Corporate & Fundraising
Convertible Debentures — CCD, OCD and NCD
Structuring and documenting debenture instruments — compulsorily convertible, optionally convertible, and non-convertible — for fundraising and bridge rounds under Indian company law.
Debenture instruments in Indian fundraising
Debentures are the debt-side instruments of corporate fundraising. Under the Companies Act, 2013, three principal variants are used in private company transactions: compulsorily convertible debentures (CCD), which convert into equity at a specified trigger or maturity; optionally convertible debentures (OCD), which give the holder the choice of conversion or redemption at maturity; and non-convertible debentures (NCD), which carry a fixed return and are redeemed without any equity element.
Each variant carries distinct legal treatment: CCD is classified as equity-equivalent for FDI purposes under the Foreign Exchange Management (Non-debt Instruments) Rules, 2019; OCD and NCD are treated as debt instruments, with different sectoral and pricing implications. The structuring decision must precede the term sheet because the FDI classification, the security that can be created, and the reporting obligations differ substantially across the three instruments.
The firm advises on instrument selection, drafts or reviews the debenture subscription agreement and debenture trust deed, advises on security creation over company assets, and handles the PAS-3 return of allotment, CHG-1 charge creation filings, and related MCA compliance through the Registrar of Companies, Kerala.
What the engagement covers
From instrument selection and subscription through security creation, allotment, and exit.
Instrument selection — CCD, OCD or NCD
Advising on the appropriate debenture type based on investor objectives, FDI classification implications, sector-specific restrictions, and the company's balance-sheet and compliance considerations.
Debenture subscription agreement
Drafting the subscription agreement — coupon rate, security, conversion triggers, maturity, events of default, representations and warranties — aligned to the agreed commercial terms in the term sheet.
Debenture trust deed
Where required by the Companies Act, 2013 or by the scale of the issue, drafting the debenture trust deed and advising on the appointment and obligations of a debenture trustee under section 71.
Security creation and charge registration
Advising on available security — fixed and floating charge over assets, pledge of promoter shares — drafting the security documents, and filing Form CHG-1 for charge registration with the Registrar of Companies within the prescribed period.
ROC filings — PAS-3 and MCA compliance
Filing the return of allotment (PAS-3) within thirty days of allotment, maintaining the register of debenture holders, and tracking the debenture redemption calendar to ensure timely compliance.
Conversion and exit documentation
Preparing conversion notices, board resolutions, updated cap table, and PAS-3 on conversion of CCDs; or, on redemption, the redemption record and CHG-4 charge satisfaction filing with the Registrar.
Forum & Statute
Debenture issuance is governed by the Companies Act, 2013 (sections 71, 42, 53 and Schedule III), the Companies (Share Capital and Debentures) Rules, 2014, and the Companies (Acceptance of Deposits) Rules, 2014. Foreign investment in CCDs is governed by the Foreign Exchange Management (Non-debt Instruments) Rules, 2019; OCDs and NCDs are regulated as debt instruments under FEMA. Allotment is completed before the Registrar of Companies, Kerala, through the Ministry of Corporate Affairs portal.
Common questions
Points investors and founders most often raise before structuring a debenture instrument.
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A compulsorily convertible debenture (CCD) and a compulsorily convertible preference share (CCPS) are both equity-equivalent instruments for FDI purposes, but they are legally distinct. A CCD is a debenture — a debt acknowledgement that mandatorily converts into equity on a trigger — while a CCPS is already a preference share that converts into ordinary equity. The security creation mechanism, trust deed requirement, and the balance-sheet treatment differ. Investors often prefer CCD for bridge rounds and CCPS for priced rounds.
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Under section 71(5) of the Companies Act, 2013, a company that issues debentures must appoint a debenture trustee before issuing the prospectus or the letter of allotment, unless the debentures are secured and the number of debenture holders does not exceed five hundred, or the company is an unlisted company and the debentures are issued to fewer than five hundred persons. In practice, most private placements to fewer than fifty persons use a simplified structure without a formal trustee.
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CCDs are treated as equity instruments under the Foreign Exchange Management (Non-debt Instruments) Rules, 2019, because they must mandatorily convert into equity shares. Foreign investment in CCDs is counted toward the FDI cap applicable to the sector and must be reported to the RBI in the required format. Pricing for foreign-subscribed CCDs is subject to the fair value floor under the FEMA pricing guidelines.
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A debenture may be secured by a fixed charge over specified assets, a floating charge over the company's undertaking, or a pledge of promoter shares. The charge must be registered with the Registrar of Companies within thirty days of creation by filing Form CHG-1, failing which the charge is void against a liquidator and any creditor of the company.
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If the holder of an optionally convertible debenture (OCD) does not exercise the conversion option at maturity, the OCD must be redeemed — the company pays back the face value plus any accrued unpaid coupon. If the company is unable to redeem, it is in default on the debenture, which is an event that may be declared before the appropriate forum. The debenture trust deed and subscription agreement must specify the redemption mechanics clearly.
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The company must file the return of allotment in Form PAS-3 with the Registrar of Companies within thirty days of allotment. If a charge is created, Form CHG-1 must be filed within thirty days of creation. The company must maintain a register of debenture holders, and the terms of the issue must be disclosed in the balance sheet in accordance with Schedule III. On conversion, a further PAS-3 is required for the equity shares allotted.
Discuss a debenture matter
Outline the proposed round, the investor's instrument preference, and the company's fundraising stage, and the office will advise on the appropriate debenture structure and the documentation required to complete the allotment.
Submission of an enquiry does not create an advocate–client relationship. Please do not share confidential information until a formal engagement is confirmed.