Secured Convertible Promissory Note for India

Secured Convertible Promissory Note Template for India

A Secured Convertible Promissory Note is a hybrid financial instrument governed by Indian law that combines elements of debt and potential equity ownership. It represents a loan agreement where the borrowed amount is secured by specific assets or collateral, with the distinct feature that the lender has the right to convert the outstanding loan amount into equity shares of the borrowing company under predetermined conditions. This document is structured under Indian legal framework, particularly complying with the Indian Contract Act, Companies Act, and SEBI regulations, and includes detailed provisions for interest calculation, repayment terms, security arrangements, conversion mechanics, and default remedies.

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What is a Secured Convertible Promissory Note?

The Secured Convertible Promissory Note is commonly used in the Indian business ecosystem, particularly in growth-stage financing where companies seek capital while offering security to investors along with potential equity participation. This document type is especially relevant when investors want the security of debt with the upside potential of equity investment. The document establishes the terms of the loan, including principal amount, interest rate, and maturity date, while also detailing the security provided and the mechanism for converting the debt into equity. Under Indian law, such notes must comply with various regulations including the Companies Act 2013, SEBI guidelines (if applicable), and state-specific stamp duty requirements. The security component provides additional protection to the lender, while the conversion feature offers flexibility in realizing returns, making it an attractive instrument for both institutional and individual investors in various funding scenarios.

What sections should be included in a Secured Convertible Promissory Note?

1. Parties: Identification of the Lender(s) and Borrower, including their full legal names, addresses, and company registration details

2. Background: Brief context of the transaction, relationship between parties, and purpose of the loan

3. Definitions and Interpretation: Definitions of key terms used throughout the document and rules of interpretation

4. Loan Amount and Disbursement: Specification of the principal amount, disbursement conditions and mechanism

5. Interest: Interest rate, calculation method, payment frequency, and default interest provisions

6. Repayment Terms: Repayment schedule, prepayment provisions, and maturity date

7. Security: Description of security/collateral, creation of charge, and maintenance obligations

8. Conversion Rights: Conversion trigger events, conversion price/mechanism, resulting shareholding

9. Representations and Warranties: Standard and transaction-specific representations by the borrower

10. Covenants: Positive and negative covenants binding the borrower

11. Events of Default: List of events triggering default and consequences thereof

12. Transferability: Terms governing assignment and transfer of the note

13. Notices: Process and addresses for formal communications between parties

14. Governing Law and Jurisdiction: Specification of Indian law as governing law and jurisdiction for disputes

15. Miscellaneous: Standard boilerplate provisions including amendments, waivers, severability

What sections are optional to include in a Secured Convertible Promissory Note?

1. Most Favored Nation: Provision ensuring the lender receives the best terms offered to future investors - typically used in startup financing

2. Board Observer Rights: Rights of the lender to appoint an observer to the borrower's board - relevant for strategic investors

3. Information Rights: Specific rights of the lender to receive company information - useful for institutional investors

4. Registration Rights: Rights related to registration of converted shares - relevant if public listing is contemplated

5. Tag-Along Rights: Rights of the lender to participate in future share sales - important for minority investor protection

6. Tax Provisions: Specific tax-related provisions if complex tax implications are involved

7. Foreign Investment Compliance: Needed if the lender is a foreign entity, addressing FEMA compliance

What schedules should be included in a Secured Convertible Promissory Note?

1. Schedule 1 - Security Details: Detailed description of all assets provided as security, including specifications and locations

2. Schedule 2 - Conversion Mechanics: Detailed methodology for share price calculation, adjustment mechanisms, and conversion procedure

3. Schedule 3 - Form of Conversion Notice: Template notice to be used when exercising conversion rights

4. Schedule 4 - Conditions Precedent: List of documents and conditions required before disbursement

5. Schedule 5 - Regulatory Approvals: List of required regulatory approvals and compliance requirements

6. Schedule 6 - Existing Indebtedness: Details of borrower's existing loans and security arrangements

7. Appendix A - Board Resolution: Format of board resolution approving the note issuance

8. Appendix B - Shareholders' Resolution: Format of shareholders' resolution if required for conversion rights

Authors

Alex Denne

Head of Growth (Open Source Law) @ Genie AI | 3 x UCL-Certified in Contract Law & Drafting | 4+ Years Managing 1M+ Legal Documents | Serial Founder & Legal AI Author

Jurisdiction

India

Publisher

Genie AI

Document Type

Promissory Note

Sector

Banking

Cost

Free to use
Relevant legal definitions
Relevant Industries

Technology Startups

Financial Services

Manufacturing

Real Estate

Healthcare

E-commerce

Renewable Energy

Education Technology

Software Development

Biotechnology

Infrastructure

Retail

Relevant Teams

Legal

Finance

Compliance

Treasury

Corporate Secretarial

Risk Management

Investment

Board of Directors

Executive Leadership

Relevant Roles

Chief Financial Officer

Investment Manager

Legal Counsel

Company Secretary

Finance Director

Investment Banker

Venture Capitalist

Corporate Lawyer

Risk Manager

Compliance Officer

Board Director

Chief Executive Officer

Treasury Manager

Financial Controller

Industries
Teams

Employer, Employee, Start Date, Job Title, Department, Location, Probationary Period, Notice Period, Salary, Overtime, Vacation Pay, Statutory Holidays, Benefits, Bonus, Expenses, Working Hours, Rest Breaks,  Leaves of Absence, Confidentiality, Intellectual Property, Non-Solicitation, Non-Competition, Code of Conduct, Termination,  Severance Pay, Governing Law, Entire Agreemen

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