Private issue by public companies requires filing of statement in lieu of prospectus (SILOP) with Registrar before allotment [Section

70] 15.5 Private placement route is the only way open straightaway for private companies limited by shares, while it is also available by way of first allotment to public companies which have not issued a prospectus and do not propose to issue one on or with reference to their formation, or which have issued one and did not proceed to allot the shares subscribed to by the public, but only three days after filing the Statement in Lieu of Prospectus (SILOP) with the Registrar, section 70(1). Such capital raising by private placement is usually from the subscribers/directors, their relatives, friends and associates. As against this, a public issue or offer is open for any member of the public to respond and apply for the shares; this is discussed in Ch. 20. Subsequent to first allotment after formation, whenever a public company proposes to make a private issue (subject to section 81), the requirement to file SILOP before the allotment arises SILOP format in Sch. III applies for this purpose. This apart, whenever a private company becomes a public company under section 43, the converted public company is required to file prospectus or a SILOP in the format given in Sch. IV within 30 days of such conversion, section 44 (see para 9.5-1). Contents of SILOP: The contents of the statement in lieu of prospectus are as per Schedule III to the Act, as substituted by Notification GSR 650(E) of 17-9-2002, the particulars and information to be given being as follows : Companys name and address of the registered office. Capital Structure: nominal share capital and its division into equity and redeemable preference shares, if any, with the number of shares and their face value giving the earliest date of redemption of the redeemable preference shares. Names, addresses, description and occupation of the directors, managing director or manager, in position or proposed; and the details of the provisions in the companys articles and the individual contracts, if any, irrespective of the time when they were entered into, as to the appointment of and remuneration payable to them. If the share capital is divided into different classes of shares, the right of voting at the meetings of the company as well as the rights in respect of capital and dividends attaching to each such class of shares, respectively. Number and amount of shares and debentures agreed to be issued as fully or partly paid-up otherwise than in cash, and the consideration for the same. Number, description and amount of any shares or debentures which any person has, or is entitled to be given an option to subscribe for, or to acquire from, a person to whom they have been or agreed to be allotted with a view to his offering them for sale, the period during which the option is exercisable, the price to be paid and the consideration for the option or the right to option as well as the names and addresses of the persons to whom the option or the right to option was given and if they be existing shareholders/debenture-holders the relevant shares and debentures held (this feature of capital floatation through issue houses common in UK has not struck root in India). Names, addresses and occupations of the vendors (as defined in para 16 of Part III of Schedule II, Prospectus, to the Act) of property purchased or acquired or proposed to be purchased or acquired by the company except where the contract for its purchase or acquisition was entered into in the ordinary course of business intended to be carried on by the company or the amount of the purchase money is not material; the amount (in cash, shares or debentures) payable to each separate vendor; and the amount, if any,

paid or payable similarly for each such property specifying the amount, if any, paid or payable for goodwill. [See para 20.3-4] Short particulars of every transaction relating to each such property which was completed within the two preceding years and in which any vendor to the company or any person who is or was at the time when it was made a promoter, director or proposed director of the company had any interest, direct or indirect, therein. Amount, if any, of the commission paid or payable for subscribing or agreeing to subscribe or procuring or agreeing to procure subscriptions for any shares or debentures in the company, or, the rate of commission and the number of shares, if any, which the persons have agreed to subscribe for a commission. If any business is proposed to be acquired, the amount, as certified by the persons by whom the accounts of the business have been audited, of the net profits of the business in respect of each of the five years immediately preceding the date of the SILOP (provided that if the business carried on is for less number of years, it being limited to those actual years) subject to the financial years, whether less or more than a year, being the aggregate as applicable covered in the period. Estimated amount of preliminary expenses and by whom the same have been paid or payable. The amount paid or intended to be paid to any promoter, the consideration for the payment and any other benefit given, or intended to be given, to any promoter and the consideration for the same. Dates of, parties to, and general nature of (a) contract appointing or fixing the remuneration of directors, managing director or manager; and (b) every other material contract (other than those contracts made in the ordinary course of business intended to be carried on by the company, or those entered into more than two years before the delivery of the SILOP to the Registrar); and the time and place at which the contracts or copies thereof, or in the case of contracts not reduced into writing, a memorandum giving the particulars thereof (all rendered into English duly certified to be correct translations) may be inspected. Names and addresses of the auditors of the company. Full particulars of the nature and extent of the interest of every director, managing director or manager in the promotion of or in the pro-perty proposed to be acquired by the company, and if such interest is through a firm in which any of them is a partner, the nature and extent of the interest of the firm, with a statement of all the sums paid or agreed to be paid to him or the firm in cash or shares or otherwise, by any person either to induce him or the firm to become, or to qualify him or any partner of the firm as, a director, or otherwise for services rendered by him or by the firm in connection with the promotion or formation of the company. The SILOP has to be signed by all the directors or proposed directors by themselves or their agents duly authorized in writing. The Reports to be set out in terms of Part II of Schedule III, duly naming the accountants in the SILOP, are: (1) A report pertaining to the business, if any, proposed to be acquired by the company made by the accountants upon (a) the profits or losses of the business in respect of each of the five financial years immediately preceding the delivery of the Statement in Lieu of Prospectus to the Registrar; and (b) the assets and liabilities of the business as at the last date to which the accounts of the business were made up, specifying in both the matters in separate notes attached to the Report about

the adjustments made of the figures of any profits and losses or the assets and liabilities with the reasons thereof. (2) Where it is proposed to acquire shares in a body corporate which by reason of the acquisition or anything to be done in consequence thereof or in connection therewith will become as subsidiary of the company, a report by the accountants with respect to the profits and losses and assets and liabilities of the other body corporate similarly made as in (1) in respect of the other body corporate and each of its subsidiaries, if it has any, individually and as a whole for the group, indicating how the profits or losses of the other body corporate dealt with by the report would, in respect of the shares to be acquired, have concerned members of the company, and what allowance would have fallen to be made, in relation to assets and liabilities so dealt with, for holders of other shares, if the company had at all material times held the shares to be acquired. The accountants shall be chartered accountants qualified to be appointed as auditors under the Act other than the employees working under the company or the other business entity or body corporate. There is no requirement as to the receipt of minimum subscription for allotment of shares proposed to be issued under a SILOP (though the shares may be liable to be offered for sale to the public subsequently according to its terms) delivered for registration to the Registrar for the first allotment or in connection with obtaining the commencement of business certificate in terms of section 149 (2), as it is the case, in respect of an issue under a prospectus open for public subscription. SILOP establishes the public character of the company 15.5-1 Firstly, delivery of the duly made up SILOP for registration to the Registrar before the first allotment of shares or debentures by a public company after its formation is a statutory requirement to establish its public character as the contents of the document are available for public inspection and information though the issue is by private placement, failure to do so attracting punishment of a fine up to ten thousand rupees for the company, section 70 (4). SILOP partakes the character of prospectus for liabilities 15.5-2 Secondly, if the document includes any misleading and therefore untrue statement, it exposes every person who authorized the document delivery to the Registrar for registration to a more severe punishment of imprisonment up to two years apart from a penalty of up to fifty thousand rupees (unless he succeeds in proving the immateriality of what had been stated or the reasonableness of the ground on which he believed the alleged untrue statement to be true), in addition to the civil and criminal liabilities fastened under sections 62 & 63 if the SILOP results in the shares proposed to be issued pursuant to it eventually becoming available to the public through an offer of sale, section 70 (5)/(7). Thirdly, the first allotment made by a public company in contravention of section 70, that is, without delivering the SILOP to the Registrar for registration, renders the allotment voidable under section 71 at the instance of the applicant within two months of holding of the statutory meeting (section 165) or if the allotment took place subsequent to the holding of the said meeting within two months of the date of allotment, even if the company happens to be in the course of being wound up, at the expense of every director of the company who knowingly contravened or wilfully authorized or permitted the contravention of not delivering the SILOP for registration besides a fine up to Rs. 10,000, section 70(4). Any untrue statement made in SILOP attracts a prison sentence up to two years or a fine up to Rs. 50,000 for the persons who authorised it in the absence of proof that such untrue statement is either immotional or true, section 70(5).