Section 23 Companies Act: Public offer and private placement

Section 23 of Companies Act: Public offer and private placement

Official Bare Act Text

Override / Mandate Mens Rea (Intent) Actus Reus (Conduct) Punishment Limitation Monetary

Prospectus and Allotment of Securities

PART I.—Public offer

1. A public company may issue securities—

a. to public through prospectus (herein referred to as "public offer") by complying with the provisions of this Part; or

b. through private placement by complying with the provisions of Part II of this Chapter; or

c. through a rights issue or a bonus issue in accordance with the provisions of this Act and in case of a listed company or a company which intends to get its securities listed also with the provisions of the Securities and Exchange Board of India Act, 1992 and the rules and regulations made there under.

2. A private company may issue securities—

a. by way of rights issue or bonus issue in accordance with the provisions of this Act; or

b. through private placement by complying with the provisions of Part II of this Chapter.

Explanation.- — For the purposes of this Chapter, "public offer" includes initial public offer or further public offer of securities to the public by a company, or an offer for sale of securities to the public by an existing shareholder, through issue of a prospectus.

Statutory Defined Terms in this Section: (Click any term for official legal definition)

Company Sec 2(20) Director Sec 2(34) Tribunal Sec 2(90)

Legal Commentary & Landmark Judgments: Section 23

Section 23 establishes the statutory pathways through which public and private companies may raise capital in India, delineating public offers, private placements, rights issues, and bonus issues.

Sub-Section (1): Part: Sub-section (1) outlines that a public company may issue securities through a prospectus (public offer, including initial public offer or further public offer), through private placement complying with Part II of Chapter III, or through a rights issue or bonus issue in accordance with Chapter IV.
Sub-Section (2) Provision: Sub-section (2) restricts private companies to issuing securities by way of rights issue, bonus issue, or private placement, strictly prohibiting any invitation to the public.

The provision firmly segregates regulated public capital raising subject to SEBI oversight from private capital formation.

Key Landmark Precedents:

Sahara India Real Estate Corporation Ltd. v. SEBI (2012) 10 SCC 603: The Supreme Court established that any offer of securities made to fifty or more persons is statutorily deemed a public offer subject to mandatory prospectus filing and SEBI jurisdiction, irrespective of how the company labels the transaction.
SEBI v. Kunnamkulam Paper Mills Ltd. (2013) 1 SCC 609: The Supreme Court reaffirmed that companies cannot evade public issue disclosures by issuing shares to numerous individuals under the guise of private arrangements; statutory compliance is strictly enforced.

Legal Commentary:

Section 23 acts as the gateway for corporate financing. In fundraising transactions, failure to satisfy Section 23 triggers severe statutory reclassification into an unauthorized public issue under Section 42, invoking mandatory refund requirements with 12% interest and personal penal liability on directors. Capital market counsel must strictly observe the operational demarcations between private equity allocations and public issuances.

Section 23: Public offer and private placement

Section 23 of Companies Act: Public offer and private placement

Legal Commentary & Landmark Judgments: Section 23