Dear Friends , we all know that being an NBFC it has to confirm to the requirement of both Companies Act 2013 as well as RBI. Though both regulaor complement each other to the extent possible but not always and not in all circumstances because of the constitution of NBFC and apex bank’s continuous monitoring.
Let us first understand the meaning of Debenture:
debenture” includes debenture stock, bonds or any other instrument of a company evidencing a debt, whether constituting a charge on the assets of the company or not.
Well , if you are an Unlisted NBFC and want to issue Non-Convertible Debenture(NCDs) on Private Placement basis, dividing the requirement of regulators in two parts:
1. RBI Guidelines on Private Placement of NCDs (maturity more than 1 year) by NBFCs:
The Company shall have a Board approved policy forr esource planning covering the periodicity of Private Placement.
(i) The minimum subscription per investor shall be Rs. 20,000 (Rupees Twenty thousand);
(ii) The issuance of private placement of NCDs shall be in two separate categories, those with a maximum subscription of less than Rs. 1 crore and those with a minimum subscription of Rs. 1 crore and above per investor;
(iii) There shall be a limit of 200 subscribers for every financial year, for issuance of NCDs with a maximum subscription of less than Rs. 1 crore, and such subscription shall be fully secured;
(iv) There shall be no limit on the number of subscribers in respect of issuances with a minimum subscription of Rs. 1 crore and above; the option to create security in favour of subscribers will be with the issuers. Such unsecured debentures shall not be treated as public deposits as defined in NBFCs Acceptance of Public Deposits (Reserve Bank) Directions, 1998.
(v) An NBFC (excluding Core Investment Companies) shall issue debentures only for deployment of funds on its own balance sheet and not to facilitate resource requests of group entities / parent company / associates. (vi) An NBFC shall not extend loans against the security of its own debentures (issued either by way of private placement or public issue).
2. Companies Act 2013 Provisions.
Since being an NBFC Considering the subscription amount Rs 1 Crore or less per investor (maturity more than one year) the issue of NCD by virtue of RBI guidelines has to be secured NCDs and therefore Section 42 and 71 of the Companies Act 2013 are also applicable simultaneously. I have endeavour to incorporate those points and provisions which are applicable only to NBFCs:
(a) An issue of secured debentures may be made, provided the date of its redemption shall not exceed ten years from the date of issue. Please note the compliance and limits(i.e., Board Resolution or Special Resolution as the case may be) envisage in Section 180 of the Companies Act 2013 has to be done before proceeding with the issue.
(b)such an issue of debentures shall be secured by the creation of a charge, on the properties or assets of the company, having a value which is sufficient for the due repayment of the amount of debentures and interest thereon;
(c) the company shall appoint a debenture trustee before the issue of prospectus or letter of offer for subscription of its debentures and not later than sixty days after the allotment of the debentures, execute a debenture trust deed to protect the interest of the debenture holders ; and
(d) the security for the debentures by way of a charge or mortgage shall be created in favour of the debenture trustee on-
(i) any specific movable property of the company or its holding company or subsidiaries or associate companies or otherwise.
(ii) any specific movable property of the company (not being in the nature of pledge); or
(iii) any specific immovable property wherever situate, or any interest therein:
(iv) any specific immovable property wherever situate, or any interest therein
Provided that in case of a non-banking financial company, the charge or mortgage under sub-clause (i) may be created on any movable property.
(2) The company shall appoint debenture trustees under section 71, after complying with the following conditions, namely:-
(a) the names of the debenture trustees shall be stated in letter of offer inviting subscription for debentures and also in all the subsequent notices or other communications sent to the debenture holders;
(b) before the appointment of debenture trustee or trustees, a written consent shall be obtained from such debenture trustee or trustees proposed to be appointed
© The company shall comply with the requirements with regard to Debenture Redemption Reserve (DRR) and investment or deposit of sum in respect of debentures maturing during the year ending on the 31st day of March of next year: However NBFCs are not required to comply with the provisions of DRR if it is a Privately placed Debenture issue.
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Disclaimer: The entire contents of this document have been prepared on the basis of relevant provisions and as per the information existing at the time of the preparation. Although care has been taken to ensure the accuracy and reliability of the information provided, I assume no responsibility therefore. Users of this information are expected to refer to the relevant existing provisions of applicable Laws. The user of the information agrees that the information is not a professional advice and is subject to change without notice. I assume no responsibility for the consequences of use of such information.
IN NO EVENT I BE MADE LIABLE FOR ANY DIRECT, INDIRECT, SPECIAL OR INCIDENTAL DAMAGE RESULTING FROM, ARISING OUT OF OR IN CONNECTION WITH THE USE OF THE INFORMATION.
Author- CS Niraj Kumar Jaideoka and can be contacted at [email protected]
Guidelines on Private Placement of NCDs (maturity more than 1 year) by NBFCs
Author Bio
WHETHER DEBENTURE TRUSTEE AND CREDIT RATING ARE COMPULSORY IN CASE OF NCDs ISSUED WITH MATURITY MORE THAN ONE YEAR AND WITH SOBSCRIPTION OF 1 CRORE OR MORE PER INVESTOR BY AN NBFC