In this blog post, Ranjan S, a contracts engineer with ‘Amec Foster Wheeler’ Group, Chennai, who is currently pursuing a Diploma in Entrepreneurship Administration and Business Laws from NUJS, Kolkata, writes about the process of raising funds through non-convertible debentures.
Non-convertible debentures (NCD) is a kind of debt instrument issued by a corporate or company with original maturity up to one year and issued by way of private placement.
The following is the process for NCD Issuance
- Call and hold Board meeting to decide which type of the debenture will be issued.
- In the case of issuing secure NCD, the company should check the conditions set out in the Rules 18 of the Companies Rules, 2014 and comply with the eligibility, rating requirement, maturity, limits and the amount of NCD, as per the directions or guidelines of Reserve Bank of India.
- Further, appoint a Debenture Trustee (DT) for each issuance of the NCDs.
- On the appointment of DT consent, shall be obtained from a SEBI registered Debenture Trustee. A Debenture Trust Deed in Form No. SH–12 or as near thereto as possible shall be executed by the Company for Debenture Trustees within sixty days of allotment of Debentures.
- In Board Meeting. pass Resolutions for i) Approval of Offer letter for private placement in Form No. PAS–4 and Application Forms ii) Approval of Form No. PAS–5 (iii) Approval of Debenture Trustee Agreement and appointment of a Debenture Trustee (iv) Appointment of an expert for valuation v) Approval of increase of borrowing powers, if required; vi) To authorize for creation of charge on the assets of the company; vii) Approve the Debenture Subscription Agreement; viii) To fix day, date and time for the extraordinary general meeting of shareholders.
- The draft of i) Debenture Subscription Agreement; ii) Offer Letter for private placement in Form No. PAS–4 and Application Forms; iii) Records of a private placement offer in Form No. PAS–5; iv) Debenture Trustee Agreement; v) Mortgage Agreement for the creation of charge on assets of the company, shall be prepared.
- Notices of extraordinary general meeting with the statement of explanatory shall be issued.
- Hold an extraordinary general meeting and pass a special resolution to authorize the Board to create a charge on the assets of the company.
- File Form No. PAS–4 and PAS 5 in Form No. GNL-2, Offer Letter in Form No. MGT–14, Board resolutions, Special Resolution, Debenture Subscription Agreement, Debenture Trustee Agreement, in Form No. MGT–14 with the Registrar of Companies.
- File Form No. PAS–3 (Return of allotment) with the Registrar of Companies after making allotment of debentures and File Form No CHG–9 for the creation of charge on assets of the Company.
Compliance procedure for the corporate
- Disclose the potential investors and financial position as per the standard market practices.
- The auditors of the corporate shall endorse its eligibility conditions to their investors.
- The requirements of all the provisions of the Companies Act, 1956 and the Securities and Exchange Board of India Regulations, 2008, or any other law that may be applicable, shall be complied with by the corporate.
- The Debenture Certificate shall be issued within the period prescribed in the Companies Act, 1956 or any other law as in force at the time of issuance.
- Issuers of NCDs of maturity up to one year shall follow the Disclosure Document brought out by the Fixed Income Money Market and Derivatives Association of India (FIMMDA), in consultation with the Reserve Bank of India.
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