PRIMELEGAL | Tokenisation of Corporate Bonds in India: Issues of Ownership, Transfer and Settlement

 

ABSTRACT

In September 2026, REC Limited, a public sector Non-Banking Financial Company (NBFC), became India’s first issuer of tokenised corporate bonds under the Securities and Exchange Board of India’s (SEBI) Regulatory Sandbox. Subsequently, on September 10, 2026, SEBI and the Reserve Bank of India (RBI) announced the “Demat 2.0” pilot. SEBI’s published FAQ’s state that the status of a tokenised bond remains as a security under the Securities Contracts (Regulation) Act, 1956. It also stipulates that the depository remains the authoritative record of beneficial ownership. This article examined what is exactly covered by the clarity provided by SEBI and what it leaves open on ownership, transfer and settlement finality. It argues that the current legal continuity is a result of sandbox assurances which is limited in scope and a permanent framework is needed before retail access and wider participation commences. 

INTRODUCTION

On September 7, 2026, REC Ltd., a Maharashtra state-owned power finance company, completed India’s pilot issue of tokenised corporate bonds. It raised about ₹500 crore at an annual coupon rate of 7.30 % per annum for a tenor of 1 year and 9 months and listed on NSE and BSE.1 Days later, SEBI Chairman Tuhin Kanta Pandey and RBI Governor Sanjay Malhotra announced the Demat 2.0 pilot at Global Fintech Fest in Mumbai.2 The initiative will utilise Distributed Ledger Technology (DLT) linked to the RBI’s wholesale Central Bank Digital Currency (CBDC), e₹, for transaction and settlement. SEBI reported that three issuers, REC, L&T and IIFL, aggregately raised ₹1,025 crore in the first stage. 

The policy case is easy to comprehend. It seeks to determine whether securities and money can be brought onto interoperable digital infrastructure to potentially achieve seamless and instant delivery and payment. But a working pilot is not a legal foundation. This article asks three questions: 

1. Who is the real owner of a tokenised bond?
2. Is a token transfer a valid transfer of securities?
3. When is the settlement final?

TOKENISATION AND DEMAT 2.0

Today, bonds are held in dematerialised form wherein electronic records are held by depositories. Every transfer is an entry in the depository’s books. Demat 2.0 keeps the regulated structure but changes the technology beneath it. In tokenisation, the bond is issued as a digital token on a DLT which is a shared digital record, owned by depositories. According to SEBI, the DLT is private and permissioned, meaning only approved participants can use it.3 Notably, a tokenised corporate bond retains the same ISIN, rating, rights and rules as a conventional dematerialised bond.4 An investor need not create a new demat account or fresh KYC and the issuer receives issue proceeds in a CBDC wallet. 

 Importantly, DLT is owned by depositories and run by market infrastructure institutions with technological support from National Payments Corporation of India (NPCI). The pilot operates in three stages whereby Stage I covers issuance mainly for institutions, Stage II adds secondary trading and retail investors, and Stage III may add more participants and other instruments. 

WHO IS THE REAL OWNER?

SEBI’s FAQs reassure that a tokenised bond is still a security under the Securities Contracts (Regulation) Act, 1956 (SCRA) and that the depository’s statutory role under the Depositories Act, 1996 is not replaced. However, two things stand out.

First, the FAQs clarify that the token is the bond itself, yet the depositories hold and manage the investors’ private keys.5 A private key in a DLT is a secret alphanumeric code that proves ownership of digital assets and authorises transactions. The investor holds no key and lacks direct control, so the arrangement looks like a depository record on a new technology rather than a token ownership. Second, this clarity comes from FAQs issued within a sandbox, not from an amendment to the Depositories Act or the SCRA. Sandbox relaxations are limited in scope and time so an investor has comfort today but no clear statutory right after the pilot. The question of whether the depository record or the ledger entry constitutes legal title, and who is the custodian of the record must be addressed in every transaction. 

DOES A TOKEN TRANSFER SATISFY THE LAW?

The Companies Act, 2013 lays down how securities are transferred which were initially drafted for paper transfer forms and later for electronic depository entries. In a token system, a transfer happens as a transaction on the ledger. The FAQs mention that since the depositories hold the private keys, the transfers are not autonomous free-floating exchanges as investors still act through the depository. The FAQs merely state that existing regulatory requirements continue to apply. Nevertheless, ambiguity still remains as to whether a ledger transaction counts as a valid transfer under the existing legal provisions.  

There also exists a gap in the interim exit option. Before secondary trading begins, an investor can ask the depository for a demat-to-demat transfer, but the payment can then be made outside the pilot’s atomic settlement system, through CBDC or bank channels.6 This is to enable the investor to sell before the secondary market trading is enabled. This protects investors from being locked in, but those transfers lose the atomic delivery-versus-payment protection. 

SETTLEMENT FINALITY

Settlement finality means that once a transaction is settled, it cannot be unwound even if a participant later fails. In India, settlement finality for payment systems is addressed under the Payment and Settlement Systems Act, 2007. The pilot uses atomic Delivery-versus-Payment (DvP) which indicates that transfer of the bond and transfer of the funds move as a single linked transaction. Essentially, if the securities transfer succeeds, the CBDC payments succeed and if one leg fails, the other doesn’t settle either. SEBI itself lists settlement finality among the pilot’s test objectives.7 Hence, the law is not yet clear on who bears the loss if a technical failure or a participant’s insolvency disrupts the settlement. 

WAY FORWARD

It is pertinent to note that a sandbox lets a regulator observe a new product within a controlled environment. It is thus a learning tool and not a legal framework. As risks grow as the pilot expands to include retail investors and institutions in further stages, three steps might be helpful:

1. It must be legally provided that a token recorded on an approved ledger is a legally recognised record of the security, and the Depositaries Act, 1996 should be amended where needed.
2. The rules should lay down when a ledger transfer is valid and when the settlement is final, including the transfers that settle outside the atomic system. 
3. SEBI and RBI should coordinate together so that investors face one coherent regime across the securities and payment facets.  

CONCLUSION

This pilot operation depicts that tokenised bonds can be issued, listed and settled in India under supervision. The harder task is to ensure that the legal position is unambiguous to keep pace with the speed of technological advancements. In order to deepen the country’s debt market with the help of tokenised bonds, we must move from sandbox permissions to settle the rules on ownership, transfer and settlement. 

 

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WRITTEN BY: T.R. AISIRI RAO.

 

1. REC Ltd., REC Limited Successfully Issued India’s First Pilot Issue on Tokenized Corporate Bonds Under SEBI Regulatory Sandbox Framework (Sept. 8, 2026), https://recindia.nic.in/rec-limited-successfully-issued-indias-first-pilot-issue-on-tokenized-corporate-bonds-under-sebi-regulatory-sandbox-framework?utm_source=chatgpt.com. 
2. Securities & Exchange Board of India, Successful Launch of “Demat 2.0” Pilot Project for Tokenised Corporate Bonds, Press Release No. 56/2026 (Sept. 10, 2026),  https://www.sebi.gov.in/media-and-notifications/press-releases/sep-2026/successful-launch-of-demat-2-0-pilot-project-for-tokenised-corporate-bonds_104418.html?ref=danielmcglynn.com.
3. Securities and Exchange Board of India, FAQs on Demat 2.0: Pilot for Tokenised Corporate Bonds, FAQ 1 (Sept 10, 2026) https://www.sebi.gov.in/sebi_data/faqfiles/sep-2026/1789049630065.pdf.
4. Id. FAQ 4.
5. Id. FAQ 7.
6. Id. FAQ 19.
7. Id. FAQ 21.