purposes.
4. No, because the approval requirement applies only to bodies corporate or nationals of countries sharing a land border with India, and UAE does not share such a border. (correct answer)

Answer: D — No, because the approval requirement applies only to bodies corporate or nationals of countries sharing a land border with India, and UAE does not share such a border.

Explanation. The proviso to Rule 14(1) requires Government approval under the FEMA (Non-debt Instruments) Rules, 2019 only where the offeree is a body corporate incorporated in, or a national of, a country that shares a land border with India. UAE does not share a land border with India. Therefore, the absence of such approval does not invalidate the PAS-4, though other applicable FEMA and company law requirements must still be satisfied.

Where it goes wrong. Treating every foreign investor as requiring land-border Government approval, or confusing FEMA sectoral rules with the Rule 14(1) proviso.

Authority. Proviso to Rule 14(1) of the Companies (Prospectus and Allotment of Securities) Rules, 2014