Strategic Management and Corporate Finance · Raising of Funds from Debt and Procedural Aspects

Public Issue and Listing of Non-Convertible Securities

Updated 11 October 2026 · Fact-checked

Public issue of non-convertible securities (NCS) means offering debentures or similar debt, which cannot be converted into shares, to the public through an offer document under SEBI's NCS framework. You check eligibility, make disclosures, obtain credit rating, appoint a debenture trustee, list on a stock exchange and meet continuing obligations.

Understand Public Issue and Listing of Non-Convertible Securities

A non-convertible security (NCS) is a debt instrument, such as a debenture or bond, that stays debt for its whole life. It is never converted into equity shares. The investor earns interest and gets principal back on maturity.

A company can raise such debt in two ways. It can make a public issue, inviting the general public through a prospectus. Or it can do a private placement to a select group of identified persons. Under the Companies Act, 2013, section 23 allows a public company to issue securities to the public through a prospectus or through private placement. A private company can use only private placement, rights or bonus issue.

SEBI regulates public issue and listing of NCS through its Issue and Listing of Non-Convertible Securities Regulations, 2021 (the NCS Regulations). They protect public investors, who cannot negotiate terms like a bank can. So the regulations demand an offer document with full disclosure, an independent credit rating, a debenture trustee to guard investors' interests, and listing on a recognised stock exchange for liquidity.

A public issue of NCS runs through these stages:

Eligibility: the issuer, its promoters and directors must not be barred by SEBI from the securities market, and must meet the other eligibility conditions in the regulations, such as those on wilful default and past defaults.
Offer document: the issuer files a draft offer document with the stock exchange for public comments. It then issues the final prospectus (a shelf prospectus with tranche prospectuses is allowed for repeated issues). It must disclose the issuer's business, financials, risk factors, objects of the issue, security offered and terms of the securities.
Credit rating: the securities must be rated by a SEBI-registered credit rating agency. The rating is disclosed in the offer document.
Debenture trustee: a SEBI-registered debenture trustee must be appointed, and a trust deed is executed. The trustee acts for the holders and monitors the security and the issuer's compliance.
Listing: the securities offered to the public are listed on a recognised stock exchange within the time the regulations prescribe. The issuer enters into a listing agreement with the exchange.
Continuing obligations: after listing, the issuer keeps making periodic and event-based disclosures to the exchange and the trustee, and keeps the security cover the terms require. It pays interest and principal on time.

The contrast with private placement is a favourite exam point. Section 42 limits a private placement to identified persons not exceeding fifty (or a higher prescribed number) in a financial year, excluding qualified institutional buyers and employees under ESOP. It bars public advertisements, bars renunciation and requires payment by banking channel, not cash. If a company offers to more than the permitted number, the offer is deemed a public offer and Part I of the Chapter applies.

Think of the whole subject as a chain: eligibility, then disclosure, then rating and trustee, then listing, then continuing compliance. In an answer, you walk down this chain with the facts of the question.

Key rules to remember

Public offer vs private placement test: Offer to identified persons ≤ 50 (or higher prescribed number) in a financial year, excluding QIBs and ESOP employees = private placement; beyond this = deemed public offer; Section 42(2) and Explanation III. A private placement not complying with sub-section (2) is deemed a public offer under section 42(11).
Allotment timeline in private placement: Allot within 60 days of receipt of application money; refund within 15 days after those 60 days; else interest at 12% p.a. from the 60th day; Section 42(6). Money is kept in a separate bank account in a scheduled bank.
Return of allotment: File return of allotment with Registrar within 15 days of allotment; Section 42(8). Penalty is ₹1,000 per day of default, capped at ₹25 lakh (section 42(9)).
Penalty for contravention of section 42: Penalty up to the amount raised or ₹2 crore, whichever is lower; Section 42(10). Company must also refund with interest within 30 days of the penalty order. Sub-section (11) overrides (9) and (10) where the sub-section (2) cap is breached: that issue is a deemed public offer.
Who may issue to the public: Public company: public offer, private placement, rights or bonus. Private company: rights, bonus or private placement only; Section 23(1) and (2). A private company cannot make a public offer.
Eligibility and offer document for a public issue of NCS: Issuer, promoters and directors not barred by SEBI + other eligibility conditions → draft offer document to exchange for public comments → final prospectus / shelf prospectus with tranche prospectus; NCS Regulations, 2021 with the Companies Act prospectus provisions. The offer document discloses business, financials, risk factors, objects, security and terms of the NCS.
Rating, trustee and listing in a public issue of NCS: Rating from a SEBI-registered CRA + SEBI-registered debenture trustee and trust deed → listing on a recognised stock exchange; Rating informs investors of credit risk. The trustee protects holders. Listing gives liquidity. Check the current regulations for exact time limits before quoting any.
Chain of public issue of NCS: Eligibility → offer document with disclosures → credit rating → debenture trustee → listing → continuing obligations; Framework under the SEBI NCS Regulations, 2021. Check the exact thresholds and time limits in the current regulations before quoting them.

How to solve Public Issue and Listing of Non-Convertible Securities questions

Case questions on NCS ask you to decide whether an issue is valid and what the company must do. Use this order every time.

1Identify the issuer and mode: public company or private company, public issue or private placement. Section 23 decides who may use which route.
2Count the offerees if private placement is claimed. Compare with fifty (or the prescribed higher number), excluding QIBs and ESOP employees. If exceeded, say it is deemed a public offer.
3State the regulatory framework: public issue and listing fall under the SEBI NCS Regulations, 2021, along with the Companies Act prospectus provisions.
4Check eligibility and disclosures: the issuer's eligibility conditions, the offer document contents and the risk factors.
5Check credit rating and trustee: rating from a registered credit rating agency and appointment of a debenture trustee before opening the issue.
6Cover listing and continuing obligations: application to the stock exchange, periodic disclosures and keeping the trustee informed.
7Apply the facts, then give a clear conclusion with the consequence, such as penalty, refund with interest or deemed public offer.

Quickest way: Three-question screen

When to use it: Use it when time is short and the question is a short scenario on whether an issue is a public issue or private placement.

Who is the issuer: public or private company? A private company cannot make a public issue.
How many people were offered, and was any advertisement used? Offering to more than the permitted number of identified persons (fifty, or a higher prescribed number, excluding QIBs and ESOP employees) makes the issue a deemed public offer. A public advertisement is a separate breach of section 42(7).
Name the consequence. If the cap in section 42(2) is exceeded, the issue is a deemed public offer under section 42(11), which overrides the penalty provisions of section 42(9) and (10). The Companies Act, SCRA and SEBI Act then apply, and the issuer must meet the public issue requirements of the NCS Regulations. Other contraventions, such as a public advertisement or accepting cash, attract the section 42(10) penalty and refund of money with interest.

Common mistakes in Public Issue and Listing of Non-Convertible Securities

Saying a private placement can be offered to any number of persons if money is paid by cheque.
Students remember the banking channel rule and forget the numerical cap.
Fix: Always count identified persons against fifty (or the higher prescribed number), excluding QIBs and ESOP employees.
Treating a private placement offer as renounceable.
Rights issues allow renunciation, so students carry the idea across.
Fix: Remember the proviso to section 42(3): a private placement offer and application carries no right of renunciation.
Mixing up the 60-day and 15-day periods.
Both appear in section 42, in sub-sections (6) and (8).
Fix: 60 days to allot from receipt of money, then 15 days to refund. Separately, 15 days after allotment to file the return.
Stating that a private company can make a public issue of debentures.
Students focus on SEBI rules and forget who is allowed to issue.
Fix: Section 23(2) allows a private company only rights, bonus or private placement.
Ignoring the use-of-funds restriction.
Students stop once allotment is done.
Fix: Money raised by private placement cannot be used until allotment is made and the return of allotment is filed (proviso to section 42(4)).
Quoting exact SEBI thresholds from memory without being sure.
Numbers in regulations are amended often.
Fix: Give the rule and its purpose in words. Quote a figure only if you are certain of the current regulation.

Worked examples

Example 1

Meridian Textiles Ltd, an unlisted public company, sends private placement offers for debentures to 70 identified persons, none of whom is a QIB or ESOP employee, in one financial year. Is the issue valid?

Show the solution

Section 42(2) limits a private placement to identified persons not exceeding fifty (or a higher prescribed number), excluding QIBs and ESOP employees.
Here 70 persons are offered and none falls in the excluded groups, so all 70 count.
Unless a higher number has been prescribed and covers this case, 70 exceeds the limit.
Under section 42(11), an issue not complying with sub-section (2) is deemed a public offer. It applies notwithstanding sub-sections (9) and (10). The Companies Act, SCRA and SEBI Act all apply.
Explanation III also treats an offer to more than the permitted number as an offer to the public, governed by Part I of the Chapter.

Answer: The issue is not a valid private placement. It is deemed a public offer under section 42(11), so Meridian must comply with the public issue provisions, including the prospectus and SEBI requirements.

Example 2

Kaveri Power Ltd received application money for privately placed debentures on 1 March. It has not allotted them. By what date must it allot, and what if it fails?

Show the solution

Section 42(6) requires allotment within sixty days from receipt of application money.
Count 1 March as day 0. The remaining 30 days of March (2 to 31 March) take you to day 30, which is 31 March. The next 30 days, 1 to 30 April, take you to day 60, which is 30 April.
If it cannot allot, it must repay within fifteen days from the expiry of sixty days. Fifteen days after 30 April is 15 May.
If it fails to repay in that period, it is liable to repay with interest at 12% per annum from the expiry of the sixtieth day, that is from 30 April.
Meanwhile the money must stay in a separate account in a scheduled bank and be used only for adjustment against allotment or for repayment.

Answer: Kaveri must allot by 30 April. If it cannot, it must refund by 15 May. After that it owes 12% per annum interest from the sixtieth day, 30 April.

Example 3

Bhavani Foods Pvt Ltd, a private company, wants to make a public issue of non-convertible debentures and list them. Can it do so?

Show the solution

Section 23(2) allows a private company to issue securities only by rights issue, bonus issue or private placement.
A public issue through a prospectus, which is what the NCS Regulations govern, is a route open to a public company under section 23(1)(a).
So the eligibility and offer-document steps of the NCS Regulations never arise for Bhavani while it remains a private company.
Bhavani may raise debt by private placement within the section 42 conditions. Or it may first convert to a public company and then plan a public issue.

Answer: No. A private company cannot make a public issue of debentures under section 23(2). It can use private placement, rights or bonus issue. It would have to become a public company before a public issue and listing.

Example 4

Sagar Infra Ltd, a public company, plans a public issue of non-convertible debentures to be listed on a stock exchange. List what it must do, in order.

Show the solution

Check eligibility under the NCS Regulations, 2021. The company, its promoters and directors must not be barred by SEBI from the securities market, and the other eligibility conditions must be met.
Obtain a credit rating from a SEBI-registered credit rating agency and disclose it in the offer document.
Appoint a SEBI-registered debenture trustee and execute the trust deed.
File the draft offer document with the stock exchange for public comments. Then issue the final prospectus with full disclosures: business, financials, risk factors, objects, security and terms.
Complete allotment and apply for listing on a recognised stock exchange within the time limits in the regulations.
After listing, make periodic and event-based disclosures to the exchange and the trustee, maintain the security cover and pay interest and principal on due dates.

Answer: Sagar must follow the chain: eligibility, rating, debenture trustee, offer document with disclosures, listing and continuing obligations under the NCS Regulations, 2021 and the Companies Act. Check exact time limits in the current regulations before quoting them.

Exam tips

Start every answer with the provision, then apply facts, then conclude. Examiners reward this three-part structure.
Learn the section 42 sub-sections as a list with their numbers: (2) cap, (3) offer and no renunciation, (4) banking channel, (6) timelines, (7) no advertisement, (8) return, (9) and (10) penalties, (11) deemed public offer.
Remember the link between (2), (10) and (11): breach of the sub-section (2) cap makes the issue a deemed public offer under (11), which overrides (9) and (10). The (10) penalty applies to other contraventions, such as advertising or accepting cash.
Be ready to write a comparison of public issue and private placement in points: offerees, document, advertisement, listing, regulator and penalty.
For a public issue of NCS, write the chain in order: eligibility, offer document, rating, trustee, listing and continuing obligations. Explain the purpose of each step rather than risking wrong figures from the NCS Regulations, 2021.

Practice questions from Raising of Funds from Debt and Procedural Aspects

Public 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.

CS ExecutiveEligibility and Conditions for Public Issue of NCS

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

What are non-convertible securities?

They are debt instruments like debentures and bonds that cannot be converted into equity shares. The holder earns interest and is repaid principal on maturity.

What is the difference between public issue and private placement of debentures?

A public issue invites the general public through a prospectus and is listed under SEBI's framework. A private placement goes only to identified persons within the section 42 limit, with no public advertisement and no right of renunciation.

Is credit rating needed for a debenture public issue?

Yes, SEBI's NCS framework requires a credit rating from a registered credit rating agency for a public issue of debt securities. Mention it with the debenture trustee as investor protection.

Can a private company make a public issue of debentures?

No. Section 23(2) lets a private company issue securities only by rights issue, bonus issue or private placement.