Compulsory convertible debenture( ccd ) need to repay

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Accounts (Querist)
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24 August 2015 Dear Sir,
Company issue Qty 50000 CCD to Investor with lock in of 1 year after that CCD will converted in equity share of company 1 CCD = 1 Share. now in mid of year company received new investment from third party but as per them term & condition company need to repay CCD to 1st investor, so i need to ask you, can we repay CCD from amount refund or need to issue share before 1 year & how? & also at the time of repay income tax applicable or not?
Dear Expert please revert immediately asap

Accounts

Accounts (Querist)
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24 August 2015 Dear expert,
request you please revert on same,
waiting for your revert.
Thanks

Aashok Kumar Sharma

Aashok Kumar Sharma (Expert)
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20 July 2024 When dealing with Compulsorily Convertible Debentures (CCDs), there are specific considerations regarding repayment and conversion that need to be addressed:

### 1. Repayment of CCDs:
CCDs are typically structured such that they convert into equity shares of the company after a specified lock-in period, in your case, 1 year. If the terms of the CCD issuance specify that repayment is required instead of conversion, then the company needs to adhere to those terms.

- **Source of Repayment**: You mentioned using the amount received from a new investment to repay the CCDs. This is generally acceptable, but it depends on the specific terms agreed upon with the first investor. Ensure that the repayment source is legally permissible as per the terms of the CCD agreement.

- **Conversion Option**: If the CCDs are convertible into equity shares after 1 year, the company could explore converting the CCDs into equity shares instead of repaying them. This conversion would align with the original terms of the CCD issuance.

### 2. Issuance of Equity Shares:
If the company decides to convert the CCDs into equity shares before the lock-in period expires (1 year in your case), the process typically involves the following steps:

- **Board Resolution**: Pass a board resolution authorizing the conversion of CCDs into equity shares.

- **Shareholders' Approval**: Obtain approval from the shareholders in a general meeting if required by the company's Articles of Association or the terms of the CCD issuance.

- **Allotment of Shares**: Allot the equity shares to the CCD holders as per the agreed conversion ratio (1 CCD = 1 share).

- **Filing with ROC**: File the necessary forms (such as PAS-3) with the Registrar of Companies (RoC) to report the allotment of shares.

### 3. Tax Implications:
The tax implications can vary based on whether the CCDs are repaid or converted into equity shares:

- **Repayment of CCDs**: Generally, repayment of principal amount to the CCD holders does not attract income tax as it is a return of capital. However, interest paid on CCDs, if any, could be subject to withholding tax as per Income Tax regulations.

- **Conversion into Equity Shares**: Conversion of CCDs into equity shares is typically tax-neutral for the company and the CCD holders. There is no immediate tax liability on conversion itself. However, any subsequent sale of the equity shares could attract capital gains tax, depending on the holding period and other applicable provisions.

### Conclusion:
To summarize, whether the company should repay the CCDs or convert them into equity shares depends on the terms agreed upon with the first investor and the current financial situation of the company. It's crucial to review the CCD agreement, consult with legal and financial advisors as needed, and ensure compliance with all regulatory requirements and tax implications before proceeding with either repayment or conversion of CCDs.

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