Can Non-Convertible Unsecured Debentures (NCUDs) Be Treated as Deposits? This is a frequently debated question in corporate finance and compliance. To answer it, we must first examine Section 2(31) of the Companies Act, 2013, which defines what constitutes a “deposit.” According to the provision, any amount raised through the issuance of:
- Secured debentures,
- Compulsorily convertible debentures, or
- Non-convertible unsecured debentures (NCUDs) that are listed on a recognized stock exchange
shall not be treated as deposits.
So what happens when NCUDs are not listed on any recognized stock exchange?
In such cases, yes — the amount raised will be treated as a deposit.
However, the scenario changes if these unlisted NCUDs are issued by one company to another. This is considered an inter-corporate transaction and upon reviewing the exclusions under the definition of “deposit,” inter-corporate loans fall outside its scope.
Hence, one can conclude that, a company can legally raise funds from another company through the issuance of Non-Convertible Unsecured Debentures, even if they are unlisted — provided it’s an inter-corporate transaction. This structure remains compliant with the law and outside the ambit of “deposits” under Section 2(31).
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