Compulsorily Convertible Debentures (CCD)

Compulsorily Convertible Debentures (CCDs) are debt instruments issued by a company that are legally required to convert into equity shares on a predetermined date or upon a triggering event such as a qualified financing round or IPO. Like CCPS, they are classified as equity instruments under the Foreign Exchange Management (Non-Debt Instruments) Rules, making them eligible for FDI through the automatic route in most sectors.

CCDs occupy a similar strategic role to CCPS in Indian VC deal structures, and both instruments are often used together or interchangeably depending on the investor's preference and the company's capital structure needs. The key structural difference is that CCDs are issued under the debenture framework of the Companies Act, 2013 (Section 71 and related rules), whereas CCPS are issued under the share capital framework. This affects documentation, stamp duty treatment, and the securities register in which they are recorded.

During their pre-conversion life, CCDs typically carry an interest coupon (which may be nominal or zero in practice) and are secured or unsecured. Holders have a contractual right to receive fixed or variable interest, though in growth-stage deals this interest is often rolled up and converted along with principal. Upon conversion, the debenture ceases to exist and the holder receives equity shares — at which point all debenture-specific rights terminate.

From a tax and accounting perspective, the interest on CCDs may be deductible for the issuing company before conversion, which can be a structuring advantage in certain scenarios. Investors and founders should work with experienced legal counsel to choose between CCPS and CCDs based on cap table optics, stamp duty costs, and the specific investor's fund-level requirements.