Guide on issuing NCDs by Private Placement

CS Divya Gupta

Article covers Compliance related to issue of Non – Convertible Debentures (NCD) by Private Placement which includes procedures, Post issuance Compliances etc. under Companies Act, 2013 and SEBI (Listing Obligation and Disclosures Requirements) Regulations, 2018.

Debentures:- Section 2(30) of the Companies Act, 2013 defines the term Debentures as “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;

As Debentures are in the form of debt, unlike shares they don’t carry voting rights.

Issue of Debenture by Public Company: – A Public Company may issue Debentures to raise funds by either Private Placement or a public issue by inviting the general public to subscribe to its debentures.

A debenture may be preferred over other sources of raising funds as:

• It does not lead to dilution of the owner’s stake in the company as debentures do not carry voting right.
• The interest paid is tax-deductible, i.e., interest paid is treated as expenditure and deducted from profit before tax, unlike equity shares.

Type of Debentures

Non-convertible		Convertible
Unsecured	Secured	Unsecured	Secured
It should be Listed	Redeemable within 10 years [(Rule 18(1)(a) of Companies (Share Capital and Debentures) Rules, 2014]	Convertible within 10 years [Rule 2(1)(c) of Companies (Acceptance of Deposits) Rules, 2014]	Convertible within 10 years [Rule 2(1)(c) of Companies (Acceptance of Deposits) Rules, 2014]
Special Resolution if limit exceeds 180(1)(c)*	Special Resolution is mandatory	Special resolution mandatory as per Section 71(1) of Companies Act, 2013	Special resolution mandatory as per Section 71(1) of Companies Act, 2013
Private Placement of securities under Section 42 of Companies Act, 2013	Private Placement of securities under Section 42 of Companies Act, 2013	Preferential basis under Section 62(1)(c) and Private Placement under Section 42 of Companies Act, 2013	Preferential basis under Section 62(1)(c) and Private Placement under Section 42 of Companies Act, 2013

Section 180 (1)(c)- to borrow money, where the money to be borrowed, together with the money already borrowed by the company will exceed aggregate of its paid-up share capital, free reserves and securities premium, apart from temporary loans obtained from the company’s bankers in the ordinary course of business

Issuance of Listed, Unsecured Non- Convertible Debentures on Private Placement Basis

Company cannot issue Unsecured NCDs because of following provisions:

a) Rule 2(1)(c)(ixa) Companies (Acceptance of Deposits) Rules, 2014 – Deposit excludes any amount raised by issue of non-convertible debenture not constituting a charge on the assets of the company and listed on a recognized stock exchange.

Therefore Unsecured NCDs need to be listed for not falling under the definition of Deposit

b) As per Schedule-I of SEBI (Issue and Listing of Debt Securities) Regulation, 2008- Disclosure for creation of charge need to be given along with the Listing application.

Applicable Provisions for issue of Non- Convertible Debentures on Private Placement Basis:

1. The Companies Act, 2013 – Section 42 read with Companies (Prospectus and allotment) Rules, 2014 and Section 71 Read with Rule 18 of the Companies (Share Capital and Debentures) Rules, 2014 and Secretarial Standard -I

2. SEBI (Listing Obligations and Disclosure Requirements) Regulations, 2015;

3. SEBI (Issue and Listing of Debt Securities) Regulations, 2008 last amended on 17^th April 2020;

4. Fund raising for issue of Debt Securities by Large Corporate Entities: SEBI Circular dated 26.11.2018- SEBI/HO/DDHS/CIR/P/2018/144.

5. Electronic book mechanism (EBM) for issuance of Debt Securities on Private Placement basis as per SEBI Circular No. SEBI/HO/DDHS/CIR/P/2018/05 Dated January 5, 2018.

6. SEBI (Debenture Trustee) Regulation, 1993

7. Depositories Act, 1996 and any other applicable regulations

8. Stamp Act, 1899

Procedure for issue of Non- Convertible Debentures on Private Placement Basis:

Sl. No.	Particulars	Governing Provisions	Tentative Timeline	Transaction Date
1.	Prior Board Meeting Intimation to Stock Exchanges	Regulation 29(1)(d) of SEBI (LODR), 2015	5 Clear days advance
2.	Obtain Consent from Credit Rating Agency Debenture Trustee and RTA.
	Board Meeting for below mentioned matters: i. To consider and approve issue of debentures including the terms and conditions of issue ii.   To appoint a debenture trustee before the issue of letter of offer for subscription of its debentures [Rule 18(1)(c) of Share Capital and Debentures, Rules] iii.    Appointment of RTA and execute tripartite agreement iv. Appointment of credit Rating Agency and obtain Credit Rating. v.  Opening of Separate Bank Account with Schedule Bank [Proviso to Section 42(6)]. vi. To identify group of persons to whom Debentures are proposed to be issued [Section 42(2)] vii.  To approve Private Placement offer letter viii.            Creation/ extension of Security on properties. (Section 71 read with Rule 18(1)(b) of the Share Capital and Debentures Rules, 2014) ix. Delegate the power to Committee for allotment of NCDs.	Section 42, 71, 172 and SS-1	–
4.	Disclosure to Stock Exchange within 30 minutes of Closure of Board Meeting	Regulation 30 of SEBI (LODR), 2015
5.	Finalization of MCF (Master Creation Form) for creation of ISIN Finalize Term Sheet with Debenture Trustee
6.	Application to Stock Exchange for in-principal approval for listing of debt securities**
7.	Filing of MGT-14 within 30 days of passing the Board Resolution for issue of debentures with ROC	Section 179(3) of Companies Act, 2013
8.	Open a Separate Bank Account
9.	Finalize and issue Form PAS-4. Offer letter i.e. in Form PAS-4 should be open for 3 days and can be closed earlier subject to receipt of 100% subscription). Private Placement offer letter shall be accompanied by an application form serially numbered and addressed specifically to the identified person. Private placement offer-cum-application shall be sent within 30 days of recording of names. Maintain a complete record of persons to whom the Private Placement offer letter is sent in form PAS-5. Issue private placement offer cum application letter in form PAS-4 only after Board resolution has been filed with ROC and in-principle approval has been received from the Stock Exchange;	Section 42(3) read with Rule 14 (3) of Companies (Prospectus and allotment of Securities) Rules, 2014
10.	Receive the amount of subscription money through banking channels only and maintain the record of Bank account from where such payment for subscription have been received. Company shall not utilize the money unless allotment is made and return of allotment is filed.	Section 42(4) read with Rule 14(5) of Companies (Prospectus and allotment of Securities) Rules, 2014
11	Securities Allotment Committee Meeting Allotment of NCDs in Demat mode. [Regulation 21(1)(c) of SEBI (ILDS) Regulations, 2008]	Section 42, 71, 173 and SS-1
12	Intimation to Stock Exchange about allotment of NCDs. [Regulation 30 of SEBI (LODR, 2015)]
13	File return of allotment in Form PAS-3 within 15 days of allotment of debentures	Section 42(8) read with Rule 14(6) of Companies Prospectus and allotment of securities) Rules, 2014
14	File particulars of charges in form CHG-9 within 30 days of creation of charge	Section 77(1), 79 read with Rule 3 of Companies (Registration of Charges) Rules, 2014
15	Make entries in the Register of Charge in Form CHG-7	Section 85 read with rule 10 of Companies (Registration of Charges) Rules, 2014
16	Payment of stamp duty on issuance of NCDs @ 0.005 %
17	Issuance of Debenture certificate in favour of NSDL.
	Execute a debenture trust deed to protect the interest of debenture holders pursuant to the conditions governing the appointment of trustees not later than the 60 days after the allotment of Debentures	Rule 18(1)(c) & (5) of the Companies (Share Capital and Debentures) Rules, 2014 [Section 71(5)]
18	Creation of ISIN and Corporate Action for crediting the NCDs in demat account of Investors.	Section 29 read with Rule 9A of Companies (Prospectus and allotment of Securities) Rules, 2014
19	Final application for listing to Stock Exchange

Important Notes related to issue of Non- Convertible Debentures on Private Placement Basis:

1. All Private Placement of debt securities (NCD) and NCRPS shall be made through EGM Platform.

Securities eligible for issuance on EBM Platform- SEBI/HO/DDHS/CIR/P/2018/05 Dated January 5, 2018

• A single issue, inclusive of green shoe option, if any, of Rs. 200 Crore or more;
• A shelf issue, consisting of multiple tranches, which cumulatively amounts to Rs. 200 Crore or more, in a financial year;
• A subsequent issue, where aggregate of all previous issues by an issuer in a financial year equals or exceeds Rs. 200 Crore.

2. As per Regulation 21(1) of SEBI (ILDS) Regulations, 2008, the issuer making a private placement of debt securities and seeking listing thereof on a recognized stock exchange shall make disclosures in a disclosure document as specified in Schedule I of these Regulations accompanied by the latest Annual Report of the issuer.

3. As per Regulation 20(2) of SEBI (ILDS) Regulations, 2008, the issuer shall comply with conditions of listing of such debt securities as specified in the Listing Agreement with the Stock Exchange where such debt securities are sought to be listed.

4. In respect of every private placement of debt securities which are listed in terms of Schedule V of SEBI (Issue and Listing of Debt Securities) Regulations, 2008 [SEBI (ILDS) Regulations, 2008], a non-refundable fee of Rs. 5,000/- which shall be paid to the designated stock exchange at the time of listing of the debt securities.

**List of documents for obtaining In-principal approval for issue of Non- Convertible Debentures on Private Placement Basis

S. No.	List of Documents
1.	Cover cum Request Letter
2.	Draft Offer document / Information Memorandum (IM) Copy of the Disclosures as required by Regulations 21, as per the format prescribed in schedule ‘ I ‘ of the Securities and Exchange Board of India (Issue and Listing of Debt Securities) Regulations, 2008 & Amendment 2012. (Hard and Soft copy in PDF format, of the disclosure should be submitted)
3.	Rating document – Credit rating certificate of the proposed issue.
4.	Confirmation/consent letters from the Debenture Trustee w.r.t. their consent to act as Debenture Trustee for the proposed issue.
5.	Latest Memorandum and Articles of Association
6.	Copy of Annual Audited Financials of the Previous year (only in case of the issuer seeking listing of its Debt instruments for the first time).
7.	Confirmations of compliance with the provisions of Reg. 24 of the SEBI Delisting Regulations, 2009

Issuance of Compulsorily- Convertible Debentures on Private Placement Basis

Sl. No.	Particulars	Governing Provisions	Tentative Timeline	Secured	Unsecured	Tran saction Date
11.	Prior Board Meeting Intimation to Stock Exchanges	Regulation 29(1)(d) of SEBI (LODR), 2015	5 Clear days advance	√	√
12.	Obtain Consent from Debenture Trustee			√
	Board Meeting for below mentioned matters: x. To consider and approve issue of debentures including the terms and conditions of issue xi. Opening of Separate Bank Account with Schedule Bank [Proviso to Section 42(6)]. xii. To identify group of persons to whom Debentures are proposed to be issued [Section 42(2)] xiii.To approve Private Placement offer letter xiv.Delegate the power to Committee for allotment of NCDs. xv.  Approve Notice calling EGM xvi.Fix day, date, time and Venue of EGM xvii. Authorise CS to issue notice to persons entitled.	Section 42, 71, 172 and SS-1	–	√	√
14.	Board Approval in Board Meeting for appointment of Debenture Trustee and creation of Security			√
15.	Disclosure to Stock Exchange within 30 minutes of Closure of Board Meeting	Regulation 30 of SEBI (LODR), 2015		√	√
16.	Finalize Master Creation form for allotment of ISIN			√	√
17.	Filing of MGT-14 within 30 days of passing the Board Resolution for issue of debentures with ROC	Section 179(3) of Companies Act, 2013		√	√
18.	Open a Separate Bank Account			√	√
19.	Issue notice of EGM, Newspaper advertisement of notice and place the same on the website of the Company	Regulation 46 and 47 of SEBI (LODR), 2015		√	√
20.	Hold General Meeting to pass Special Resolution Resolution will be valid for 1 year[Rule 13 (2) (e ) & (f) of Companies (Share Capital and Debentures) Rules, 2014	Section 72, 100 and 110 ,62(1)(C) and 71(1) of Companies Act, 2013 and SS-2		√	√
21.	Submit Proceeding of the EGM with 24 hours of the conclusion of the EGM and place the same on the website of the Company	Regulation 30  of SEBI (LODR)		√	√
22.	Submit Voting Results within 48 hours of conclusion of EGM	Regulation 44 of SEBI (LODR)		√	√
23.	Finalize and issue Form PAS-4. Offer letter i.e. in Form PAS-4 should be open for 3 days and can be closed earlier subject to receipt of 100% subscription). Private Placement offer letter shall be accompanied by an application form serially numbered and addressed specifically to the identified person. Private placement offer-cum-application shall be sent within 30 days of recording of names. Maintain a complete record of persons to whom the Private Placement offer letter is sent in form PAS-5. Issue private placement offer cum application letter in form PAS-4 only after Board resolution has been filed with ROC and in-principle approval has been received from the Stock Exchange;	Section 42(3) read with Rule 14 (3) of Companies (Prospectus and allotment of Securities) Rules, 2014		√	√
24.	Receive the amount of subscription money through banking channels only and maintain the record of Bank account from where such payment for subscription have been received. Company shall not utilize the money unless allotment is made and return of allotment is filed.	Section 42(4) read with Rule 14(5) of Companies (Prospectus and allotment of Securities) Rules, 2014		√	√
12	Securities Allotment Committee Meeting	Section 42, 71, 173 and SS-1		√	√
12	Intimation to Stock Exchange about allotment of NCDs. [Regulation 30 of SEBI (LODR, 2015)]			√	√
13	File return of allotment in Form PAS-3 within 15 days of allotment of debentures	Section 42(8) read with Rule 14(6) of Companies Prospectus and allotment of securities) Rules, 2014		√	√
14	File particulars of charges in form CHG-9 within 30 days of creation of charge	Section 77(1), 79 read with Rule 3 of Companies (Registration of Charges) Rules, 2014		√
15	Make entries in the Register of Charge in Form CHG-7	Section 85 read with rule 10 of Companies (Registration of Charges) Rules, 2014		√
16	Payment of stamp duty on issuance of NCDs @ 0.005 %			√	√
17	Issuance of Debenture certificate in favour of NSDL.			√	√
	Execute a debenture trust deed to protect the interest of debenture holders pursuant to the conditions governing the appointment of trustees not later than the 60 days after the allotment of Debentures	Rule 18(1)(c) & (5) of the Companies (Share Capital and Debentures) Rules, 2014 [Section 71(5)]		√
18	Creation of ISIN and Corporate Action for crediting the NCDs in demat account of Investors.	Section 29 read with Rule 9A of Companies (Prospectus and allotment of Securities) Rules, 2014		√	√

Compliance Calendar as per SEBI (LODR), 2015

Quarterly/half/Yearly Compliances:

Sl. No.	Nature of Compliance	Regulation No.	Due date for Compliance
1.	Grievance Redressal Mechanism (SEBI SCORE)	13	Within 21 days from the end of each quarter
2.	Listing Fees to Stock Exchange	14	Within 30 days from the end of Financial Year
3.	Submission of Half yearly un-audited or audited Financial Results along with Limited Review by the Auditors	52(1)	Within 45 days from end of half year
4.	If  Company opts, not to submit unaudited result for last quarter it shall submit intimation to the Stock Exchange	52(2)(a)	Advance intimation to be sent to the stock exchanges stating that it shall submit its annual audited results within sixty days from the end of the financial year. In that case, un-audited financial results for the last half year accompanied by limited review report by the auditors need not be submitted to stock exchange(s).
5.	Publication of financial results	52(8)	Publication to be done in at least on English national daily newspaper circulating in the whole or substantially the whole of India, within 2 calendar days of conclusion of the Board Meeting
6.	Obtain Debenture Trustee Certificate in Compliance with Regulation 52(4)	52(5)	Submit to the Stock Exchange along with Financial Results
7.	Statement indicating material deviations, if any, in the use of proceeds of the issue of the NCDs from the objects stated in the Offer document	52(7)	To be submitted to the Stock Exchange on half yearly basis
8.	Maintain of asset cover to the extent and nature of security created for the respective NCDs	54	Submit disclosure with respect to maintaining of 100% asset cover at all times in half-yearly, yearly annual financial statements, as applicable
9.	Certificate of Credit Rating	55	To be reviewed by the credit rating agency once in a year
10.	Annual Report and certificate from the auditors with respect to utilization of funds for the respective NCDs.	56	Forward copy at the time it is issued to the Debenture trustee except where the NCDs have been issued for working capital or general corporate purposes or for capital raising purposes, it may be submitted at the end of each financial year till the funds have been fully utilized.
11.	Undertaking to stock exchange for compliance of documents to Deb. Trustee	57(2)	Yearly based

Event based compliances:

Sl. No.	Nature of Compliance	Clause  No.	Due date for Compliance
1.	Appointment or any change in Compliance Officer	6	As and when Changes taken place
2.	Appointment or any change in RTA	7(4)	Within 7 days of entering into the agreement
3.	Prior Intimation in case of interest on debentures and bonds, and redemption amount	50(1)	At least 11 working days before the date of event
4.	Prior Intimation in case of new NCDs.	50(2)	At least 2 working days in advance (while calculating 2 days date of intimation and date of BM shall be excluded)
5.	Price Sensitive Information –To make prompt intimation to Stock Exchange in case of any price sensitive information or any action that can effect payment of Interest of Debentures. As per part B of schedule II of LODR.	51(1)	Promptly (as soon as practically possible)
6.	Certificate of timely payment of the interest or principal or both	57(1)	Within 2 days of becoming due
7.	Annual Reports through (a) mail (b) hard copy	58(1)	As and when event taken place. Hard copy on request
8.	Notice of all meetings of holders  of NCD	58(2)&(3)	As per Companies Act, 2013
9.	Prior approval from Stock Exchange for making material modification in the NCDs	59	As and when event taken place
10.	Prior intimation to the Stock Exchange for record date for payment of Interest payment of redemption or repayment amount	60	7 days (excluding the date of intimation and record date) advance before record date