Listed Non-Convertible Debentures by Private Limited Companies in India: A Comprehensive Legal and Regulatory Analysis

Posted On - 23 March, 2026 • By - Abhishek Paliwal

Introduction

Non-Convertible Debentures (NCDs) have emerged as one of the most widely used debt instruments in the Indian capital markets, offering companies a structured and regulated avenue to raise long-term funds from the public. Traditionally associated with listed public limited companies, the issuance of listed NCDs by private limited companies represents a nuanced and increasingly relevant area of corporate and securities law in India.

While private limited companies are generally prohibited from making public offers of their securities under the Companies Act, 2013, SEBI regulations have carved out a specific regulatory pathway enabling them to issue NCDs to the public on a listed basis, subject to stringent eligibility and compliance requirements. This article provides a detailed legal analysis of the framework governing the issuance of listed NCDs by private limited companies in India, covering the applicable statutory provisions, SEBI regulations, eligibility criteria, procedural requirements, credit rating obligations, disclosure norms, and post-issuance compliance.

Understanding Non-Convertible Debentures

A debenture is a debt instrument issued by a company acknowledging its obligation to repay the borrowed sum at a specified rate of interest over a defined period. Non-Convertible Debentures (NCDs) are debentures that cannot be converted into equity shares of the issuing company at any point during their tenure, thereby remaining pure debt instruments throughout their lifecycle.

NCDs may be secured or unsecured. Secured NCDs are backed by a charge on the assets of the issuing company, providing debenture holders recourse against specified collateral in the event of a default. Unsecured NCDs, on the other hand, are not backed by any specific asset and rank as unsecured creditors in an insolvency scenario. SEBI regulations impose additional requirements on the issuance of unsecured NCDs by private limited companies, as discussed in subsequent sections.

Listed NCDs are debentures that are listed and traded on recognised stock exchanges such as the Bombay Stock Exchange (BSE) or the National Stock Exchange (NSE), thereby providing liquidity to debenture holders and transparency in price discovery.

1. Companies Act, 2013

The Companies Act, 2013 forms the foundational statute governing the issuance of debentures in India. Section 2(30) of the Act defines debentures broadly to include debenture stock, bonds, or any other instrument of a company evidencing a debt. Section 71 of the Act, read with the Companies (Share Capital and Debentures) Rules, 2014, lays down the general framework for issuance of debentures, including requirements for creation of a Debenture Redemption Reserve (DRR) and appointment of a debenture trustee.

Crucially, Section 2(68) of the Companies Act defines a private company as one that restricts the right to transfer its shares, limits the number of members to 200, and prohibits any invitation to the public to subscribe to any securities of the company. However, this prohibition is qualified by the phrase ‘any securities,’ and SEBI regulations specifically enable private limited companies to issue listed debt securities to the public as a carve-out from this prohibition, provided such issuance complies with SEBI’s regulatory framework.

2. SEBI (Issue and Listing of Non-Convertible Securities) Regulations, 2021

The primary regulatory instrument governing the issuance of listed NCDs in India is the Securities and Exchange Board of India (Issue and Listing of Non-Convertible Securities) Regulations, 2021 (NCS Regulations, 2021), which replaced the erstwhile SEBI (Issue and Listing of Debt Securities) Regulations, 2008. These regulations comprehensively govern both public issues and private placements of NCDs and apply equally to private limited companies seeking to list NCDs on recognised stock exchanges.

The NCS Regulations, 2021 set out detailed requirements for eligibility, disclosures, application procedures, allotment, listing, and post-issuance compliance. Private limited companies are explicitly included within the ambit of these regulations, enabling them to access public capital markets for debt financing without altering their corporate structure to a public limited company.

3. SEBI (Listing Obligations and Disclosure Requirements) Regulations, 2015

Upon listing of NCDs, the issuing private limited company becomes subject to the SEBI (Listing Obligations and Disclosure Requirements) Regulations, 2015 (LODR Regulations), insofar as they pertain to listed debt securities. These regulations impose ongoing disclosure, governance, and compliance obligations on the listed entity, which are elaborated in subsequent sections of this article.

Eligibility Criteria for Private Limited Companies

The NCS Regulations, 2021 prescribe specific eligibility conditions that a private limited company must satisfy before it can make a public issue or private placement of NCDs intended to be listed. These conditions serve as gatekeeping mechanisms to ensure that only creditworthy and compliant entities access public debt markets.

The key eligibility conditions include the following:

  • The issuing company must not have been restrained or prohibited by SEBI or any other regulatory authority from accessing the capital markets, and no winding-up petition or insolvency proceedings should be admitted against it.
  • The company, its promoters, directors, and selling shareholders must not be named as wilful defaulters by any bank or financial institution as notified by the Reserve Bank of India (RBI).
  • The issuing company or its promoters or directors must not be declared as fugitive economic offenders under the Fugitive Economic Offenders Act, 2018.
  • The company must have a net worth of at least INR 100 crore and a track record of distributable profits in at least three of the immediately preceding five financial years, or it must have tangible assets of at least INR 300 crore as per the audited balance sheet of the immediately preceding financial year, with not more than 50 percent of these assets consisting of intangible assets. Alternatively, the company may issue NCDs backed by a guarantee from a scheduled commercial bank, a state or central government guarantee, or guarantees from domestic financial institutions.
  • For issuance of unsecured NCDs listed on the main board of a stock exchange, the issuing company must have a credit rating of not less than ‘AA-‘ or equivalent from a SEBI-registered credit rating agency.

Public Issue versus Private Placement of Listed NCDs

Private limited companies may issue listed NCDs either through a public issue or through a private placement route. The distinction between these two modes carries significant legal implications in terms of eligibility thresholds, disclosure standards, investor categories, and procedural requirements.

1. Public Issue of NCDs

A public issue of NCDs involves inviting subscriptions from the general public, including retail individual investors. For a private limited company to undertake a public issue of NCDs, it must comply fully with the eligibility criteria prescribed under the NCS Regulations, 2021, prepare a detailed prospectus as prescribed under Schedule I of the said Regulations, obtain a mandatory credit rating from at least two SEBI-registered credit rating agencies, and appoint a SEBI-registered debenture trustee.

The prospectus must disclose comprehensive information regarding the issuing company’s financial condition, business operations, risk factors, terms of the NCD issuance, use of proceeds, and material litigation, among other mandatory disclosures. The draft prospectus is required to be filed with SEBI for observations and subsequently with the Registrar of Companies (RoC) before opening of the issue.

2. Private Placement of NCDs

Private placement of NCDs involves issuance to a select group of not more than 200 persons in a financial year, as prescribed under Section 42 of the Companies Act, 2013. Even though such NCDs may subsequently be listed on stock exchanges, the disclosure and procedural requirements are comparatively lighter than a full public issue. The company must file a private placement offer letter with the relevant stock exchange and comply with SEBI’s listing norms for debt securities.

Procedural Requirements for Issuance

The procedural roadmap for issuance of listed NCDs by a private limited company involves multiple regulatory and corporate steps, typically executed over a timeline of 45 to 90 days for a public issue and 15 to 30 days for a private placement.

  • Board Resolution: The board of directors of the company must pass a resolution approving the issuance of NCDs, authorising the creation of necessary security (if secured), and approving the appointment of debenture trustees, lead managers, and other intermediaries.
  • Credit Rating: The company must obtain credit ratings from at least two SEBI-registered credit rating agencies. For public issues, the ratings must be disclosed prominently in the prospectus along with the rating rationale.
  • Debenture Trustee Appointment: A SEBI-registered debenture trustee must be appointed pursuant to a Debenture Trust Deed executed between the company and the trustee, creating a legal framework for enforcement of security and protection of debenture holders’ interests.
  • Filing with SEBI and RoC: For public issues, the draft prospectus is filed with SEBI for observations, followed by filing of the final prospectus with the RoC. For private placements, an information memorandum is filed with the stock exchange.
  • In-Principle Listing Approval: The company must obtain in-principle approval from the relevant stock exchange for listing of the NCDs prior to opening of the issue.
  • Opening and Closure of Issue: The public issue remains open for subscription for a minimum of three and a maximum of ten working days. Allotment must be made within 12 working days of the closure of the issue.
  • Listing and Commencement of Trading: Upon completion of allotment and receipt of ISIN, the NCDs are listed on the stock exchange and trading commences.

Credit Rating Requirements

Credit rating is a cornerstone requirement for issuance of listed NCDs. The NCS Regulations, 2021 mandate that public issues of NCDs must obtain credit ratings from at least two SEBI-registered credit rating agencies (CRAs). If ratings obtained from two CRAs differ, the lower rating must be disclosed prominently. Ratings must be kept current throughout the tenure of the NCDs, with periodic review at least once a year.

The credit rating communicates to investors the likelihood of the issuing company meeting its debt obligations and plays a decisive role in investor decision-making and pricing of the instrument. For private limited companies, which lack the public disclosure history and investor familiarity associated with listed equity companies, a robust credit rating from recognised agencies such as CRISIL, ICRA, CARE Ratings, or India Ratings becomes particularly critical in establishing market credibility.

Security Creation and Debenture Redemption Reserve

For secured NCDs, the issuing private limited company must create a charge on specific assets in favour of the debenture trustee, to be held in trust for the benefit of debenture holders. The value of assets secured must be at least one hundred percent of the outstanding amount of the debentures at all times. The debenture trust deed must be executed and registered with the RoC within 30 days of allotment.

The Companies Act, 2013 and the Companies (Share Capital and Debentures) Rules, 2014, as amended, require the company to maintain a Debenture Redemption Reserve (DRR) for listed NCDs. The DRR must be created out of the profits of the company available for distribution of dividend, to the extent of 25 percent of the amount of NCDs outstanding. Companies are also required to invest or deposit at least 15 percent of the amount of NCDs maturing during the following year in specified liquid instruments on or before the 30th day of April of each year.

Ongoing Compliance and Disclosure Obligations

Once the NCDs are listed, the private limited company assumes a range of continuous compliance obligations under both the NCS Regulations, 2021 and the LODR Regulations (to the extent applicable to debt-listed entities). These obligations include:

  • Timely payment of interest and principal to debenture holders as per the terms of issuance, and immediate disclosure of any failure to do so.
  • Submission of financial results on a half-yearly basis, along with a limited review or statutory audit report.
  • Disclosure of material events and developments that may have a bearing on the company’s ability to service its debt obligations, including changes in credit ratings.
  • Filing of statutory and periodic reports with the stock exchange, including disclosures pertaining to asset cover, interest service coverage ratio, and debenture trustee reports.
  • Maintenance of a debenture holders’ register and compliance with the debenture trustee’s directions in the interest of investors.
  • Compliance with restrictions under the Companies Act, 2013 regarding payment of dividend, if the company is in default on repayment of debentures or interest thereon.

Restrictions and Limitations Specific to Private Limited Companies

Notwithstanding the regulatory pathway for issuance of listed NCDs, private limited companies remain subject to certain fundamental restrictions under the Companies Act, 2013. They cannot freely transfer their shares, and their membership remains limited to 200 persons. The listing of NCDs does not convert or alter the company’s status as a private limited company; it only enables access to the public debt market for the specific instrument issued.

Furthermore, private limited companies issuing listed NCDs must ensure that the nature and terms of the NCD issuance do not inadvertently confer equity or quasi-equity characteristics on the instrument, which could conflict with SEBI’s categorisation framework or trigger additional regulatory requirements. Convertible instruments are governed by a separate regulatory framework and are not permitted to be issued by private limited companies in a manner that would amount to a public offer of equity.

Conclusion

The regulatory framework for issuance of listed NCDs by private limited companies in India represents a carefully calibrated balance between enabling access to diversified sources of capital and ensuring adequate investor protection. The NCS Regulations, 2021, read with the Companies Act, 2013 and the LODR Regulations, create a structured regime that permits private limited companies to tap public debt markets without fundamentally altering their corporate character.

For private limited companies seeking to raise long-term debt capital, the listed NCD route offers significant advantages, including access to a broader investor base, competitive pricing, enhanced credibility, and the discipline of continuous disclosure obligations. However, the eligibility requirements, credit rating mandates, security creation obligations, and ongoing compliance burdens are substantial and necessitate thorough legal and financial preparation.

As India’s bond market continues to deepen and broaden, and as regulatory initiatives aimed at democratising debt investments gain traction, listed NCDs issued by private limited companies are likely to become an increasingly important financing instrument in the Indian corporate finance landscape. Legal practitioners and in-house counsel advising such companies must maintain a current understanding of this evolving regulatory framework to provide effective guidance.

Co-authored by Surbhi Kapoor.