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CS Executive · Capital Market and Securities Laws

Issue and Listing of Non-Convertible Securities for CS Executive

Non-convertible securities (NCS) are debt instruments, such as debentures and bonds, that cannot be converted into shares. A company can issue them to the public through a prospectus or privately to identified persons. To answer well, state the route, the conditions, the process, then your conclusion.

What this chapter covers

This chapter deals with how companies raise money by issuing debt that cannot be converted into equity. The main instruments are non-convertible debentures and bonds. The chapter covers the two routes of issue, public offer and private placement, and then what happens after issue: listing and ongoing disclosures. It also covers special instruments such as green debt and perpetual securities.

Two layers of law work together. The Companies Act, 2013 sets the basic framework. Section 23 says a public company may issue securities to the public through a prospectus, through private placement, or by rights or bonus issue. A private company can use only rights, bonus or private placement. SEBI then adds detailed rules for issue and listing. Section 24 of the Act says that, for listed companies and those intending to list, issue and transfer of securities is administered by SEBI through regulations. Section 11A of the SEBI Act lets SEBI specify by regulations the matters relating to issue of capital and how they must be disclosed.

This chapter links closely to the rest of Paper 5. It builds on the capital market structure, the role of SEBI and the stock exchanges, and the disclosure ideas you meet in the securities laws part. It also links to Paper 2, where prospectus and private placement are taught under company law. Study it as one connected story: choose the route, meet the conditions, issue, list, then keep disclosing.

Debt raising is a routine corporate activity, and a company secretary is often the person who handles the compliance. Paper 5 is a descriptive paper, so examiners can ask you to compare public offer with private placement, explain the conditions for an issue, or list the ongoing disclosures. These are structured answers that you can score well on if your concepts are clear. The chapter also overlaps with company law provisions on private placement, so one round of careful study helps you in two papers.

Issue and Listing of Non-Convertible Securities: topics in the order to study them

  1. 1Overview of Non-Convertible Securities and NCS RegulationsStart here to learn what NCS are and which law governs them, so the later topics make sense.
  2. 2Public Offer vs Private Placement of Debt SecuritiesThis is the central split in the chapter, and every later topic follows one route or the other.
  3. 3Eligibility and Conditions for Public Issue of NCSLearn who may make a public issue before you study how the issue is run.
  4. 4Public Issue Process and DisclosuresWith eligibility clear, you can follow the steps from offer document to allotment and the disclosures required.
  5. 5Private Placement and Listing of NCSStudy the second route after the first so you can compare them, and learn how privately placed debt gets listed.
  6. 6Continuous Disclosures and Ongoing ObligationsThis covers what an issuer must do after issue and listing, so it comes once both routes are understood.
  7. 7Specialised Instruments: Green Debt, Perpetual and Other NCSKeep these for last. They are variations on the basic framework and are easier once the basics are firm.

How to prepare Issue and Listing of Non-Convertible Securities

Treat this chapter as a process with clear stages. Build the base from the Act, add the SEBI rules on top, and practise writing structured answers.

  1. Read Sections 23, 24 and 42 of the Companies Act, 2013 and Section 11A of the SEBI Act first. They give you the legal base and the vocabulary.
  2. Make a two-column comparison of public offer and private placement. Cover who can be approached, the document used, advertising, filing and time limits.
  3. Learn the private placement rules from Section 42 exactly: identified persons not exceeding fifty or a higher prescribed number, no right of renunciation, payment by banking channel and not cash, allotment within sixty days, and return of allotment within fifteen days.
  4. For the public issue and SEBI rules, write one-page flow charts: eligibility, offer document, issue period, allotment, listing. Check every condition against the ICSI study material.
  5. Build a list of continuous disclosures and ongoing obligations, and revise it by category rather than as one long list.
  6. Practise three or four past-style questions in full ICSI style: the provision, the facts, then a conclusion with the section cited. Time yourself.
  7. Finish with the specialised instruments. Note what makes each one different from a plain debenture.

Common mistakes in Issue and Listing of Non-Convertible Securities

  • Mixing up the rules of public offer and private placement.

    Fix: Keep a side-by-side table in your notes. In the exam, name the route first, then give only that route's rules.

  • Treating private placement as free of all conditions.

    Fix: Remember the limits on number of persons, banking-channel payment, no advertising, the sixty-day allotment period and the filing of the return of allotment.

  • Forgetting the consequence of breach.

    Fix: Add one line on consequences to every answer. For example, an issue that breaches the limit on number of persons is deemed a public offer.

  • Quoting section numbers or time limits from memory without checking them.

    Fix: Make a short list of time limits with their sections and revise it often. Use only the section numbers you are sure of.

  • Ignoring the SEBI layer and answering only from the Companies Act.

    Fix: For listed or to-be-listed issuers, always mention that SEBI regulations apply as well, and add the SEBI conditions.

  • Writing answers without a conclusion.

    Fix: Use the pattern of provision, analysis, conclusion. End with one clear sentence that answers the question asked.

Last-day revision: Issue and Listing of Non-Convertible Securities

  • 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)).

Issue and Listing of Non-Convertible Securities practice questions

Issue and Listing of Non-Convertible Securities in other exams

The same ground in other exams, if you are preparing for more than one or want another angle on it.

Issue and Listing of Non-Convertible Securities: frequently asked questions

What are non-convertible securities?

They are debt instruments, such as debentures and bonds, that cannot be converted into equity shares. The holder earns interest and gets the principal back, but does not become a shareholder through conversion.

Can a private company make a public offer of debentures?

No. Under Section 23 of the Companies Act, 2013, a private company may issue securities only by rights issue, bonus issue or private placement. A public offer through a prospectus is open only to public companies.

What happens if a private placement exceeds the permitted number of persons?

Section 42 says a private placement not made in compliance with the limit on number of persons is deemed to be a public offer. The Companies Act, the Securities Contracts (Regulation) Act, 1956 and the SEBI Act, 1992 then apply to it.

How should I prepare this chapter for a descriptive paper?

Learn the two routes through comparison, then practise writing short structured answers. Each answer should state the provision, apply it to the facts, and end with a conclusion that cites the Act or regulation.

Where does SEBI get its power over issue of securities?

Section 24 of the Companies Act makes SEBI the administrator of issue and transfer of securities for listed companies and those intending to list. Section 11A of the SEBI Act allows SEBI to specify by regulations the matters relating to issue of capital and how they are disclosed.