TAMIL NADU NATIONAL LAW SCHOOL

TIRUCHIRAPPALLI
(A State University Established By Act No.9 of 2012)
Navalur Kuttapattu, Srirangam (TK), Tiruchirappalli - 620 009 Tamil Nadu

Research Project on
'' CORPORATE FINANCE LAW''
Masala Bonds: REGULATED UNDER RBI GUIDELINES V. COMPANIES
ACT AND SEBI
Submitted to
M L SHANKAR KAARMUKILAN
Assistant Professor Law
Faculty In-charge of Corporate Finance Law
By
PRAVEEN.C
BA.LLB (Hons), IV Year
BA0140041
 Masala Bonds Regulated under RBI Guidelines v. Companies Act and SEBI

INTRODUCTION
The masala bond is the future tool for which used to expansion of the company
The Masala Bonds is a Rupee Denominated Bond and this idea was introduced by the Reserve
Bank of India (RBI) to mitigate the currency risk faced by the company and also government who
are raising bonds. The idea of Rupee Denominated Bonds came in to existence after the Reserve
Bank of India (RBI) circular giving a detailed guideline on the Rupee Denominated Bond
Overseas in September 2015.1 Masala Bonds name really evolved when International Finance
Corporation (IFC) issued Rupee Denominated Bond by the name of Masala Bonds.2 So Masala
Bonds may protect the borrower (body corporate or Real Estate Investment Trusts (REITs) or
Infrastructure Investment Trusts (InvITs) from currency risk, this bond will help the company to
diversify their market.3 But Masala Bonds will benefit the company, but the currency risk will be
shifted to the investor who investing in the bond. So the RBI in order to protect the investor has
come up with various measures for the protection of Investor against the currency risk and one of
the measures is RBI recently announced the measure for development of fixed income and
currency market.4 This recent announcement will help the investor against currency risk and
Masala Bond will balance the interest between issuer and investor. This Masala Bond will also
internationalize the Rupees in foreign countries.5

The Research paper will only discuss about the companies reasons for issuing Masala
Bonds and not related to the government benefits in issuing Masala Bonds. So we can say
that Masala Bonds are the best alternative way of raising fund for Indian Company in Foreign
countries. Still there exists certain doubt relating Issuance of Masala Bonds that will be
discussed in the Research Paper.

1
See: External Commercial Borrowings (ECB) Policy - Issuance of Rupee denominated bonds overseas, RBI
A.P. (DIR Series) Circular No.17(May 2, 2018), available at
https://www.rbi.org.in/Scripts/BS_CircularIndexDisplay.aspx?Id=10049(“2015 Circular”).
2
See: IFC Issues Historic 15-Year Masala Bond in London, available at
http://www.ifc.org/wps/wcm/connect/news_ext_content/ifc_external_corporate_site/news+and+events/news/ifc
+issues+historic+15-year+masala+bond+in+london.
3
Supra Note 2.
4
See: RBI announces Measures for Development of Fixed Income and Currency Markets, RBI Press Release:
2017-2018/498,available at https://www.rbi.org.in/scripts/bs_pressreleasedisplay.aspx?prid=37875.
5
See: Masala Bonds Internationalizing the Indian Rupees, available at http://www.vivro.net/blog/Masala-
Bonds--Internationalising-the-Indian-Rupee.
 Statement of Problem
As we already know that the bonds are one of the instrument through which
company raises funds. According to Sec 2(h) of Securities Contract Regulation(SCR) Act,
1956,6 where Securities even includes bonds and the regulations relating the allotment and
listing requirement of securities must be fulfilled in case of the company issuing bonds i.e.
public issue and private placement of securities. By definition we can state that bonds are
also traded, but in practical sense the question of marketability of bonds arises. We should
see whether bonds are marketable and where bonds are traded must be found. But the doubt
is that Masala bonds are similar to foreign currency bonds, then RBI will regulate the
issuance of foreign currency bond issued by the company. But since it is a Rupee
denominated bond the question as to whether the company issuing Masala Bonds must
comply with the Companies Act, 2013 and SEBI (Security Exchange Board of India)
regulations relating the issue of securities in reference to the Private Placement and Public
issue of securities must be analysed. In the guidelines given by the RBI in reference to
Masala Bonds is that the instrument issued to the investor by the company must issue only
plain vanilla bonds. The definitions of plain vanilla bond are not clear and here the question
of whether plain vanilla bonds requisites restricts the company from issuing the hybrid
instrument i.e. masala bond convertible in to equity must be analysed. The question of
convertibility arises only when there is a way for converting the bond in to equity is possible.
If the convertibility of bond in to equity is possible then it must be checked whether RBI
guidelines of rupee denominated bond have given any feature for the masala bonds to be
converted in to equity.

SCOPE, OBJECTIVES AND SIGNIFICANCE

The Masala Bonds is not only benefits the corporate but also the government. The
Research paper is limited only to the corporate reasons of issuing Masala Bonds. The
Research paper will only talk about the problem relating the issuances of Masala Bonds and
also the research paper will also discuss about the marketability of the bonds.

RESEARCH QUESTIONS

Whether the company issuing Masala Bonds must comply with the Companies Act, 2013 and
SEBI regulations in reference to the issue of securities?
Whether Masala Bonds issued are convertible in to Securities?

RESEARCH METHODOLOGY

The Research methodology adopted by the researcher is both doctrinal and analytical bases
research.

6
See: Sec 2(h) of Securities Contract Regulation Act,1956. “securities” include shares, scrips,
stocks, bonds, debentures, debenture stock or other marketable securities of a like nature in or of
any incorporated company or other body corporate;
 CHAPTERISATION

1. INTRODUCTION
CHAPTER I
2. Background: How ECB led to Masala Bonds?
CHAPTER II
3. RBI Framework for Masala Bonds
CHAPTER III
4. RBI Guidelines v.Companies Act and SEBI
5. Conclusion
6. Bibliography

CONCLUSION

Masala bonds can be said as the future tool for the company expansion in foreign
countries with less currency risk and also will be the main instrument for the company to
raise finance. The RBI have brought the masala bonds only to protect the borrower i.e.
company from currency risk and failed to protect the investor as now investor face huge
currency risk in the time of appreciation and depreciation. Any instrument raising funds by
especially company must not only protect the borrower, but also RBI has great responsibility
to protect the interest of the investor, so the RBI must bring more measures to protect the
interest of the investor. The companies act and SEBI must also be applied to this masala
bonds with RBI regulation, under masala bonds the company can issue 50 billion to the
public through automatic route and there will not strictly regulated, if the masala bond will be
regulated by the companies act and SEBI then the company issuing masala bonds will be
strictly regulated and company cannot cheat the overseas investor. Under masala bonds the
RBI guidelines must be given special provision of converting the masala bonds in to
securities, so if the company failed to pay the amount of the bond then he can convert it to
share, to facilitate the investor. The RBI must mention the specified purposes for which the
proceeds can be used. So the RBI must take more measures to protect the investor and also
company to popularize the masala bonds or steps not taken the overseas investor may prefer
other bond than rupee denominated bonds.

BIBLIOGRAPHY

PRIMARY SOURCES

I. Legislations

1. Companies Act, 2013.

 2. Securities Contract Regulation Act,1956

II. Rules
1. The Companies (Prospectus and Allotment of Securities) Rules, 2014,
2. The Companies (Share Capital and Debentures) Rules, 2014

III. Regulations

1. Issue of Capital and Disclosure Requirements) Regulations, 2009 and

2. Securities and Exchange Board of India (Issue and Listing of Debt
Securities) Regulations, 2008.

IV. Case Laws

1. Levy v. Abercorris Slate and Slab Co.

2. Dahiben Umedbhai Patel v. Norman James Hamilton and Others.

SECONDARY SOURCES

I. Journal Referred

1. Syamala Devi Challa and Dr. A. Kanakadurga, Rupee Denominated Bonds

(Masala Bonds), 7 IJM 7,382-386.

II. Article Referred

1. Bassi Sudhir, Bishnoi Ashwin, Shroff Manisha and Anand Aayushi, Masala
Bonds MCA and SEBI Issue Clarifications, May 8, 2018(N.T.M), available at
http://www.mondaq.com/india/x/517250/Corporate+Commercial+Law/Masala
+Bonds+MCA+And+SE BI+Issue+Clarifications.
2. Joywin Mathew, Masala bonds - A taste of things to
come?, May 8,2018(N.T.M),available at
https://www.dlapiper.com/fi/global/insights/publications/global-financial-
markets-insight-issue-10/masala-bonds/.