Can a Private Company List Non-Convertible Debentures (NCDs)?

Legal Position under the Companies Act, 2013

I. Exact Legal Provisions

This issue must be examined in light of Sections 2(52) and 2(68) of the Companies Act, 2013 and Rule 2A of the Companies (Specification of Definitions Details) Rules, 2014.

1. Section 2(52) – “Listed Company”

“Listed company” means a company which has any of its securities listed on any recognised stock exchange.

Provided that such class of companies, which have listed or intend to list such class of securities, as may be prescribed in consultation with the Securities and Exchange Board, shall not be considered as listed companies.

2. Section 2(68) – “Private Company”

“Private company” means a company which by its articles—

(i) restricts the right to transfer its shares;

(ii) except in case of One Person Company, limits the number of its members to two hundred:

Provided that where two or more persons hold one or more shares jointly, they shall be treated as a single member:

Provided further that—

• persons in employment of the company; and

• persons formerly in employment who became members during employment and continue thereafter,

shall not be included in the number of members;

(iii) prohibits any invitation to the public to subscribe for any securities of the company.

3. Rule 2A – Companies Not to be Considered as Listed Companies

(Inserted w.e.f. 1 April 2021)

For the purpose of the proviso to clause (52) of section 2 of the Act, the following classes of companies shall not be considered as listed companies:

(a) Public companies which have not listed equity shares but have listed:

• non-convertible debt securities on private placement basis; or

• non-convertible redeemable preference shares on private placement basis;

(b) Private companies which have listed their non-convertible debt securities on private placement basis on a recognised stock exchange;

(c) Public companies whose equity shares are listed on permitted foreign stock exchanges.

II. Legal Interpretation and Harmonious Construction

A combined reading of the above provisions leads to the following interpretational conclusions:

1. Scope of Section 2(52)

Section 2(52) broadly defines a listed company as one having any securities listed. However, the proviso authorises exceptions through prescription. Rule 2A is framed pursuant to that proviso and therefore validly carves out certain companies from being treated as “listed companies.”

2. Scope of Section 2(68)

Section 2(68) imposes three essential conditions on private companies:

• Restriction applies specifically to shares, not all securities.

• The 200-member cap applies only to members (shareholders), not debenture holders.

• The prohibition is against public invitation, not against private placement.

Debenture holders are creditors, not members. Therefore, the statutory characteristics of a private company remain intact even if it issues debt securities.

3. Effect of Rule 2A

Rule 2A(b) expressly recognises that a private company may list non-convertible debt securities issued on private placement basis.

It further clarifies that such company shall not be considered a “listed company” for the purposes of the Companies Act.

Thus:

• Listing of privately placed NCDs does not change the classification of the company.

• The private company status under Section 2(68) remains unaffected.

• The exemption operates only for the purpose of Section 2(52).

III. Regulatory Perspective

While Rule 2A preserves private company classification under company law, such companies remain subject to applicable SEBI regulations governing debt listing, including:

• Credit rating requirements

• Appointment of debenture trustee

• Disclosure obligations

• Continuous listing compliance

Therefore, exemption under Rule 2A is limited to Companies Act classification and does not dilute securities law compliance.

IV. Conclusion

On harmonious construction of Sections 2(52), 2(68) and Rule 2A of the Companies Act, 2013, the legal position is clear:

A private company may issue non-convertible debentures through private placement and list them on a recognised stock exchange. By virtue of Rule 2A, such listing does not render the company a “listed company” under Section 2(52), nor does it disturb its status as a private company under Section 2(68), provided there is no public offer of securities.

The 2021 amendment has therefore removed ambiguity and aligned corporate law with modern debt market practices.