Query: Rule 13(2)(h) and valuation of CCDs

An unlisted private company is issuing fully and compulsorily convertible debentures (CCDs). The Debenture Subscripttion Agreement provides a conversion formula based on the higher of:

  1. the equity share price derived from a specified pre-money valuation benchmark; or
  2. 85% of the price per share in a future Qualified Funding Round.

The actual conversion price and number of equity shares will therefore depend on circumstances at the time of conversion. The company proposes to obtain a Registered Valuer’s report at the time of conversion under Rule 13(2)(h)(ii), rather than at the initial issue of the CCDs.

Question: Does the mere inclusion of a valuation benchmark/formula in the DSA make Rule 13(2)(h)(ii) unavailable and require an upfront valuation under Rule 13(2)(h)(i)?

Please distinguish between two separate issues:

(1) Whether Rule 13(2)(h)(ii) is legally available where the DSA contains a valuation benchmark/formula; and

(2) If Rule 13(2)(h)(ii) is available, whether Rule 13(3) subsequently limits the price at which the equity shares can actually be issued upon conversion, particularly where the contractual formula provides for an 85% discount to a subsequent funding-round price.

Views based on the statutory language, legislative history, MCA guidance, case law, or authoritative ICAI/ICSI material would be particularly appreciated.