Legal Governance of Corporate Bonds and Debentures in India: An Analytical Study

Introduction

Corporate bonds and debentures constitute borrowed capital that enable companies and corporations to raise funds while retaining ownership. These instruments play a pivotal role in the Indian securities market and are governed by regulatory authorities such as the Securities and Exchange Board of India (SEBI), the Reserve Bank of India (RBI), and other financial regulators.

The legal governance frameworks formulated by these statutory bodies aim to strengthen institutional integrity, minimize systemic risks, and enhance investor protection. These frameworks provide both issuers and market participants with mechanisms that facilitate efficient transactions while addressing the complexities and irregularities inherent in the securities market.

Despite significant transformations in the Indian financial markets over the years, regulatory frameworks governing public and private issuers of securities have remained indispensable. Market manipulations, lack of transparency, and fluctuating market conditions necessitate strict enforcement of legal regulations. This article examines the laws and regulations governing the corporate bond and debenture market in India and highlights the lacunae present within the existing legal framework.

Pertinence of the Need for Legal Governing Bodies

Corporate debt fundraising through bonds and debentures allows companies to raise capital without diluting ownership. During the first quarter of the financial year 2025–2026, Indian companies raised approximately ₹5.47 trillion through corporate bonds, reflecting the rapid expansion of the domestic debt market.

However, this growth brings forth several challenges. Structural inconsistencies and lacunae within the corporate bond market necessitate robust legal oversight. A significant concern is the dominance of private placements over public issuances, leading to discrepancies that adversely affect both issuers and investors. One consequence of this imbalance is the artificial inflation of interest rates due to reduced transparency and limited investor participation.

Additionally, inadequate disclosure requirements, particularly for private issuers, pose serious risks to investor protection. Introducing stringent disclosure norms for private placements has become imperative. Smaller entities and first-time issuers also face considerable difficulties in accessing capital, as the market is largely dominated by large institutional players. Legal frameworks that promote inclusivity and market diversification are therefore essential to create a balanced and functional market ecosystem.

While procedural and legal safeguards exist, their effectiveness largely depends on enforcement. The rise of technology-driven online bond platforms has further complicated regulation. Several platforms have allegedly bypassed regulatory requirements for commercial gain, highlighting the urgent need for comprehensive oversight.

Analysis of the Relevant Legislations and Frameworks

India’s securities market is governed by multiple regulatory frameworks aimed at preserving market integrity and protecting stakeholders. Judicial pronouncements have repeatedly affirmed the authority of SEBI and the RBI in regulating corporate bonds and debentures.

To address regulatory gaps in online bond trading, SEBI introduced the Online Bond Platform Provider (OBPP) Framework in 2022. This framework mandates strict compliance requirements to enhance transparency and accountability. By lowering entry thresholds and enabling investments in smaller denominations, the OBPP framework has increased accessibility for retail investors.

Furthermore, the SEBI (Issue and Listing of Non-Convertible Securities) Regulations, 2021 were introduced to regulate the registration and functioning of online bond platforms. These regulatory measures underscore SEBI’s proactive approach and its adaptability in responding to evolving market challenges.

Legal Provisions and Frameworks Available

The SEBI Act, 1992, serves as the cornerstone for regulating debt securities in India. Key provisions include:

Section 11A

This provision empowers SEBI to frame regulations governing the issuance of securities, particularly public offerings. It enforces transparency, minimizes fraud, and mandates strict disclosure standards. Section 11A plays a vital role in strengthening corporate governance and enhancing investor confidence.

Section 11B

Under this section, SEBI may issue directions to any intermediary, company, or individual associated with the securities market. This authority enables SEBI to take preventive and corrective measures against fraud, insider trading, and market manipulation.

Other Relevant Regulations

• SEBI Debenture Trustee Regulations, 1993: These regulations emphasize mandatory registration and compliance by debenture trustees to protect debenture holders’ interests.

• SEBI (Issue and Listing of Non-Convertible Securities) Regulations, 2021: Provide comprehensive guidelines for issuance, listing, and disclosure requirements for non-convertible securities.

Together, these provisions establish a robust regulatory framework governing corporate bonds and debentures.

Implications of Sound Legal Frameworks

A well-regulated corporate debt market contributes significantly to a country’s financial stability. It facilitates capital formation, strengthens investor confidence, and ensures accountability among issuers. Sound legal frameworks protect all stakeholders involved in corporate debt transactions and promote market efficiency.

Investors benefit from consistent income streams and reduced exposure to fraud, while issuers gain access to structured and credible fundraising mechanisms. Thus, effective regulation creates a mutually beneficial environment for both issuers and investors.

Conclusion

The rapid growth of India’s corporate debt market underscores the critical importance of robust legal and regulatory frameworks. Continuous amendments and regulatory innovations reflect the adaptability of Indian financial regulators in addressing emerging challenges.

With strong enforcement mechanisms and evolving regulatory structures, India is well-positioned to strengthen its corporate bond market further. The Indian securities market is steadily establishing itself as a credible, transparent, and accountable global player, reinforcing its status as an emerging powerhouse in the international financial arena.

References

1. Securities Market in India—An Overview, Indian Securities Market: A Review (2019), Volume XXI, National Stock Exchange of India Ltd.
   https://nsearchives.nseindia.com/content/us/ismr_full2019.pdf
   (Last visited on 12 November 2025)

2. Vidya Selvamony & Sandra Maria Benny, Legal Remedies for Investor Protection in India: Analyzing Judicial and Regulatory Perspectives, Indian Journal of Law and Legal Research, Volume VII, Issue III.
   https://www.ijllr.com/post/legal-remedies-for-investor-protection-in-india-analyzing-judicial-and-regulatory-perspectives
   (Last visited on 12 November 2025)

3. Vaibhav Anand & Rajeshwari Sengupta, Corporate Debt Market in India—Issues and Challenges.
   https://www.ideasforindia.in/topics/money-finance/corporate-debt-market-in-india-issues-and-challenges
   (Last visited on 11 November 2025)