Sun Ltd made the following offers during the financial year 2017-18 on private placement basis: (i) 10,00,000 equity shares of ₹10 each at an issue price of ₹25 each, to 230 persons, which included 25 Qualified Instituti

As per Rule 14 of the Companies (Prospectus & Allotment of Securities) Rules 2014, an offer under private placement shall be made to not more than 200 persons in the aggregate in a financial year, subject to a proviso that offer made to Qualified Institutional Buyers (QIB) and employees under ESOP scheme will not be counted for this limit of 200. Further, the above restriction will be reckoned individually to each kind of security. Rules provide 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 conforming to this condition shall be treated as invalid. In view of the above: The offer made to 230 persons including 25 QIBs is a violation of the rules, as the total number of offers made excluding QIBs exceeds 200 (230 - 25 QIBs = 205 persons, which is > 200). Section 42 read with Rules provide 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 conforming to this condition shall be treated as invalid. Therefore, Ram to whom the offer was made, cannot renounce in favor of Shyam and hence any allotment to Shyam is invalid in terms of private placement rules. The offer made to 50 employees under ESOP scheme is in order as it is specifically excluded from the limit of 200. Offer of preference shares made to 150 persons is also in order as the limit of 200 is to be reckoned separately for each kind of security. These limits are not applicable to a Housing Finance Company registered under the National Housing Bank Act, 1987 and hence, in that case, all the above offers of Sun Limited will be valid.