Issue and Listing of Non-Convertible Securities: formula sheet

Key formulas

Section 24(1)(a) - SEBI's domain

Listed companies or companies intending to list → issue and transfer of securities and non-payment of dividend → administered by SEBI through regulations

This applies to the provisions of Chapter III, Chapter IV and Section 127 of the Companies Act, 2013, except as provided under the Act.

Section 24(1)(b) - Central Government's domain

Any other case → administered by the Central Government

This covers unlisted companies with no intention to list.

Explanation to Section 24(1)

Prospectus, return of allotment, redemption of preference shares and other matters specifically provided in the Act → Central Government, Tribunal or Registrar

Do not assign these to SEBI in an answer.

Section 24(2) - SEBI's powers

Section 11(1), (2A), (3), (4) + Sections 11A, 11B, 11D of the SEBI Act, 1992

Section 24(2) also refers to matters delegated to SEBI under the proviso to Section 458(1).

Section 11A(1) of the SEBI Act

Regulations on issue of capital, transfer of securities and their disclosure; orders prohibiting or conditioning prospectus, offer document or advertisement

SEBI acts for the protection of investors, without prejudice to the Companies Act, 1956 as the text reads.

Convertible vs non-convertible

Non-convertible security = cannot be converted into equity shares

Examples: NCD, NCRPS, green debt security.

Modes of issue for a public company (Section 23(1))

Public offer (prospectus) | Private placement (Part II) | Rights issue | Bonus issue

Rights and bonus issues of a listed company, or one intending to list, must also follow the SEBI Act and the rules and regulations under it.

Modes of issue for a private company (Section 23(2))

Rights issue or bonus issue | Private placement

No public offer through a prospectus.

Number of identified persons (Section 42(2))

Identified persons in a financial year ≤ 50, or such higher number as may be prescribed (the Rules prescribe 200)

The Act's base figure is fifty, and the Rules prescribe the higher number of 200 persons in a financial year. QIBs and employees offered securities under an ESOP scheme (as per Section 62(1)(b)) are excluded from the count. Subject to prescribed conditions.

Offer to more than the prescribed number (Section 42, Explanation III)

Offer, invitation, allotment or agreement to allot to more than the prescribed number of persons = deemed public offer

Applies to listed or unlisted companies, whether or not payment is received and whether or not listing is intended. Governed by Part I of the Chapter.

Mode of payment (Section 42(4))

Cheque, demand draft or other banking channel; not cash

The company must not use the money until allotment is made and the return of allotment is filed with the Registrar.

Allotment and refund timeline (Section 42(6))

Allot within 60 days of receiving application money; else refund within 15 days after the 60 days; failing which, interest at 12% per annum from the 60th day

Application money must be kept in a separate bank account in a scheduled bank. It can be used only for adjustment against allotment or for refund.

Return of allotment (Section 42(8))

File with Registrar within 15 days from the date of allotment

Include a complete list of allottees with full names, addresses and number of securities allotted.

Penalty for late return (Section 42(9))

₹1,000 per day of default, maximum ₹25 lakh

Payable by the company, its promoters and directors.

Penalty for contravention (Section 42(10))

Penalty up to the lower of (amount raised) and ₹2 crore

The company must also refund all monies with interest within 30 days of the penalty order. Subject to Section 42(11).

Breach of the person limit (Section 42(11))

Non-compliance with sub-section (2) = deemed public offer

The Companies Act, SCRA 1956 and SEBI Act then apply.

Voting rights on debentures

Debentures with voting rights: not allowed (section 71(2))

A debenture holder is a creditor. Voting rights belong to shareholders.

Debenture trustee trigger

Prospectus or offer to the public, or to more than 500 members → appoint one or more debenture trustees before the issue (section 71(5))

The appointment must be made before the offer, not after it.

Debenture redemption reserve

DRR created out of profits available for payment of dividend; use only to redeem debentures (section 71(4))

The quantum is as prescribed under section 71(13) and the rules.

Convertible option approval

Debentures convertible into shares (wholly or partly) at redemption → special resolution at a general meeting (section 71(1) proviso)

Applies to convertible debentures, not to a plain NCS.

Prospectus validity

Prospectus invalid if issued more than 90 days after copy is delivered to the Registrar (section 26(8))

The date in the prospectus is deemed its date of publication.

Penalty for defective prospectus

Fine from ₹50,000 up to ₹3,00,000 on the company and on every person knowingly party (section 26(9))

Imprisonment is no longer part of this penalty.

Stock exchange permission (Section 40(1))

Public offer → apply to one or more recognised stock exchanges before the offer and obtain permission for dealing in the securities

Applies to every company making a public offer. The prospectus must name the exchange(s) where the application was made (Section 40(2)).

Application money (Section 40(3))

Separate bank account in a scheduled bank; use only for (a) adjustment against allotment, or (b) repayment within the time specified by SEBI

Use for allotment only where the securities are permitted to be dealt with on the exchange named in the prospectus.

Default penalty (Section 40(5))

Company: fine ₹5,00,000 to ₹50,00,000. Officer in default: fine ₹50,000 to ₹3,00,000

Imprisonment for officers was omitted with effect from 21 December 2020.

Shelf prospectus (Section 31)

Validity ≤ 1 year from the opening of the first offer; later offers need an information memorandum, not a fresh prospectus

Applies to the class of companies SEBI specifies. The information memorandum and shelf prospectus together are deemed a prospectus.

Core sequence of a public issue

Intermediaries → draft offer document → public comments → prospectus → issue opens → allotment → listing

Use this as the answer skeleton. Take timelines and minimum subscription figures from the SEBI NCS Regulations.

Private placement meaning

Offer or invitation to a select group of persons, other than by public offer, through a private placement offer-cum-application

Section 42, Explanation I. Public advertisement is not allowed.

Number limit

Identified persons ≤ 50 (or higher prescribed number) in a financial year, excluding QIBs and ESOP employees

Section 42(2). Breach means the issue is deemed a public offer under section 42(11).

No renunciation

Offer and application carry no right of renunciation

Proviso to section 42(3). Only the identified person can apply.

Mode of payment

Cheque, demand draft or other banking channel; not cash

Section 42(4). Money must be kept in a separate scheduled bank account under the proviso to section 42(6).

Allotment and refund timeline

Allot within 60 days of receipt of application money; else refund within 15 days after that; delay attracts 12% p.a. interest from day 60

Section 42(6).

Return of allotment

File with Registrar within 15 days of allotment

Section 42(8). Money cannot be used until allotment is made and the return is filed (section 42(4) proviso).

No public advertisement

No public advertisement or media, marketing or distribution channels to inform the public at large

Section 42(7).

Default in return of allotment

Default in filing the return within 15 days of allotment: ₹1,000 per day of default, maximum ₹25,00,000

Section 42(9). Applies only to delay in filing the return. The penalty falls on the company, its promoters and directors.

Contravention penalty

Lower of amount raised or ₹2,00,00,000; plus refund with interest within 30 days of the order

Section 42(10).

Listing steps for privately placed NCS

Placement memorandum → EBP bidding (where applicable) → allotment → listing application to exchange → trading

Under the SEBI NCS Regulations. Check exact timelines in your study material.

Security cover ratio

Security cover = Value of secured assets ÷ Outstanding amount of secured NCS (principal plus accrued interest)

The cover must be at least what the offer document or trust deed promises. Use this to test a breach in a numerical or case question.

Four groups of ongoing duties

Periodic + Event-based + Security cover maintenance + Intermediary dealings

Use this as the skeleton of every theory answer.

Event disclosure principle

Event occurs → inform stock exchange(s) promptly → place on website

Exact time limits differ by event. Quote them from your study material only if you are sure.

Trustee monitoring role

Debenture trustee: monitor compliance + verify security cover + act on default for holders

The trustee is the holders' representative, not the issuer's agent.

Redeemable preference shares: issue

Irredeemable preference shares not allowed; redemption period ≤ 20 years (longer for infrastructure projects)

Section 55(1) and (2). The company must be limited by shares and its articles must authorise the issue.

Redemption sources

Redeem only out of profits available for dividend OR proceeds of a fresh issue made for the purpose

Section 55(2) proviso (a). The shares must also be fully paid, as per clause (b).

Capital Redemption Reserve (CRR)

CRR transfer = nominal amount of shares redeemed out of profits

Section 55(2) proviso (c). No transfer is needed if redemption is out of a fresh issue. CRR can be used to pay up bonus shares (section 55(4)).

Premium on redemption

Provide for premium from profits or securities premium account before redemption

Section 55(2)(d). For companies following Ind AS and the prescribed standards, premium must be provided out of profits. Securities premium use is allowed under section 52(2)(d).

Filing after redemption

Notice to Registrar within 30 days of redemption

Section 64(1)(c). Late filing attracts a daily penalty under section 64(2), capped at ₹5,00,000 for the company and ₹1,00,000 for an officer in default.

Unredeemed preference shares

Consent of holders of ¾ in value + Tribunal approval → issue further redeemable preference shares

Section 55(3). Non-consenting holders are redeemed forthwith by order of the Tribunal.

Quick revision

• NCS are debt instruments such as debentures and bonds that cannot be converted into shares.
• A public company may issue securities by public offer, private placement, rights issue or bonus issue (Section 23).
• A private company cannot make a public offer. It may use rights, bonus or private placement.
• For listed companies and those intending to list, SEBI administers issue and transfer of securities through regulations (Section 24).
• Private placement is made only to identified persons, not exceeding fifty or a higher prescribed number, excluding qualified institutional buyers and employees under an ESOP scheme, in a financial year.
• A private placement offer carries no right of renunciation, and payment must be by cheque, demand draft or other banking channel, not cash.
• Allot within sixty days of receiving application money. If not allotted within 60 days, repay within 15 days of expiry of the 60 days. If not repaid, the company must pay interest at 12% per annum from the expiry of the sixtieth day.
• File the return of allotment with the Registrar within fifteen days of allotment.
• No public advertisements or media or agents to reach the public at large for a private placement.
• A private placement that breaches the limit on number of persons is deemed a public offer.
• Section 32: a red herring prospectus lacks complete particulars of quantum or price; file it with the Registrar at least three days before the subscription list opens.
• Every company making a public offer must issue the securities only in dematerialised form (Section 29(1)).

Common mistakes

• Saying SEBI regulates all companies' issue of securities. Fix: State the condition: listed companies or companies intending to get securities listed. Other cases go to the Central Government.
• Treating non-convertible debentures as convertible after a fixed period. Fix: Remember the name itself: non-convertible means never convertible into equity shares.
• Quoting the private placement limit without the Act's wording or the financial-year basis. Fix: Section 42(2) says the number shall not exceed fifty or such higher number as may be prescribed. The Rules prescribe 200 persons in a financial year, excluding QIBs and ESOP employees. Quote both the Act's wording and the Rules' figure, and count per financial year.
• Forgetting that exceeding the limit makes the issue a public offer. Fix: State that an issue not complying with sub-section (2) is deemed a public offer, and the Companies Act, SCRA and SEBI Act then apply.
• Saying debentures can carry voting rights if the company agrees. Fix: Remember section 71(2): no company shall issue debentures carrying any voting rights.
• Appointing the debenture trustee after the offer opens. Fix: Section 71(5) says the appointment must come before the prospectus or offer.
• Saying the draft offer document is filed with SEBI for approval. Fix: Write that it is filed with the stock exchange, with a copy to SEBI for information, and put on the public domain for comments. Verify the exact wording in the regulations.
• Mixing up the abridged prospectus, GID and prospectus. Fix: Remember: prospectus is the full issuer document, abridged prospectus is the short version with the application form, GID gives general information on process and rights.
• Saying a private placement can be made to any number of people. Fix: Write the limit as fifty or such higher number as prescribed, per financial year, excluding QIBs and ESOP employees.
• Treating a breach of the number limit as just a penalty. Fix: State that an issue not complying with section 42(2) is deemed a public offer, and all the Companies Act, SCRA and SEBI Act provisions apply.

Exam tips

• Quote Section 24(1)(a) and (b) with their exact condition: listed or intending to list. Examiners reward this precision.
• Always name the Regulations in full: SEBI (Issue and Listing of Non-Convertible Securities) Regulations, 2021.
• Use the answer pattern: provision, facts, analysis, conclusion. Write the conclusion as a separate line.
• Mention the Explanation to Section 24(1) when a question involves prospectus, return of allotment or preference share redemption.
• Learn three examples of non-convertible securities so you can list them in a short note.
• Start every answer with Section 23 and name the issuer type. It earns the first marks quickly.
• Learn Section 42 as a checklist: identified persons (fifty in the Act, or the higher prescribed number, which is 200 under the Rules), no renunciation, banking channel, no advertising, 60 days, return in 15 days.
• In difference-type questions, compare on audience, document, number of persons, advertising, renunciation and regulatory regime. Use bullet points in your own words.