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

Green Debt, Perpetual Debt and Other Specialised NCS

Updated 11 October 2026 · Fact-checked

Specialised non-convertible securities are debt or preference instruments with a special purpose or feature: green debt and social bonds fund defined projects, perpetual debt has no maturity date, municipal bonds are issued by local bodies, and NCRPS are preference shares redeemable without conversion. Answer by defining the instrument, its distinguishing feature, and the regulatory condition.

Understand Specialised Instruments: Green Debt, Perpetual and Other NCS

Ordinary non-convertible securities (NCS) are debentures or bonds that pay interest and are repaid at maturity. They cannot be converted into equity. Specialised NCS keep this basic nature but add a special purpose, issuer type or feature.

Green debt securities are debt instruments whose proceeds are used for environment-friendly purposes, such as renewable energy, clean transport or pollution control. Social bonds and similar labelled bonds follow the same idea: the money must go to a stated social objective, such as affordable housing or healthcare. The key exam point is the use of proceeds. The issuer must disclose it in the offer document and report on it later. Check the exact definitions and the list of eligible purposes in the SEBI NCS Regulations and the SEBI circulars in your study material.

Perpetual debt instruments have no fixed maturity date. The issuer pays interest and may have a call option, but the investor cannot demand repayment of principal. Banks and other regulated entities mainly issue them to build capital. They carry more risk than ordinary bonds, so they usually pay higher interest. Treat them as a feature-based category: no maturity, call option at the issuer's discretion, and capital treatment under the sector regulator's rules.

Municipal debt securities are bonds issued by municipal corporations or similar local bodies to fund civic projects such as water supply or sewerage. SEBI has a separate set of rules for them, covering eligibility and disclosures, because the issuer is a local authority and not a company.

Non-convertible redeemable preference shares (NCRPS) are preference shares that cannot be converted into equity and must be redeemed. Under the Companies Act, 2013, a company limited by shares cannot issue irredeemable preference shares. Section 55 allows redeemable ones if the articles authorise them, with redemption within twenty years from issue. A longer period is allowed for infrastructure projects, subject to the conditions the section sets out.

Key rules to remember

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.

How to solve Specialised Instruments: Green Debt, Perpetual and Other NCS questions

Use one method for any question on a specialised NCS. It keeps your answer in the ICSI pattern: provision, analysis, conclusion.

1Identify the instrument named in the question: green debt, social bond, perpetual debt, municipal debt or NCRPS.
2Define it in one or two lines, naming its distinguishing feature (use of proceeds, no maturity, local body issuer, or redeemable preference share).
3State the governing law: SEBI NCS Regulations for listed debt and municipal debt, Companies Act, 2013 section 55 for NCRPS.
4List the conditions or disclosures that apply, such as use of proceeds and reporting for green debt, or fully paid and source of redemption for NCRPS.
5Apply them to the facts given, checking each condition one by one.
6If the question has numbers, compute them: CRR equals the nominal value redeemed out of profits, and the premium is provided separately.
7End with a clear conclusion that answers exactly what was asked.

Quickest way: Feature-Condition-Conclusion

When to use it: Use this for short notes and 4-5 mark questions where time is tight.

Write the instrument name and its one defining feature.
Add the single most-tested condition: use of proceeds for green and social bonds, no maturity for perpetual debt, local body issuer for municipal debt, section 55 limits for NCRPS.
Give one contrast with an ordinary debenture or equity share.
Close with a one-line conclusion.

Common mistakes in Specialised Instruments: Green Debt, Perpetual and Other NCS

Saying a company can issue irredeemable preference shares.
Students remember older practice or confuse preference shares with perpetual debt.
Fix: Remember section 55(1): no company limited by shares may issue irredeemable preference shares. Perpetual features belong to debt instruments, not preference shares.
Writing that NCRPS can be redeemed for any period.
The twenty-year limit is forgotten, or the infrastructure exception is stretched to all companies.
Fix: State the limit as not exceeding twenty years, with a longer period allowed only for infrastructure projects as per the proviso.
Transferring to CRR even when redemption is out of a fresh issue.
Students treat CRR as always required.
Fix: CRR is needed only when shares are redeemed out of profits. A fresh issue of shares makes the transfer unnecessary.
Treating green debt as a different legal class with no ordinary debt rules.
The word 'green' suggests a separate regime.
Fix: Green debt is still a non-convertible debt security. The special part is the use of proceeds and the related disclosure and reporting.
Calling a perpetual debt instrument 'irredeemable at all times' or equating it with equity.
No maturity date is read as no repayment ever and ownership.
Fix: It is debt with no fixed maturity. The issuer often has a call option, and the holder is a creditor and not a shareholder.
Forgetting the 30-day filing with the Registrar after redemption.
Students stop at the accounting entries.
Fix: Add the section 64 notice to the Registrar within thirty days of redemption.

Worked examples

Example 1

Sunrise Textiles Ltd issued 10,000 redeemable preference shares of ₹100 each, fully paid, authorised by its articles. It proposes to redeem them at par out of profits available for dividend. State the conditions and the amount to be transferred to the Capital Redemption Reserve.

Show the solution

Provision: under section 55(2), redeemable preference shares may be issued if the articles authorise them, and redemption must be within twenty years of issue.
Conditions: the shares must be fully paid, and redemption must be out of profits otherwise available for dividend or out of a fresh issue made for the purpose.
The shares are fully paid and are redeemed out of profits, so a transfer to CRR is needed under section 55(2) proviso (c).
Nominal amount redeemed = 10,000 × ₹100 = ₹10,00,000.
As redemption is at par, there is no premium to provide for.
After redemption, the company files a notice with the Registrar within 30 days under section 64(1)(c).

Answer: The company must transfer ₹10,00,000 from profits to the Capital Redemption Reserve and file notice with the Registrar within 30 days of redemption.

Example 2

Explain green debt securities and perpetual debt instruments, and state one way each differs from an ordinary debenture.

Show the solution

Define green debt securities: non-convertible debt whose proceeds are used for environment-friendly projects such as renewable energy.
Key rule: the issuer must disclose the intended use of proceeds in the offer document and report on how the money was used, as required under the SEBI NCS framework.
Difference from an ordinary debenture: an ordinary debenture's proceeds may be used for general purposes, but green debt is tied to eligible green projects.
Define perpetual debt instruments: debt with no fixed maturity date, where interest is paid and the issuer may have a call option.
Difference from an ordinary debenture: an ordinary debenture is repaid on a fixed maturity date, but the perpetual holder cannot demand principal back.
Conclusion: both are still non-convertible debt securities, but one is distinguished by purpose and the other by the absence of maturity.

Answer: Green debt is non-convertible debt with proceeds restricted to green projects and reported on; perpetual debt is non-convertible debt with no maturity date. Both differ from ordinary debentures in these features.

Exam tips

Use the Act's exact words for NCRPS: 'limited by shares', 'authorised by its articles', 'not exceeding twenty years'.
For green and social bonds, always mention use of proceeds and post-issue reporting. These carry the marks.
Write municipal debt securities as bonds of local bodies with separate SEBI rules. Do not describe them as company debentures.
Keep each short note to a definition, one or two conditions and a contrast. Cite section 55 and section 64 where the question involves NCRPS.
Check the SEBI NCS Regulations in your study material for the latest definitions before the exam.

Practice questions from Issue and Listing of Non-Convertible Securities

Specialised Instruments: Green Debt, Perpetual and Other 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 ProfessionalGreen Finance, Green Bonds and Reporting

Specialised Instruments: Green Debt, Perpetual and Other NCS: frequently asked questions

What are green debt securities under SEBI rules?

They are non-convertible debt securities whose proceeds go to environment-friendly projects. The issuer must disclose the use of proceeds and report on it. Learn the eligible purposes from the SEBI NCS Regulations and circulars in your study material.

Can a company issue irredeemable preference shares?

No. Section 55(1) of the Companies Act, 2013 bars a company limited by shares from issuing irredeemable preference shares. Redeemable ones can be issued if the articles authorise them, with redemption within twenty years, except for infrastructure projects.

What is the difference between perpetual debt and NCRPS?

Perpetual debt is a debt instrument with no fixed maturity, and the holder is a creditor. NCRPS are preference shares that must be redeemed, and the holder is a shareholder. Perpetual debt has no maturity, while NCRPS must be redeemed within the section 55 limits.

When is a Capital Redemption Reserve required?

It is required when preference shares are redeemed out of profits. The amount equals the nominal value of the shares redeemed. If redemption is funded by a fresh issue of shares, no transfer is needed.

Are municipal debt securities governed by the Companies Act?

They are issued by local bodies and not by companies, so SEBI's separate rules for municipal debt securities apply. Study the eligibility and disclosure conditions from the SEBI NCS Regulations in your study material.