PAS-4: Issue private offer — After approvals

PAS-4 is the private-placement offer-cum-application letter addressed to identified persons. It is not a form you upload to the MCA portal. What must reach the Registrar before any PAS-4 goes out is the approving resolution: Rule 14(1) of the Companies (Prospectus and Allotment of Securities) Rules, 2014 bars a private placement unless the members have previously approved the proposal by special resolution for each offer, and Rule 14(8) permits the offer letter to be issued only after that resolution has been filed with the Registrar. A Board resolution alone does not open the door, except in the narrow debenture case explained below.

What goes wrong

The common mistake is to treat PAS-4 as a standard MCA filing made before the offer, or to treat a Board meeting as the only approval needed. Both reverse the legal sequence. Read together, Section 42 of the Companies Act, 2013 and Rule 14 run in this order:

• The Board approves the proposal and identifies the persons to whom the offer will be made.
• The members pass a special resolution approving the offer (Rule 14(1)).
• That resolution is filed with the Registrar (Rule 14(8)).
• The serially numbered PAS-4 goes to each identified person (Section 42(3), Rule 14(3)).
• Subscription money arrives through a banking channel into a separate bank account (Section 42(4), Section 42(6) proviso).
• The company allots within sixty days of receiving the application money (Section 42(6)).
• The PAS-3 return of allotment is filed within fifteen days of allotment (Section 42(8), Rule 14(6)).
• Only then may the company use the money (Section 42(4) proviso).

The real pre-offer step with the Registrar is the filing of the approving resolution. Rule 14(8) has a proviso aimed squarely at private companies: they must file with the Registry a copy of the Board resolution or special resolution approving the issue under Section 179(3)(c). Skipping that filing and sending PAS-4 letters anyway means the offer was issued before the law allowed it.

Check your position first

Gather these facts before drafting any offer.

The approval: special resolution, each offer

Rule 14(1) requires the proposal to be previously approved by the shareholders by a special resolution for each of the offers or invitations. The explanatory statement annexed to the notice must disclose, among other things: particulars of the offer including the date of the Board resolution; the securities offered and the price at which they are offered; the basis or justification for the price, including any premium; the name and address of the valuer; the amount to be raised; and the material terms, proposed time schedule, objects, any promoter or director contribution and the principal terms of assets charged as securities.

Two provisos relax this for non-convertible debentures. Where the amount to be raised through the offer does not exceed the borrowing limit in Section 180(1)(c), the special-resolution requirement does not apply and the Board resolution under Section 179(3)(c) is adequate. Where the amount exceeds that limit, it is sufficient to pass a previous special resolution once a year for all offers of such debentures during the year. A further proviso, inserted in 2020, allows a single special resolution once a year for all allotments to qualified institutional buyers during the year. For an ordinary equity raise from individual investors, none of these relaxations applies: each offer needs its own special resolution.

One more condition now sits in Rule 14(1), inserted in 2022: no offer may be made to a body corporate incorporated in, or a national of, a country that shares a land border with India unless that person has obtained Government approval under the Foreign Exchange Management (Non-debt Instruments) Rules, 2019 and attached it to the offer letter. Check the nationality of every offeree before the offer goes out.

Identified persons means identified

A private placement can be made only to a select group of persons identified by the Board, whose names and addresses the company records (Section 42(2) and (3)). Rule 14(2) caps the offer at two hundred persons in aggregate in a financial year, reckoned separately for each kind of security, excluding qualified institutional buyers and employees offered securities under an employee stock option scheme under Section 62(1)(b).

Each PAS-4 must be serially numbered and addressed specifically to the person to whom the offer is made, and sent in writing or electronically within thirty days of recording that person's name (Rule 14(3)). Only the person addressed may apply on it; any other application is invalid. The offer carries no right of renunciation (Section 42(3) proviso). If a recipient cannot be traced back to the Board's identification record with a serial number against their name, the placement has leaked outside its legal channel.

The money must travel by banking channel

Each identified person applies with subscription money paid by cheque, demand draft or other banking channel, and not by cash (Section 42(4)). The payment must come from the subscriber's own bank account, and the company must keep a record of that account (Rule 14(5)); for joint holders, it must come from the account of the first-named applicant. Application money must be kept in a separate bank account in a scheduled bank and used only for adjustment against allotment or for repayment if the company cannot allot (Section 42(6) proviso).

The company may not use the money raised until two things have happened: the allotment has been made, and the return of allotment has been filed with the Registrar under Section 42(8) (Section 42(4) proviso). Allotment alone is not enough. Cash subscriptions and spending the money before PAS-3 is on record are the two money-route failures that most often accompany a defective placement.

Reconcile the bank credits against the serial-number register before allotment: every credit must map to exactly one identified offeree, one serial number and one subscriber bank account. An unmatched credit is either a data error to fix or an outsider's money to return, never a rounding difference to ignore.

Do it in order

• Board meeting: approve the proposal (instrument, size, price, valuation) and identify the offerees. Approve the notice and explanatory statement for the members' meeting with the Rule 14(1) disclosures.
• Special resolution: members approve this specific offer by special resolution (Rule 14(1)). For non-convertible debentures within the Section 180(1)(c) limit, the Board resolution under Section 179(3)(c) is adequate instead.
• File the resolution with the Registrar: as a private company, file the special resolution or Board resolution approving the issue under Section 179(3)(c) (Rule 14(8) proviso). Do not issue any PAS-4 until this filing is done.
• Record the offerees' names and addresses as Section 42(3) requires, and confirm the count against the Rule 14(2) limit. Confirm no earlier offer is still open: no fresh offer may be made until earlier allotments are complete or that offer is withdrawn or abandoned (Section 42(5)).
• Serialise and send the offer letters: one numbered PAS-4 per identified person, sent within thirty days of recording that person's name (Rule 14(3)). Keep delivery evidence for each.
• Maintain the PAS-5 record: the complete record of private placement offers (Rule 14(4)).
• Control the money route: receive subscriptions only by banking channel from the subscriber's own account into the separate bank account (Section 42(4), Section 42(6) proviso, Rule 14(5)). No advertisement or public marketing of the issue (Section 42(7)).
• Allot within sixty days of receiving the application money, or repay within fifteen days after that period ends; money not repaid on time carries interest at twelve per cent a year from the sixtieth day (Section 42(6)).
• File PAS-3 within fifteen days of allotment with the complete list of allottees (Section 42(8), Rule 14(6)).
• Release the money for use only once both the allotment and the PAS-3 filing are complete (Section 42(4) proviso).

Worked example: offer to 12 identified investors

Take a private company raising ₹60.6 lakh through 6,000 equity shares of ₹10 face value at a ₹1,000 premium (₹1,010 per share) from 12 identified investors, 500 shares each. The dates below are illustrative.

The figures above are the company's transaction figures (face value, premium and subscription), not filing charges.

Now change one fact: investor 7 introduces a friend who is not on the identified list, and the company accepts that friend's money. That receipt sits outside the placement's legal channel: Rule 14(3) treats an application from anyone other than the addressee as invalid, and accepting monies in contravention of Section 42 triggers the Section 42(10) consequences. The cure is refusal at the gate: no identification, no serial number, no money.

Change a different fact: the Board meets on 10 June and the company sends the PAS-4 letters the next day, planning to pass the special resolution later. Every one of those letters was issued in breach of Rule 14(1) and Rule 14(8), and the whole offer is exposed to Section 42(10). In practice, stop the offer, withdraw the letters and take advice before restarting in the correct order. Withdrawing does not by itself cure a breach of Section 42 that has already occurred.

If you get it wrong

If a company makes an offer or accepts monies in contravention of Section 42, the company, its promoters and directors are liable to a penalty which may extend to the amount raised through the private placement or two crore rupees, whichever is lower, and the company must refund all monies, with interest as specified in Section 42(6), to subscribers within thirty days of the order imposing the penalty (Section 42(10)).

Keep two consequences distinct. First, the placement contravention itself under Section 42(10). Second, the allotment-return default if PAS-3 is missed: the company, its promoters and directors are liable to a penalty of one thousand rupees for each day the default continues, capped at twenty-five lakh rupees (Section 42(9)). A placement that breaches the identified-persons limit in Section 42(2) is, in addition, deemed a public offer to which the public-offer provisions apply (Section 42(11)).

FAQ

Is PAS-4 filed with the MCA before the offer?

No. PAS-4 is the offer letter sent to identified persons. What must be filed with the Registrar before the offer is the approving resolution (Rule 14(8)); the filing after allotment is PAS-3 (Section 42(8), Rule 14(6)).

Is a Board resolution enough to issue PAS-4?

Not for an equity or preference raise. Rule 14(1) requires a prior special resolution of members for each offer. The Board resolution under Section 179(3)(c) is adequate only for non-convertible debentures within the Section 180(1)(c) borrowing limit.

What is PAS-5?

The complete record of private placement offers that the company must maintain (Rule 14(4)).

Can we approach more investors than identified?

No. Only persons identified by the Board may be addressed, each with a serially numbered letter, and only the addressee may apply on it (Section 42(2) and (3), Rule 14(3)).

How is this different from a rights issue?

A rights issue offers shares to existing equity holders in proportion to their holding, with a right to renounce (Section 62(1)(a)). A private placement addresses Board-identified persons with serialised letters, no right of renunciation and no public solicitation (Section 42(3) and (7)).

When can we use the application money?

Only after the allotment is made and the PAS-3 return of allotment is filed with the Registrar (Section 42(4) proviso). Until then it stays in the separate bank account and can be used only for adjustment against allotment or for repayment (Section 42(6) proviso).

What does a failed placement cost?

A penalty up to the amount raised or two crore rupees, whichever is lower, on the company, promoters and directors, plus refund with interest within thirty days of the penalty order (Section 42(10)).

Too many offerees — what happens?

An offer to more than the prescribed number of persons is deemed an offer to the public and governed by Part I of Chapter III (Section 42, Explanation III; Section 42(11)). Count identified persons against the Rule 14(2) limit before issuing.

Sources

• Companies Act, 2013, Section 42, sub-sections (2) to (11) and Explanations I to III
• Companies Act, 2013, Sections 62(1)(a) and (b), 179(3)(c) and 180(1)(c)
• Companies (Prospectus and Allotment of Securities) Rules, 2014, Rule 14 as substituted by the Companies (Prospectus and Allotment of Securities) Second Amendment Rules, 2018, sub-rules (1) to (8)
• Companies (Prospectus and Allotment of Securities) Amendment Rules, 2020 (G.S.R. 642(E), 16 October 2020) — QIB proviso to Rule 14(1)
• Companies (Prospectus and Allotment of Securities) Amendment Rules, 2022 (G.S.R. 338(E)) — land-border proviso to Rule 14(1)
• The company's Board resolution, special resolution and its Registrar filing, identified-person list, serialised PAS-4 set, PAS-5 record and banking evidence

For the employee-pool context this task page touches, see the HRA parent article on ESOP dilution during funding rounds: https://www.harunraaj.com/blog/esop-dilution-during-funding-rounds — retained there; this page outputs only the PAS-4/PAS-5 issue-and-record checklist.

What to send for a review

Send your Board resolution date and terms, the special resolution and the date it was filed with the Registrar, the identified-offeree list, the instrument and pricing, and the offer-history and banking-route facts. The review returns your PAS-4/PAS-5 issue-and-record checklist with the sixty-day allotment window and the PAS-3 due date.