The Board of Customerlast Limited, an unlisted public company is exploring ways to increase its paid-up share capital from ₹125 crore to ₹150 crore. The CFO of the company suggested that instead of offering shares to all

As per Explanation I under Section 42(3) of the Act, "private placement" means any offer or invitation to subscribe or issue of securities to a select group of persons by a company (other than by way of public offer) through private placement offer-cum-application (Form PAS-4), which satisfies the conditions specified in this section. As per Rule 14(1) of Companies (Prospectus and Allotment of Securities) Rules, 2014 a company shall not make an offer or invitation to subscribe to securities through private placement unless the proposal has been previously approved by the shareholders of the company, by a special resolution for each of the offers or invitations. Hence, the proposal of CFO on further raising of share capital by private placement is prima facie valid. As per Rule 14(2) of Companies (Prospectus and Allotment of Securities) Rules, 2014: an offer or invitation to subscribe securities under private placement shall not be made to persons more than two hundred in the aggregate in a financial year: Provided that any offer or invitation made to qualified institutional buyers, or to employees of the company under a scheme of employees stock option as per provisions of section 62(1) (b) shall not be considered while calculating the limit of two hundred persons. In light of above provisions, the proposal to issue offer letter to Four QIBs is valid. But the company cannot issue securities under private placement to the top 250 shareholders. As per Section 42(4) of the Companies Act, 2013: Every identified person willing to subscribe to the private placement issue shall apply in the private placement and application issued to such person alongwith subscription money paid either by cheque or demand draft or other banking channel and not by cash. Hence, the suggestion of CFO on receiving consideration by cash payment is not valid. In the light of above provisions, the objection of CS in raising the further capital through private placement is not correct. However, his objection to an offer or invitation to subscribe securities under private placement to 250 members and receiving the same in cash is correct.