Sanya Trehan

This article analyses in brief the applicability of various laws to the issue of NCDs in India.

Issuance of Non-Convertible Debentures (RBI) Directions, 2010

The Reserve Bank of India, has given the final guidelines to the agencies dealing in securities and money market instruments regarding issuance of Non-Convertible Debentures (NCDs) of original or initial maturity up to one year.

1. NCDs are defined as

i. Non-Convertible Debenture (NCD) means a debt instrument issued by a corporate (including NBFCs) with original or initial maturity up to one year and issued by way of private placement;

ii. “Corporate” means a company as defined in the Companies Act, 1956 (including NBFCs) and a corporation established by an act of any Legislature

2. Who can issue NCDs

A corporate shall be eligible to issue NCDs if it fulfills the following criteria, namely,

i. the corporate has a tangible net worth of not less than Rs.4 crore, as per the latest audited balance sheet;

ii. the corporate has been sanctioned working capital limit or term loan by bank/s or all-India financial institution/s; and

iii. the borrower account of the corporate is classified as a Standard Asset by the financing bank/s or institution/s.

3. Rating Requirement

An eligible corporate intending to issue NCDs shall obtain credit rating for issuance of the NCDs from one of the rating agencies, viz., the Credit Rating Information Services of India Ltd. (CRISIL) or the Investment Information and Credit Rating Agency of India Ltd. (ICRA) or the Credit Analysis and Research Ltd. (CARE) or the FITCH Ratings India Pvt. Ltd or such other agencies registered with Securities and Exchange Board of India (SEBI) or such other credit rating agencies as may be specified by the Reserve Bank of India from time to time, for the purpose.

The minimum credit rating shall be P-2 of CRISIL or such equivalent rating by other agencies.

The Corporate shall ensure at the time of issuance of NCDs that the rating so obtained is current and has not fallen due for review.

4. Maturity

NCDs shall not be issued for maturities of less than 90 days or beyond validity period of the credit rating of instrument from the date of issue.

The exercise date of option (put/call), if any, attached to the NCDs shall not fall within the period of 90 days from the date of issue.

5.  Denomination

NCDs may be issued in denominations with a minimum of Rs.5 lacs (face value) and in multiples of Rs.1 lac.

6. Limits and the Amount of Issue of NCDs

The aggregate amount of NCDs issued by a corporate shall be within such limit as may be approved by the Board of Directors of the corporate or the quantum indicated by the Credit Rating Agency for the rating granted, whichever is lower.

The total amount of NCDs proposed to be issued shall be completed within a period of two weeks from the date on which the corporate opens the issue for subscription.

7. Procedure for Issuance

The corporate shall disclose to the prospective investors, its financial position as per the standard market practice.

The auditors of the corporate shall certify to the investors that all the eligibility conditions stipulated by RBI are complied with.

The requirements of all the provisions of the Companies Act, 1956 and the Securities and Exchange Board of India (Issue and Listing of Debt Securities) Regulations, 2008, or any other law, that may be applicable, shall be complied with by the corporate.

The Debenture Certificate shall be issued within the period prescribed in the Companies Act, 1956 or any other law as in force at the time of issuance.

NCDs may be issued at face value carrying a coupon rate or at a discount to face value as zero coupon instruments as determined by the corporate.

8. Debenture Trustee

Every corporate issuing NCDs shall appoint a Debenture Trustee (DT) for each issuance of the NCDs.

Any entity that is registered as a DT with the SEBI under SEBI (Debenture Trustees) Regulations, 1993, shall be eligible to act as DT for issue of the NCDs only subject to compliance with the requirement of these Directions.

The DT shall submit to the Reserve Bank of India such information as required by it from time to time.

9. Investment in NCD

all resident investors and unincorporated bodies, Non-Resident Indians (NRIs) and Foreign Institutional Investors (FIIs) are eligible to invest in NCDs.

Investments in NCDs by Banks/PDs shall be subject to the approval of the respective regulators.

Investments by the FIIs shall be within such limits as may be set forth in this regard from time to time by the SEBI.

10. Preference for Dematerialization

While option is available to both issuers and subscribers to issue/hold NCDs in dematerialized or physical form, they are encouraged to issue/ hold NCDs in dematerialized form. However, banks, FIs and PDs are required to make fresh investments in NCDs only in dematerialized form.

11. Roles and Responsibilitiesof debenture trustees and rating agencies

Debenture Trustees

The roles, responsibilities, duties and functions of the DTs shall be guided by these regulations, the Securities and Exchange Board of India (Debenture Trustees) Regulations,1993, the trust deed and offer document.

The DTs shall report, within three days from the date of completion of the issue, the issuance details to the Chief General Manager, Financial Markets Department, Reserve Bank of India, Central Office, Fort, Mumbai-400001.

DTs should submit to the Reserve Bank of India (on a quarterly basis) a report on the outstanding amount of NCDs of maturity up to year.

The DTs are required to report immediately, on occurrence, full particulars of defaults in repayment of NCDs to the Financial Markets Department, Reserve Bank of India.

Credit Rating Agencies (CRAs)

Code of Conduct prescribed by the SEBI for the CRAs for undertaking rating of capital market instruments shall be applicable to them (CRAs) for rating the NCDs.

The CRA shall have the discretion to determine the validity period of the rating depending upon its perception about the strength of the issuer. Accordingly, CRA shall, at the time of rating, clearly indicate the date when the rating is due for review.

While the CRAs may decide the validity period of credit rating, they shall closely monitor the rating assigned to corporates vis-à-vis their track record at regular intervals and make their revision in the ratings public through their publications and website.


[Applicable Provisions: Section 71 of the Companies Act, 2013 read with Rule 18 of the Companies (Share Capital and Debentures) Rules, 2014]

  • Call and hold Board meeting and decide which types of the debenture will be issued by the Company.
  • If the Company decides to issue secured debenture the company has to comply with the condition prescribed in the Rule 18 of the Companies (Share Capital & Debentures) Rules, 2014.
  • In case appointment of Debenture Trustee, consent shall be obtained from a SEBI registered Debenture Trustee, who is proposed to be appointed. If debentures to be issued are Secured Debentures, a Debenture Trust Deed in Form No. SH – 12 or as near thereto as possible shall be executed by the Company in favour of Debenture Trustees within sixty days of allotment of Debentures.
  • In the Board meeting pass resolutions for i) Approval of Offer letter for private placement in Form No. PAS – 4 and Application Forms (In case of private placement of debentures); ii) Approval of Form No. PAS – 5 (In case of private placement of debentures); iii) Approval of Debenture Trustee Agreement and appointment of a Debenture Trustee (In case of Secured Debentures only); iv) Appointment of an expert for valuation (In case of private placement of debentures); v) Approval of increase of borrowing powers, if required; vi) To authorize for creation of charge on the assets of the company; vii) Approve the Debenture Subscription Agreement; viii) To fix day, date and time for the extraordinary general meeting of shareholders.
  • Prepare the draft of i) Debenture Subscription Agreement; ii) Offer Letter for private placement in Form No. PAS – 4 and Application Forms; iii) Records of a private placement offer in Form No. PAS – 5; iv) Debenture Trustee Agreement; v) Mortgage Agreement for creation of charge on assets of the company.
  • Issue notices of extraordinary general meeting along with the explanatory statement.
  • Hold extraordinary general meeting and pass special resolution to issue convertible secured debentures and increase borrowing powers of the company and to authorize the Board to create charge on the assets of the company.
  • File Form No. PAS – 4 and PAS – 5 in Form No. GNL – 2 with the Registrar of Companies.
  • File Offer Letter in Form No. MGT – 14 with the Registrar of the Companies.
  • File copy of Board resolutions, Special Resolution, Debenture Subscription Agreement, Debenture Trustee Agreement etc in Form No. MGT – 14 with the Registrar of Companies.
  • File Form No. PAS – 3 (Return of allotment) with the Registrar of Companies after making allotment of debentures.
  • File Form No CHG – 9 for creation of charge on assets of the Company

Provision under Companies (Share Capital and Debentures) Rules, 2014

The above mentioned section has to be read along with Rule 18 of the Companies (Share Capital and Debentures) Rules, 2014 (‘2014 Rules’) which prescribes certain conditions to be fulfilled by a company in order to issue secured debentures and can be read as follows:-

1. The company shall not issue secured debentures, unless it complies with the following conditions, namely:-

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. Provided that a company engaged in the setting up of infrastructure projects may issue secured debentures for a period exceeding ten years but not exceeding thirty years;

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 (not being in the nature of pledge); or

ii. (ii) any specific immovable property wherever situate, or any interest therein.


Sr. No. Activity Date Remark
1. Board Meeting:

(i)Proposal for issue of Debentures

(iii)  Approval of draft offer letter and authorization to issue the offer letter subject to approval by shareholders

(iv) Registering the name of persons to whom offer to be made

(v) Authorization for opening of bank account for the purpose of the said issue

(vi) Calling of general meeting

The offer letter shall be sent to the person whose name is recorded for the purpose within 30 days of recording his name.
2. General Meeting:

Shareholders’ approval for:

(i) Borrowing Limits

(ii) Creation of Charge

(iii) Issuance of Debentures

MGT -14 to be filed within 30 days of passing of special resolution
3. Sending of offer Letter & Opening of Bank Account:

The offer letter shall be sent after approval by the shareholders and the bank account shall be opened for receiving the application & allotment money

Offer letter shall be sent within 30 days of registering the name of proposed applicant
4. Filing of Offer letter with ROC:

Within 30 days of circulation of offer letter, it shall be filed with ROC

PAS-4 & PAS-5 as attachment to GNL – 2
5. Receiving of Money:

The applicant shall made the application in the format given with the offer letter for allotment of securities and shall pay the money from his bank account.

6. Board Meeting:

(i)After closure of offer the allotment shall be made to the applicant from whom the money has been received. The allotment shall be made within 60 days of receiving of the money.

(ii) Approval of drafts of agreement for creation of charge & Authorization to director for signing the same.

Here Agreement means the agreement if any to be  entered with the debenture holder.
7. Return of Allotment:

Within 30 days of allotment return of allotment shall be filed with ROC

PAS – 3
8. Details of offer and allotment shall be maintained by the company in PAS – 5
9. Creation of charge:

After allotment of debentures, charge shall be created in favour of the debentureholder, and the return for creation of charge shall be filed with ROC within 30 days of creation of charge

CGH – 9
10. Issue of Debenture Certificate:

Within 6 months of allotment of debentures

Obligations of Listed Entity which has listed its NCDs or NCPS or both- Chapter V of SEBI (LODR) 2015-

1. Prior intimation to the stock exchange(s) to be given by Listed Companies at least eleven working days before the date on and from which the interest on debentures and bonds, and redemption amount of redeemable shares or of debentures and bonds shall be payable.

It is pertinent to note that aforesaid compliance is not required to be adhered if the listed entity whose specified securities i.e. equity shares and convertibles as well as NCD’s or NCPS are listed as the same has been exempted under Chapter VI of the Regulations which exempts compliances of certain provisions of Chapter V whose specified securities as well as NCDs or NCPS are listed.

2. Listed entity shall intimate to the stock exchange(s), at least two working days in advance, excluding the date of the intimation and date of the meeting, regarding the meeting of its board of directors, at which the recommendation or declaration of issue of NCD’s or any other matter affecting the rights or interests of holders of NCD securities or non-convertible redeemable preference shares is proposed to be considered.

3. The listed entity shall promptly inform the stock exchange(s) of all information having bearing on the performance/operation of the listed entity, price sensitive information or any action that shall affect payment of interest or dividend of NCPs or redemption of NCD’s or redeemable preference shares.

4. Certain disclosures shall be required to be disclosed as per Part B of Schedule III to the Regulations by Listed entities.

5. The listed entity shall prepare and submit un-audited Limited Review Report or audited financial results along with Audit Report on a half yearly basis in the format as specified by the Board within forty five days from the end of the half year to the recognised stock exchange(s).

6. The listed entity shall, within two calendar days of the conclusion of the meeting of the board of directors, publish the financial results and statement referred to in sub-regulation 52(4), in at least one English national daily newspaper circulating in the whole or substantially the whole of India.

7. In respect of its listed NCD’s, the listed entity shall maintain 100% asset cover sufficient to discharge the principal amount at all times for the NCD’s issued.

8. The listed entity shall disclose to the stock exchange in quarterly, half-yearly, year-to-date and annual financial statements, as applicable, the extent and nature of security created and maintained with respect to its secured listed NCD’s.

9. Each rating obtained by the listed entity with respect to non-convertible debt securities shall be reviewed at least once a year by a credit rating agency registered by the SEBI.

10. The listed entity shall forward certain prescribed information to the debenture trustee promptly as per Regulation 56.

11. The listed entity shall submit a certificate to the stock exchange within two days of the interest or principal or both becoming due that it has made timely payment of interests or principal obligations or both in respect of the non-convertible debt securities.

12. The listed entity shall provide an undertaking to the stock exchange(s) on annual basis stating that all documents and intimations required to be submitted to Debenture Trustees in terms of Trust Deed and SEBI (Issue and Listing of Debt Securities) Regulations, 2008 have been complied with.

13. Annual Reports shall be provided to holders of NCDs and also certain half yearly communication to be provided as per Regulation 52(4) and 52(5).

14. Notice of all meetings shall be sent to NCD’s holder along with Proxy Forms.

158. The structure of NCD/NCPS shall not be modified unless application is made to Stock Exchange and approval is received thereon and approval of Board, Debenture Trustees and requisite approval after meeting of Debenture Holders is received.

16. Record date for purposes of payment of interest, dividend and payment of redemption or repayment amount or for such other purposes as specified by the stock exchange at least 7 working days (excluding the date of intimation and the record date) to the recognised stock exchange(s) of the record date or of as many days as the stock exchange(s).

17. The listed entity shall not declare or distribute any dividend wherein it has defaulted in payment of interest on debt securities or redemption thereof or in creation of security as per the terms of the issue of debt securities.

18. All listed entities who have listed their Debt Securities shall have functional website and the following information shall be displayed on website:

(a) details of its business;

(b)  financial information including complete copy of the annual report including balance sheet, profit and loss account, directors report etc;

(c)  contact information of the designated officials of the listed entity who are responsible for assisting and handling investor grievances;

(d)  email address for grievance redressal and other relevant details;

(e)  name of the debenture trustees with full contact details;

(f)   the information, report, notices, call letters, circulars, proceedings, etc concerning non-convertible redeemable preference shares or non-convertible debt securities;

(g) all information and reports including compliance reports filed by the listed entity;

(h) information with respect to the following events:

(i) default by issuer to pay interest on or redemption amount;

(ii) failure to create a charge on the assets;

(iii) revision of rating assigned to the non-convertible debt securities

Chapter VI

 (1) Entity which has listed its ‘specified securities’ and ‘non-convertible debt securities’ or ‘non-convertible redeemable preference shares’ or both on any recognised stock exchange, shall be bound by the provisions in Chapter IV of these regulations.

(2) The listed entity described in sub-regulation (1) shall additionally comply with the following regulations   in Chapter V:

(a) regulation 50(2),(3);

(b) regulation 51;

(c) regulation 52(3), (4), (5)and (6);

(d) regulation 53

(e) regulation 54

(f) regulation 55

(g) regulation 56

(h) regulation 57

(i) regulation 58

(j)  regulation 59

 (k) regulation 60

 (l) regulation 61:

Provided that the listed entity which has submitted any information to the stock exchange in compliance with the disclosure requirements under Chapter IV of these regulations, need not re-submit any such information under the provisions of this regulations without prejudice to any power conferred on the Board or the stock exchange or any other authority under any law to seek any such information from the listed entity: Provided further that the listed entity, which has satisfied certain obligations in compliance with other chapters, shall not separately satisfy the same conditions under this chapter.

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