Every deadline, on one page
| Event | Time limit | Source | If missed |
|---|---|---|---|
| Allotment after receiving private-placement money | 60 days from receipt | Sec 42(6) | Refund within 15 days — failing which repay with 12% p.a. interest from the 60th day |
| Refund where allotment is not made | 15 days from the 60th day | Sec 42(6) | Interest at 12% p.a., and Section 42(10) exposure for using money in contravention |
| PAS-3 — private placement allotment | 15 days of allotment | Sec 42(8) · Rule 12 | ₹1,000/day on the company, promoters and directors, up to ₹25 lakh — and the money stays locked |
| PAS-3 — rights, bonus, ESOP and other allotments | 30 days of allotment | Sec 39(4) · Rule 12 | Additional fees; Section 450 exposure; a broken capital trail |
| Utilisation of private-placement money | Only after allotment and PAS-3 filed | Sec 42(4) | Penalty up to the amount raised or ₹2 crore (whichever is lower) plus refund with interest |
| MGT-14 for the special resolution | 30 days of the SR | Sec 117 | A separate default — and PAS-3 asks for the MGT-14 SRN |
| Share certificates to allottees | 2 months of allotment | Sec 56(4) | Its own default — and stamp duty on the certificates has its own State clock |
Introduction
Raising the money is the celebration. Allotting the shares — and filing Form PAS-3 — is what makes the investment legal. Between the investor's transfer hitting the bank and the company actually spending a rupee of it stands a sequence the Companies Act, 2013 polices more aggressively than almost any other: identified offerees, a special resolution, a separate bank account, a sixty-day allotment clock, and a return of allotment without which the money cannot be touched.
Section 42 is unusual among company-law provisions in that its penalties are not slaps on the wrist. The return filed late runs at ₹1,000 a day up to ₹25 lakh — on the company, its promoters and its directors. Money raised or used in contravention draws a penalty up to the entire amount raised or ₹2 crore, whichever is lower, with a mandatory refund to investors, with interest, within thirty days of the order. Registrars are actually using these powers: adjudication orders against ordinary private companies — not frauds, just rounds run procedurally wrong — have crossed crores.
And the sequencing traps are real. The ceiling must move before the shares do — the SH-7 for any increase in authorised capital lands first, the PAS-3 after. The money sits in its separate account, unusable, until the return is filed. A fresh offer cannot open until the last one closes. Founders who wire the round into working capital the day it arrives have usually breached two of these before lunch.
This guide covers the four routes by which new shares are issued, the full Section 42 machinery for private placement, the rights-issue mechanics under Section 62, the PAS-3 filing pack with its 15-day and 30-day clocks, the penalty architecture with a real adjudication example, and the FEMA layer when the allottee is foreign — the sequence our ADT-1 guide's fifteen-day discipline, applied to the most consequential filing a growing company makes.
1. Allotment, transfer, and what PAS-3 actually is
Two events put shares in someone's hands, and they are legally different. An allotment creates new shares: the company issues them, paid-up capital rises, and the company must report the event to the Registrar. A transfer moves existing shares between holders: the company's capital does not change, and the instrument is SH-4, not PAS-3. This guide is about the first.
Form PAS-3 is the return of allotment — the filing that tells the ROC who was allotted what, when, and for what consideration. It carries the certified list of allottees (name, address, PAN, e-mail, class of security, date, number allotted and consideration), the board resolution, the shareholders' resolution where one was needed, and a valuation report where pricing rules demanded one. Until it is filed, the allotment exists in the minute book but not on the public record — and for a private placement, the money itself stays frozen.
2. The four routes to new shares
Every allotment travels one of four statutory routes, and the route decides the approvals, the pricing discipline and the paperwork. PAS-3 waits at the end of all of them.
3. Section 42 — the private placement rulebook
Private placement is how almost every startup round, strategic investment and unlisted fundraise actually happens — and Section 42, rewritten in 2018 precisely because it was being abused, is drafted as a series of locked doors. Each condition below is load-bearing; skipping any one of them converts the round into a deemed public offer with securities-law consequences.
- Identified persons only. The Board identifies the offerees by name before the offer; the offer cannot travel beyond that list and carries no right of renunciation.
- The 200-person cap. Not more than 200 persons per class of security in a financial year — Qualified Institutional Buyers and employees under an ESOP scheme excluded. Cross it, and the entire issue is treated as a public offer.
- Special resolution first. The members approve the offer by special resolution (for non-convertible debentures, one resolution can cover the year), filed on MGT-14 within thirty days — PAS-3 will ask for its SRN.
- PAS-4 and PAS-5. The private placement offer-cum-application letter goes to the identified persons; the company keeps a complete record of the offer in PAS-5.
- No public face. No advertisements, no media, no marketing or distribution channels informing the public — Section 42(7) is absolute.
- Banking channels into a separate account. Application money comes by cheque, demand draft or banking channel — never cash — into a separate bank account in a scheduled bank, used only for allotment or refund.
- No fresh offer over a live one. A new private placement cannot open until the earlier offer's allotments are completed, or that offer is withdrawn or abandoned.
4. Follow the money — the Section 42 trail
The cleanest way to hold Section 42 in your head is to follow a rupee of application money from the investor's bank to the company's working capital. It passes five gates, and it can stop at any of them.
Read gate five again, because it is the one founders breach first. Section 42(4) bars utilisation of the money until the return of allotment is filed. Filing PAS-3 is not a formality to catch up on after deployment — it is a precondition to spending. A company that pays vendors from the round before the PAS-3 SRN issues has used investor money in contravention of Section 42, and Section 42(10) prices that at up to the amount raised.
5. The rights issue — the route inside the cap table
Where the money is coming from existing shareholders pro-rata, Section 62(1)(a) offers the lighter road: a board-approved letter of offer to every equity shareholder in proportion to holding, open for at least fifteen and at most thirty days (private companies can shorten it with the consent of ninety per cent of members, and shorter periods are available as prescribed), carrying a statutory right of renunciation in favour of any other person unless the Articles say otherwise. An offer not accepted within the window is deemed declined, and the Board may dispose of the unsubscribed shares in a manner not disadvantageous to the shareholders and the company.
No special resolution, no PAS-4/PAS-5, no separate account, no valuation mandated by the Act — which is why counsel steer intra-group and founder top-ups through rights offers where the facts allow. The discipline that remains: the offer letter, the timeline, the board allotment resolution, and PAS-3 within thirty days. And one trap: if renunciation lands the shares outside the existing members in numbers that look like a placement, run the Section 42 analysis before assuming the light road still applies.
6. Preferential allotment — the funding-round route
A priced round to a chosen investor is a preferential allotment under Section 62(1)(c) read with Rule 13 — and, structurally, it is a private placement wearing pricing armour: everything in Section 42 applies, plus the price must be justified by a registered valuer's report, the shares must be fully paid on allotment, and the allotment of the approved class must happen within twelve months of the special resolution. For unlisted companies this valuation is the pricing floor; for foreign investors it interlocks with the FEMA pricing guidelines discussed below. The special resolution's explanatory statement carries the disclosures — objects of the issue, price, basis of valuation, proposed allottees — and diligence teams read it word by word.
7. Filing PAS-3 — the pack, the fees, and what follows
7.1 The filing pack
- List of allottees — name, address, PAN, e-mail, class of security, date of allotment, number allotted, amount paid, and consideration where other than cash — certified and attached
- Board resolution of allotment; special resolution and its MGT-14 SRN where the route required one
- Valuation report for preferential/private-placement pricing and for any allotment for consideration other than cash
- For consideration other than cash — the contract under which the shares were allotted, or prescribed particulars where the contract is not in writing
The form is filed on the MCA V3 portal against the CIN, signed by a director or KMP with a DSC and certified by a practising professional. Normal fees follow the share-capital slabs; late filing escalates through the standard additional-fee multipliers — and for a private placement, the Section 42(9) daily penalty runs on top, which is the difference between an inconvenience and a boardroom problem.
7.2 What follows the SRN
The paid-up capital has now changed on the record — and the change ripples. Share certificates issue within two months under Section 56(4), stamped per the State's stamp law. The register of members is written up. The new capital flows into the next annual return and financial statements, where it must reconcile with the PAS-3s filed during the year — a reconciliation Registrars actually perform. And where the round changed the shareholding architecture, the SHA, the Articles and the cap table should be re-read together, once, before the closing binder is shelved.
8. The penalty architecture — why Section 42 bites
These are not theoretical. In one published adjudication, a private company that accepted application money, failed to allot within sixty days and failed to refund within the following fifteen was penalised ₹2 crore for each of two financial years — ₹4 crore in all — and ordered to refund the money with 12% interest within thirty days. Nothing about the round was fraudulent; it was simply run without the clocks. That is the modern enforcement posture: Registrars adjudicate ordinary procedural failures, and the numbers are designed to be remembered.
9. The foreign investor layer — FEMA runs in parallel
Where any allottee is a person resident outside India, a second rulebook runs alongside everything above. The price must satisfy the FEMA pricing guidelines (for an unlisted company, not below fair value by an internationally accepted methodology), the money comes through the proper banking channel with its KYC trail, and the allotment is reported to the RBI on Form FC-GPR within thirty days of allotment — a clock that runs concurrently with the PAS-3 clock, not after it. Foreign-funded rounds therefore carry two returns from one allotment, on two portals, to two regulators — and the closing checklist should show both, with the sixty-day allotment window planned so that neither reporting deadline lands on a holiday-shortened week.
10. Two matters from practice
A startup closed a ₹3 crore private placement, moved the money to its current account the same week, and paid two vendors and a salary run from it. PAS-3 was filed forty days later — "once the CA was back."
What that sequence actually was: utilisation of private-placement money before the return of allotment, in breach of Section 42(4); money moved out of the separate account for purposes other than allotment or refund; and a late return under Section 42(9). The repair involved adjudication exposure priced off the amount raised, a rectification narrative, and — at the next round — a specific warranty on Section 42 compliance that the founders signed personally. The lawful version of the same fortnight: allot, file PAS-3, receive the SRN, then transfer and spend. Three extra days.
A company collected application money from four investors in tranches while negotiating the shareholders' agreement. The SHA took eleven weeks. By the time the board met to allot, the first tranche was seventy-nine days old.
The position: the sixty-day allotment window had lapsed for the early money, the fifteen-day refund window had lapsed after it, and interest at 12% per annum was running from day sixty — with Section 42(10) exposure for holding money in contravention. The company refunded with interest, re-collected after the SHA was signed, and allotted inside a fresh sixty days. The lesson sits in the sequencing: collect the money last. Sign the documents, convene the board, and call the funds when the allotment is days — not months — away.
11. Twelve mistakes
- Spending private-placement money before PAS-3 is filed — Section 42(4) makes the filing a precondition, not a follow-up.
- Collecting application money early and letting the 60-day allotment clock lapse while documents are negotiated.
- Receiving money in the current account instead of the separate scheduled-bank account — or in cash, which is prohibited outright.
- Offering beyond the identified list, or crossing 200 persons per class per year — converting the round into a deemed public offer.
- Advertising or circulating the offer publicly — Section 42(7) has no de minimis.
- Opening a fresh offer while an earlier one is incomplete and not withdrawn.
- Filing PAS-3 on the 30-day assumption for a private placement — the clock is fifteen days.
- Allotting above the authorised-capital ceiling — the SH-7 lands first, always.
- Forgetting MGT-14 for the special resolution — PAS-3 asks for its SRN, and the gap surfaces in-form.
- Skipping the registered valuer's report on a preferential issue, or dating it after the price was fixed.
- Missing the parallel FC-GPR thirty-day clock where an allottee is foreign — one allotment, two returns, two regulators.
- Issuing share certificates late (or unstamped) — Section 56(4)'s two months and the State's stamp clock run regardless of the ROC filings.
12. Checklist
Before the offer
- Route chosen — rights / private placement / preferential / bonus — and the ceiling checked, with SH-7 first where needed
- Offerees identified by board resolution; 200-cap headroom for the class confirmed for the FY
- Special resolution passed with full disclosures; MGT-14 filed in 30 days; SRN noted
- Valuation report in hand and dated before the price; separate scheduled-bank account opened
Money to allotment
- PAS-4 issued to the identified list; PAS-5 record maintained; no public circulation
- Money received by banking channel into the separate account only
- Board allotment within 60 days of receipt — or refund within 15 days after
- PAS-3 filed in 15 days (private placement) / 30 days (other routes) with the full pack; SRN saved
After the SRN
- Only now: money moved and utilised
- Share certificates in 2 months, duly stamped; register of members written up
- FC-GPR within 30 days where any allottee is foreign
- New capital reconciled into the annual return, financial statements and the cap table
13. Frequently asked questions
Q1. What is Form PAS-3?
The return of allotment — the e-form by which a company reports every allotment of securities to the Registrar, with the certified list of allottees, the resolutions behind the issue, and the valuation report where pricing rules required one. Until it is filed, the allotment is not on the public record.
Q2. What is the due date for filing PAS-3?
Fifteen days from allotment for a private placement (Section 42(8)); thirty days for other allotments — rights, bonus, ESOP and conversions — under Section 39(4) read with Rule 12.
Q3. What is a private placement?
An offer of securities to a select group of persons identified by the Board — capped at 200 per class of security per financial year, excluding QIBs and ESOP employees — under Section 42, through a PAS-4 offer letter, with no public advertisement and no right of renunciation.
Q4. Can the company use the money as soon as it arrives?
No. Section 42(4) bars utilisation of private-placement money until the allotment is made and the PAS-3 return is filed. Until then the money sits in the separate scheduled-bank account, usable only for allotment or refund.
Q5. What happens if allotment is not made within 60 days?
The money must be refunded within fifteen days of the sixtieth day; failing that, the company must repay it with interest at 12% per annum from the sixtieth day — and holding the money beyond that is a Section 42 contravention with 42(10) exposure.
Q6. What are the penalties for a late PAS-3?
For a private placement, Section 42(9): ₹1,000 for each day of default on the company, its promoters and its directors, capped at ₹25 lakh — on top of ordinary additional filing fees. For other allotments, the standard additional-fee multipliers and Section 450 exposure apply.
Q7. What does Section 42(10) add?
Where money is raised or used in contravention of Section 42, a penalty up to the amount raised or ₹2 crore, whichever is lower — plus a mandatory refund of all monies to subscribers with interest within thirty days of the order. Published adjudications have crossed crores against ordinary private companies.
Q8. What is the 200-person limit?
A private placement offer cannot be made to more than 200 persons per class of security in a financial year, excluding Qualified Institutional Buyers and employees under an ESOP. Crossing it makes the issue a deemed public offer, importing the securities-law regime.
Q9. What are PAS-4 and PAS-5?
PAS-4 is the private placement offer-cum-application letter issued to the identified persons; PAS-5 is the company's complete record of the offer. Since 2018 they are maintained by the company rather than filed with the ROC — but diligence teams ask for both.
Q10. Why must the money come into a separate bank account?
Section 42 requires application money by banking channel — never cash — into a separate account in a scheduled bank, used only for allotment or refund. It ring-fences investor money until the allotment is lawful and reported.
Q11. Can a company run two private placement offers at once?
No. A fresh offer cannot be made until the allotments under the earlier offer are completed, or that offer is withdrawn or abandoned.
Q12. What is a rights issue and when is it the better route?
A pro-rata offer to existing shareholders under Section 62(1)(a), by a board-approved letter of offer open 15–30 days, with a right of renunciation. No special resolution, separate account or valuation is mandated — the lighter road where the money is coming from inside the cap table.
Q13. Can the rights-offer window be shorter than 15 days?
Yes — private companies can shorten it with the consent of ninety per cent of members, and shorter periods are available as prescribed. The offer not accepted within the window is deemed declined.
Q14. What is a preferential allotment?
An issue to a chosen investor or group under Section 62(1)(c) read with Rule 13 — running through the Section 42 machinery, with the price supported by a registered valuer's report, shares fully paid on allotment, and the allotment made within twelve months of the special resolution.
Q15. Is a valuation report always needed?
For preferential and private-placement pricing, and for any allotment for consideration other than cash — yes, from a registered valuer, dated before the price is fixed. A plain rights offer under the Act does not mandate one.
Q16. Does a bonus issue need PAS-3?
Yes — within thirty days of allotment, with the resolutions attached, even though no money moves. Bonus shares change the paid-up capital, and the Registrar's record must reflect it.
Q17. What must be attached to PAS-3?
The certified list of allottees (name, address, PAN, e-mail, class, date, number and consideration), the board resolution, the special resolution and its MGT-14 SRN where applicable, the valuation report where required, and the contract where shares were issued for consideration other than cash.
Q18. What happens after PAS-3 is filed?
The money unlocks (for a private placement), share certificates issue within two months under Section 56(4) with stamp duty per the State, the register of members is written up, and the new capital flows into the annual return and financial statements — where it must reconcile.
Q19. What if the allotment would exceed the authorised capital?
The ceiling moves first: the Section 61 increase and Form SH-7 land before the allotment. An allotment above an un-moved ceiling is an issue of shares the company had no capacity to make — a defect later filings disclose but never cure.
Q20. What is the MGT-14 connection?
Every special resolution — the private placement approval, the preferential issue — must be filed on MGT-14 within thirty days under Section 117. PAS-3 asks for the SRN in-form, so a missed MGT-14 surfaces at the worst moment: while filing the return.
Q21. What extra applies when a foreign investor is allotted shares?
The FEMA layer: pricing not below fair value under the guidelines, money through the proper banking channel, and Form FC-GPR to the RBI within thirty days of allotment — a clock that runs in parallel with PAS-3, giving one allotment two returns to two regulators.
Q22. Can application money be received in cash?
No. Section 42 requires payment through cheque, demand draft or other banking channels — cash is prohibited, and a cash receipt taints the round itself.
Q23. Who signs and certifies PAS-3?
A director or KMP with a valid DSC signs; a practising CA, CS or cost accountant certifies. Check the DSCs before the deadline week — lapsed signatures are the commonest cause of last-day failures.
Q24. What are the filing fees for PAS-3?
Normal fees follow the authorised-capital slabs, with additional fees multiplying on delay. For a private placement the Section 42(9) daily penalty is separate from — and much larger than — the fee escalation.
Q25. Is allotment valid if PAS-3 was filed late?
The allotment itself is made by the board resolution; the late return does not undo it. What the delay costs is the penalty meter, the locked money in a private placement, and a permanent late-filing mark that every diligence reconstructs from the SRN date.
Q26. How do share certificates and stamp duty fit in?
Certificates must issue within two months of allotment under Section 56(4), and stamp duty on the certificates is payable under the State's stamp law within its own timeline. Both run independently of the ROC filings — a clean PAS-3 does not excuse unstamped certificates.
Q27. What does a diligence team check on past allotments?
The date chain, route by route: SR date → MGT-14 SRN → money receipt → allotment resolution → PAS-3 SRN → (FC-GPR where foreign) → certificates. Money spent before the PAS-3 SRN, or allotment past day sixty, is found in minutes from the public record and the bank statements.
Q28. Deposits versus share application money — why does timing matter?
Application money held beyond the statutory windows risks being treated as a deposit under the deposit rules, with its own severe regime. It is one more reason the sixty-day discipline exists: collect the money only when the allotment is days away.
Corporate — related reading
Talk to us before the sixty days run
Delhi Legal Company runs allotments end to end for Indian companies and foreign-funded rounds — route selection, special resolutions and MGT-14, PAS-4/PAS-5 packs, the separate-account discipline, valuation coordination, board allotments inside the sixty days, PAS-3 with the full annexure pack, FC-GPR where the investor is foreign, and the repair of rounds where the clocks have already slipped.
How we usually start. Send us the term sheet or the dates money was received, the proposed allottees, and what has been filed so far. We come back with the route, every clock as it stands today, the documents to gather, and a closing sequence in which the money unlocks on the earliest lawful day.