The document provides a detailed overview of non-convertible debentures (NCDs), including features, types, regulatory frameworks, and issuance processes. It outlines specific criteria for private placements, the role of debenture trustees, and tax implications associated with NCDs. Key parameters such as coupon rate, face value, redemption, and market value are also discussed.

1. Non Convertible Debentures
Abhilasha Kumari
College of Legal Studies, UPES
B.B.A. LL.B.(Hons.)
5th Year

2. Features
•Instrument of loan
•No voting rights
•Interest paid at a fixed rate
•Debenture holders are the creditors of the company
carrying a fixed rate of interest.
• redeemed after a fixed period of time.
• Debentures may be either secured or unsecured.
• Interest payable on a debenture is a charge against
profit and hence it is a tax deductible expenditure.
•Interest on debenture is payable even if there is a
loss.

3. Features
Traded on
stock
exchanges
Issuance and
Trading in
Demat Form
Interest paid
through
Direct Credit
Credit rating
Tenure of
NCDs:
between 2 t
20 years

4. Types of debenture

5. On the basis of Convertibility-
(A) Non Convertible Debentures (NCD): These
instruments retain the debt character and can not
be converted into equity shares.
(B) Partly Convertible Debentures (PCD): A part of
these instruments are converted into Equity shares
in the future at notice of the issuer.
(C) Fully convertible Debentures (FCD): These are
fully convertible into Equity shares at the issuer's
notice.
(D) Optionally Convertible Debentures (OCD): The
investor has the option to either convert these
debentures into shares at price decided by the
issuer/agreed upon at the time of issue.

6. On the basis of Security-
(A)Secured Debentures: These instruments are
secured by a charge on the fixed assets of the
issuer company
(B) Unsecured Debentures: These instrument
are unsecured in the sense that if the issuer
defaults on payment of the interest or
principal amount, the investor has to be along
with other unsecured creditors of the
company

7. On the basis of Redeemability-
(A)Redeemable Debentures: It refers to the
debentures which are issued with a condition
that the debentures will be redeemed at a
fixed date or upon demand, or after notice, or
under a system of periodical drawings.
(B) Perpetual or Irredeemable Debentures: A
Debenture, in which no time is fixed for the
company to pay back the money, is an
irredeemable debenture.

8. On the basis of Registration-
(A) A Registered Debentures: Registered
debentures are made out in the name of a
particular person, who is registered by the
company as holder on the Register of
debenture holders.
(B) Bearer debentures: Bearer debentures on
the other hand, are made out to bearer, and
are negotiable instruments, and so transferable
by mere delivery like share warrants.

9. BROAD REGULATORY FRAMEWORK
FOR DEBT SECURITIES
(a) SEBI (ICDR) Regulations 2009
(b) Listing Agreement for Debentures issued
through public issue/Rights issue.
(c) Listing agreement for privately placed
Debentures
(d) SEBI (Issue and Listing of Debt Securities)
Regulations, 2008
(e) SEBI (Public Offer and Listing of Securitised
Debt Instruments) Regulations, 2008
(f) The Companies Act, 2013
(g) Companies (Share Capital and Debentures)
Rules, 2014

10. Procedure for redemption of
debentures
Board Meeting
Intimation to
Debenture holder
Refund
Entries in Register
of Debenture
holder
Changes in
Register of
charges
Intimation to
Registrar of
Companies

11. Key parameters of NCD
Coupon rate
• The
interest
rate
payable to
the
investor
Face value
• The
nominal
value of
NCD stated
by the
issuer
Redemption
• The return
of an
investor on
principal
Market value
• The last
reported
sale price
Yield
• The annual
returns on
an
investment
expressed
as
percentage.

12. Key points
Section 2 (30) of the Companies Act, 2013
define inclusively debenture.
Section 44- debenture as movable property.
create a DRR account out of the profits of the
company
An issue of debenture for more than five
hundred members or any number of public
without creating a debenture trust is prohibited.
No company shall issue any debentures
carrying any voting rights.

14. Private placement
Section 42 dealing with Offer or invitation
for subscription of securities on private
placement.
Rule 14 of Companies (Prospectus and
Allotment of Securities) Rules, 2014 dealing
with Private Placement.
Rule 18(7) (b) (ii) of Companies (Share
Capital and Debentures) Rules, 2014, no DRR
is required to be maintained by NBFCs.
Rule 14(5) exempts NBFCs from complying
with limit of number of persons and minimum
investment size limit.

15. Contd.
Acceptance of Public Deposits (Reserve
Bank) Directions, 1998.
 new clause (fa) under para 2(xii)(f)
 Category B NCDs issued with a maturity
of one year and above, in accordance with
the guidelines issued by RBI from time to
time will not be covered under public
deposit.

16. DEPOSITS
(Chapter V, Sections 73-76 and Companies (Acceptance
of Deposits Rules), 2014)
•Allows acceptance of deposits from members and public
•Private company can accept only from members and
directors
•Resolution of shareholders required
•Issuance of circular to members with statement of
financial position, credit rating obtained, outstanding
amount of previous deposits
•Deposit Repayment Reserve Account in a separate bank
account
•Amount of deposit or any part thereof or any interest due
thereon remains unpaid on the commencement of the Act
or becomes due thereafter – file of statement with RoC
and repay within one year.

17. Issue of NCDs by private placement
(NBFCs)
RBI Circular- DNBR (PD) CC No.021/03.10.001/2014-15
2 categories:
a) With a maximum subscription of less than
Rs. 1 crore (Category A)
b) With a minimum subscription of Rs. 1
crore and above

18. Eligibility criteria to issue the NCDs
of less than one year
•Having a tangible net worth as per the latest audited
balance sheet, of not less than Rs.4 crore;
•been sanctioned working capital limit by bank/s or all-
India FIs; and
•The borrowing account of the company is classified as a
Standard Asset by the financing banks/ institutions.
• valid credit rating of P-2 or equivalent for the issue from
one of the rating agencies specified by Reserve Bank of India
from time to time, for the purpose.

20. Zero coupon bonds: - refer to those bonds
which are sold at a discount from its eventual
maturity value and have zero interest rate.
Deep discount bond:- It refers to those bonds
which are sold at discount value by the
company and on maturity face value is paid to
the investors.

21. Debenture trustee
• SEBI (Debenture trustees) Regulations,
1993
•Sec 2(bb)- definition of “debenture
trustee”
•Regulation 3- Registration
•Regulation 15- Duties of DT

22. Role of Debenture trustees
•Enforce security in the interest of the debenture holders
•protecting the interest of the debenture holders
•Exercise due diligence to ensure compliance by the body
corporate
•Take possession of trust property

23. Tax implications
NO TAX DECUSTION
AT SOURCE- section
193 of IT act.
This however
does no t mean
that investor does
not need to pay
any tax on the
interest earned
There can be
capital gains if
you sell NCDs
before maturity

24. Stamp duty implications
Unlisted
debentures
aren't
considered as
marketable
security- No
stamp duty.
Entry 91 of List I,
only the Central
Government has
power to
levy stamp
duty on issue of
debentures.
The State
Government can
levy stamp duty
only on transfer
of debentures.
Under Article 27
and 62 of
Schedule I to the
Indian Stamp
Act, 1899.
at the rate of
.05% per year of
the face value of
the debentures,
subject to the
maximum of
0.25% or Rs 25
lakh, whichever
is lower.

25. THANK YOU