Capital Market and Securities Laws · Issue and Listing of Non-Convertible Securities

Eligibility and Conditions for Public Issue of NCS

Updated 11 October 2026 · Fact-checked

A public issue of non-convertible securities (NCS) is an offer of debentures or similar debt to the public under the SEBI NCS Regulations. The issuer must meet eligibility norms, get credit ratings, appoint a debenture trustee, create security if secured, and file an offer document. Answer by listing each condition, then conclude.

Understand Eligibility and Conditions for Public Issue of NCS

A non-convertible security (NCS) is a debt instrument, such as a non-convertible debenture, that cannot be turned into shares. When a company offers NCS to the public, investors cannot negotiate terms. So the law sets entry conditions to protect them.

The rules come from two layers. The Companies Act, 2013 sets the basic frame for debentures. The SEBI NCS Regulations add detailed conditions for a public issue and listing. Your exam answer should use both layers.

From the Companies Act, section 71 matters most here. No company can issue debentures carrying voting rights (section 71(2)). Secured debentures are issued on prescribed terms (section 71(3)). A company must appoint one or more debenture trustees before it issues a prospectus or makes an offer or invitation to the public, or to more than five hundred members, for subscription of its debentures (section 71(5)).

The SEBI NCS Regulations then add the working conditions of a public issue. In broad terms, the issuer must be eligible, must obtain credit rating from a registered credit rating agency, must appoint a debenture trustee, must create the promised security and keep it adequate, must apply for listing on a recognised stock exchange, and must file a compliant offer document. Learn these as a checklist. Check the exact thresholds, such as the rating grade and the time limits, in the SEBI Regulations as taught in your ICSI study material, as they are not in the Act text.

The prospectus of a public company must also meet section 26. It must be dated and signed, carry the information SEBI specifies, and be filed with the Registrar with a copy signed by every director or proposed director. It is not valid if issued more than ninety days after that filing (section 26(8)).

Key rules to remember

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.

How to solve Eligibility and Conditions for Public Issue of NCS questions

Use this order for any question on the public issue of NCS. It keeps your answer in ICSI style: provision, analysis, conclusion.

1Read the facts and note the issuer, the instrument, and whether the offer is public or private.
2State that the issue is governed by the Companies Act, 2013 (section 71 and section 26 for the prospectus) and the SEBI NCS Regulations.
3Check the instrument: debentures cannot carry voting rights, and a convertible option needs a special resolution.
4Run the checklist: issuer eligibility, credit rating, debenture trustee, security, listing application, offer document.
5Compare each fact with the checklist and mark which condition is met or missed.
6Add the consequence of a breach, such as the prospectus penalty under section 26(9) or Tribunal action under section 71.
7Close with a clear one-line conclusion that answers the question asked.

Quickest way: Six-point checklist

When to use it: Use it for short notes and 5 to 6 mark questions when time is tight.

Write the heading: public issue of NCS, SEBI NCS Regulations plus section 71.
List the six conditions: eligibility, credit rating, debenture trustee, security, listing, offer document.
Add one Act point for each where you are sure: no voting rights, trustee before offer, DRR.
Add the prospectus points: signed, filed with Registrar, valid for 90 days.
End with one line on the effect of non-compliance.

Common mistakes in Eligibility and Conditions for Public Issue of NCS

Saying debentures can carry voting rights if the company agrees.
Students mix debentures with preference shares.
Fix: Remember section 71(2): no company shall issue debentures carrying any voting rights.
Appointing the debenture trustee after the offer opens.
The trustee is seen as a post-issue role.
Fix: Section 71(5) says the appointment must come before the prospectus or offer.
Treating the 500 limit as 500 or more.
Students read the number loosely.
Fix: The text says exceeding five hundred, so the trigger is more than 500 members.
Thinking the DRR can be used for general purposes.
Reserves are often seen as free funds.
Fix: Under section 71(4) the amount can be used only to redeem debentures.
Quoting the old prospectus penalty with imprisonment.
Old notes are still in use.
Fix: Section 26(9) now gives a fine of ₹50,000 to ₹3,00,000 only.
Writing only the Companies Act and skipping the SEBI Regulations.
Students treat the Act as the whole law.
Fix: Name both layers. Use the Act for the base and SEBI for rating, security and listing detail.

Worked examples

Example 1

Ganga Textiles Ltd plans to offer non-convertible debentures to the public. It has not appointed any debenture trustee and plans to appoint one after the issue opens. Advise the company.

Show the solution

Provision: under section 71(5) of the Companies Act, 2013, no company shall issue a prospectus or make an offer or invitation to the public, or to more than five hundred members, for subscription of its debentures unless it has, before the issue or offer, appointed one or more debenture trustees.
Analysis: the offer is to the public, so the section applies. The plan to appoint the trustee after the issue opens breaks the requirement of prior appointment.
Under section 71(6) the trustee must protect the interests of debenture-holders and redress their grievances, so the law wants the trustee in place from the start.
The SEBI NCS Regulations also require a trustee for a public issue.

Answer: Ganga Textiles Ltd cannot open the issue without first appointing a debenture trustee. It must appoint one or more trustees before the prospectus or offer.

Example 2

Himalaya Foods Ltd, a public company, files a prospectus copy with the Registrar on 1 March. It issues the prospectus on 15 June of the same year. Is the prospectus valid? State the penalty if it is not.

Show the solution

Provision: section 26(8) says no prospectus is valid if issued more than ninety days after the date a copy is delivered to the Registrar.
Count the days: 1 March to 31 March is 30 days, April has 30 days (total 60), May has 31 days (total 91). So 15 June is well beyond 90 days, at 106 days.
Therefore the prospectus is not valid.
Consequence: under section 26(9), issuing a prospectus in contravention makes the company liable to a fine of not less than ₹50,000 and up to ₹3,00,000. Every person knowingly a party is liable to the same range of fine.

Answer: The prospectus is not valid because it was issued 106 days after filing, which is more than 90 days. The company and every person knowingly party face a fine of ₹50,000 to ₹3,00,000.

Exam tips

Open with the source of law: Companies Act section 71 and the SEBI NCS Regulations. This gets credit before the analysis.
Learn the checklist of six conditions in a fixed order so you do not skip one under pressure.
Use exact words from the Act for no voting rights, trustee before offer and DRR use. Examiners look for them.
For thresholds like rating grade or time limits, write them only as you learned them from the ICSI material. Do not guess.
Always end with a conclusion line, such as whether the issue can proceed.

Practice questions from Issue and Listing of Non-Convertible Securities

Eligibility and Conditions for Public Issue of NCS in other exams

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

CS ProfessionalEligibility and Pre-Issue Requirements for Public Issue

Eligibility and Conditions for Public Issue of NCS: frequently asked questions

Is a debenture trustee compulsory for a public issue of NCS?

Yes. Section 71(5) requires a company to appoint one or more debenture trustees before it issues a prospectus or offers debentures to the public or to more than five hundred members. The SEBI NCS Regulations also require it.

Can NCS carry voting rights?

No. Section 71(2) says no company shall issue any debentures carrying voting rights.

What is the debenture redemption reserve?

It is an account created out of profits available for payment of dividend when debentures are issued. Section 71(4) allows its use only for redeeming debentures. The amount required is as prescribed.

What happens if a company fails to pay interest or redeem debentures on time?

Under section 71(10), the Tribunal may, on application of debenture-holders or the trustee, direct the company to redeem the debentures at once with the principal and interest due.