Debentures

DEBENTURES
 Instrument issued by a company

 under its common seal ,
 acknowledging its debt to the holder
 Containing an undertaking to repay the debt on or after a specified
period
 And to pay interest on the date after a fixed date
FEATURES
Acknowledges a debt
In form of certificate
Issued under seal of a company(called Debenture deed)
Shows amount and date of repayment of the loan
Has rate of interest and date of interest payment
Can be SECURED or UNSECURED
Debenture holders have no right to vote in the company GM
NATURE OF DEBENTURES AND TRANSFERABILITY
-Sec 44----[same as discussed under shares; Moveable, transferable]
DEBENTURE STOCK
-borrowed capital consolidated into one mass. Instead of each lender
having a separate bond or mortgage, he has a certificate enlisting him
to certain sum being a portion of one large loan. It is generally secured
by a trust deed
DIFFERENCE BETWEEN DEBENTURE AND DEBENTURE STOCK
Debenture is the description of an instrument while ‘debenture stock’ is
description of a debt or sum secured by an instrument.
PROVISIONS OF THE COMPANIES ACT,2013-Issue of Debentures[Section
71 to be r/w Rule 18 of the Companies(Share Capital and Debenture
Rules,2014
Section 71(1) –company may issue debentures with an option to
convert such debentures into shares, either wholly or partly at the
time of redemption. The issue of such convertible debentures[wholly
or part]to be approved by special resolution passed at GM.
Section 71(2) states that no company shall issue debentures carrying
any voting rights.
Section 71(3) read with Rule 18(1) of Companies (Share Capital and
Debentures)Rules,2014 provides that the secured debentures may be
issued only when following conditions are complied with:
 An issue of secured debentures may be made, provided the date of its
redemption shall not exceed 10 yrs. from the date of issue.
-Provided that following companies may issue secured debentures for a
period exceeding 10 years but not exceeding 30 years.
-engaged in the setting up of infrastructure projects
-Infrastructure finance companies
 Such issue of debenture shall be secured by creation of charge on
properties or assets of the company having a value sufficient for due
repayment of the amount on debentures and interest thereon
 Company to appoint debenture trustee before the issue of
prospectus/letter of offer for subscription of debentures
 within 60 days after the allotment , execute debenture trust deed to
protect interest of debenture holders
 Security for the debentures shall be treated in favour of debenture trustee
on specific moveable property or any specific immovable property.
 In case of any issue of debenture by Govt company fully secured by
guarantee by Central Government /one or more State Government-no
requirement of creation of charge.
ROLE OF DEBENTURE TRUSTEE
 Creation of security done in favour of debenture trustee for the benefit of
debenture holders
 Debenture holders are beneficiaries, and they have no access to mortgaged
properties. Debenture trustee holds secured property on behalf of issuer of
security and for benefit of debenture holders.
 Event of default by issuer of security-Debenture trustee will hv the power
and authority to bring secured property to sale [as per provisions in Transfer
of Property Act]and proceeds of sale will have to be applied to redeem
debentures
 When Debentures are issued by the company , company shall create
Debenture Redemption Reserve[DRR] account out of the profits of
the company and amount credited to such account shall not be
utilised by the company except for redemption of debentures[Sec
71(4) read with Rule 18]
 Section 71(5) provides that company shall before making issue of
prospectus /offer {to more than 500 persons) shall appoint one or
more debenture trustees. Names to be specified in offer inviting
subscription for debentures.
 Before appointment ,take written consent of deb trustee

Debentures

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DEBENTURES

 Instrument issued by a company

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