CCDs, explained in plain English
| Term | What it means |
|---|---|
| CCD | A debenture that must convert into equity shares, is fully paid, and is treated as an equity instrument under the FEMA (Non-debt Instruments) Rules, 2019. |
| Private placement | An offer of securities to identified persons under section 42 of the Companies Act, 2013, capped at 200 persons in a financial year for each kind of security, excluding qualified institutional buyers and employees holding options. |
| PAS-3 | Return of allotment, filed with the ROC within 15 days of allotment, with the list of allottees. |
| MGT-14 | Filed for the special resolution authorising the issue, within 30 days of passing it. |
Why a round is structured as a CCD
Because it behaves like equity for FEMA and like debt until conversion for the company.
A compulsorily convertible debenture has no cash exit. It converts into shares at a date or on an event agreed at the start, which is why the FEMA (Non-debt Instruments) Rules, 2019 count it as an equity instrument alongside equity shares, fully and mandatorily convertible preference shares and share warrants. A foreign investor can therefore subscribe under the same FDI route as equity, without the instrument being treated as external borrowing.
Three drafting points decide whether the instrument works.
The conversion trigger. A date, a funding round, a revenue milestone, or the earlier of them. Vague triggers create disputes at the worst moment.
The conversion formula. FEMA requires the price or the formula to be fixed upfront. A discount to the next round's price, a valuation cap, or a fixed ratio all qualify, provided the arithmetic is in the documents and not in an email.
The floor. Whatever the formula produces, the conversion price cannot be lower than the fair value worked out at the time of issue where the investor is a non-resident.
Instruments that are optionally convertible, or not convertible at all, are borrowing under FEMA, not FDI. They cannot be used to give a foreign investor an equity-style position, and they bring the external commercial borrowing framework with them.
CCD against the other instruments
| Instrument | Converts? | FEMA treatment | Typical use |
|---|---|---|---|
| Compulsorily convertible debenture (CCD) | Must convert into equity | Equity instrument, reported in FC-GPR | Priced or capped round where the investor wants a debt-style claim until conversion |
| Compulsorily convertible preference share (CCPS) | Must convert into equity | Equity instrument, reported in FC-GPR | Institutional rounds, where preference and anti-dilution terms sit in the instrument |
| Convertible note | Converts on a later event | Reported in Form CN, available to recognised startups | Early bridge funding |
| Non-convertible debenture (NCD) | Never converts, repaid in cash | Borrowing, outside the FDI reporting forms | Debt from resident investors, see issue of debentures |
| Optionally convertible debenture | May convert, at an option | Borrowing under FEMA | Resident deals only, in practice |
Fees
Professional fee: on quote. A CCD issue is priced on the number of investors, whether a non-resident is involved, and whether the instrument has to be negotiated as well as documented.
Government fees, at actuals
| Item | Amount |
|---|---|
| PAS-3, return of allotment | ROC fee by authorised share capital: ₹200 below ₹1 lakh, ₹300 for ₹1 lakh to under ₹5 lakh, ₹400 for ₹5 lakh to under ₹25 lakh, ₹500 for ₹25 lakh to under ₹1 crore, ₹600 for ₹1 crore and above |
| MGT-14, special resolution | Same slab as above |
| Stamp duty on the issue of debentures | 0.005% of the value of the debentures, under the Indian Stamp Act, 1899 as amended with effect from 1 July 2020 |
| FC-GPR on the FIRMS portal, where the investor is a non-resident | No filing fee |
Late filing, shown separately because it is not a fee for the service:
| Delay | What applies |
|---|---|
| PAS-3 or MGT-14 filed late | ROC additional fee, a multiple of the normal fee that rises with the delay, from twice the normal fee for 15 to 30 days up to twelve times beyond 180 days |
| FC-GPR filed late | Late Submission Fee of ₹7,500 plus 0.025% of the amount involved for each year of delay, capped at the amount involved |
Professional fees exclude GST at 18%. Government fees, where they apply, are paid at actuals to the department and are shown separately. Fees verified on 22 September 2026.
Forms and deadlines for a CCD issue
| Step | What happens | Form | Deadline |
|---|---|---|---|
| 1 | Board approves the issue, the offer list and the valuation | Board resolution | Before the offer |
| 2 | Members approve the issue of debentures with a conversion option by special resolution | Special resolution | Before the offer |
| 3 | Resolution filed with the ROC | MGT-14 | 30 days from passing the resolution |
| 4 | Private placement offer letter sent to the identified investors, and the record of offers maintained | PAS-4 and PAS-5 | Before money is accepted |
| 5 | Subscription money received through banking channels into a separate bank account, never in cash | Bank account | On receipt |
| 6 | Debentures allotted and the register of debenture holders updated | Board resolution | Within 60 days of receipt of the money |
| 7 | Return of allotment filed with the list of allottees | PAS-3 | 15 days from allotment |
| 8 | Stamp duty paid on the issue | Stamp duty | On issue |
| 9 | Foreign investment reported on the FIRMS portal | FC-GPR | 30 days from allotment |
| 10 | Annual return of foreign liabilities and assets, for every year the investment stays on the books | FLA return | 15 July each year |
If the company cannot allot within 60 days of receiving the money, section 42 requires a refund within the next 15 days, with interest at 12% a year from the 60th day. Money parked as "share application" while a round is renegotiated is the most common breach on this route.
We settle the conversion event, the conversion formula, the tenure and the pricing, and obtain the valuation from a chartered accountant, a SEBI-registered merchant banker or a practising cost accountant where a non-resident is investing. Upload the documents securely. We tell you what is missing before the offer goes out.
For the reporting side, see FC-GPR filing, FDI reporting and the annual FLA return. For valuation, see share valuation under Rule 11UA. If the debentures are secured, see charge registration for the CHG-9 filing that follows the allotment.
What goes wrong on CCD rounds
The conversion formula is left open. "To be converted at the valuation of the next round" with no cap, floor or ratio is not a formula. For a non-resident investor it also breaks the FEMA requirement to fix the price or formula upfront.
Cash or a current account is used. Subscription money has to come through banking channels into a separate account, and cannot be spent before allotment.
Conversion happens without paperwork. Conversion is an allotment of shares: it needs a board resolution, share certificates, register entries and its own reporting. Plan the conversion step at the time of issue, and check the reporting position for the conversion with your AD bank.
The instrument is described as a loan in the accounts. A CCD sits in the books on its own terms and is reported to the Reserve Bank as an equity instrument. Inconsistent treatment in the accounts and in the FEMA filings is what diligence picks up.
Trustee and reserve questions are ignored. Debenture trustee and debenture redemption reserve requirements under section 71 and Rule 18 of the Companies (Share Capital and Debentures) Rules, 2014 turn on whether the debentures are secured and whether they are redeemed in cash. We assess the position for your instrument before the offer goes out.
Choosing between a CCD, CCPS and a convertible note? Send the term sheet and a CA and CS will tell you what each one commits you to.