Provisions and procedures regarding issue of Debentures

1. Debentures
Mr. Atul Abhiman Agalawe
(M. Com, B. Ed, D.B.M)

2. Debenture
• The debenture has come from Latin word
‘debare’ which means to ‘owe’
• It is a medium- to long-term debt instrument
used by large companies to borrow money, at
a fixed rate of interest.

3. Definitions
1. “Debenture includes—debenture stock, bonds and any other securities
of a company, whether constituting a charge on the assets of the
company or not.” ____Sec 2 (12) of Companies Act 1956
2. “Debenture” includes debenture stock, bonds or any other instrument of
a company evidencing a debt, whether constituting a charge on the
assets of the company or not. ____Sec 2 (30) of Companies Act 2013
3. “Debenture is a document given by the company as evidence of debt to
holder usually arising out of loan and most commonly secured by
charge.” ______ Tophon
4. “Debenture is an instrument under seal evidencing debt, the essence of
it being admission of indebtness.” _____ Palmar
5. “Debenture is a document which either creates a debt or acknowledges
it.” —Justice Whity

4. Debentures
On the basis of
security
Secured
Unsecured
On the basis of
Transfer
Registered
Bearer
On the basis of
Repayment
Redeemable
Irredeemable
On the basis of
Conversion
Convertible
Non-Convertible
On the basis of
Priority/Claim
First
Second

5. Statutory Provisions regarding Issue of Debentures
Applicable Provisions: Section 56, 71, of the Companies
Act, 2013 read with Rule 18 and 19 of the Companies
(Share Capital and Debentures) Rules, 2014
• Any company issues debentures
• Power to Issue
• Term of Issue and Redemption
• Mode of Issue
• No Voting Rights
• Security
• Permission of SEBI
• Register of Debentures

6. Conditions for Valid Issue of Debentures
• Filing of Prospectus to R.O.C
• Amount deposited in Schedule Bank
• Board of Director
• Proper Communication
• Listing with Stock Exchange
• Allotment Period
• Debenture Certificate
• Credit Rating

7. Procedure of Issue of Debentures
Board
Resolution
Approval by
shareholders
Consent of SEBI
Listing with
Stock Exchange
Credit Rating Trust Deed
Issue of
Prospectus
Receiving
Applications &
Allotment of
Debentures
Issue
Debenture
Certificate
Entries in
Register of
Debenture
holder

8. Conversion of Debentures into shares
• The Debentures convert
into equity shares after
specific time period.
• Debentures convert into
equity shares after 18
months and before 36
months of allotment of
debentures.
• Fully conversion
• Partly conversion
• Provisions
1. Prospectus/Letter of
Offer
2. Letter of option
3. Special Resolution
4. Filing of copy of letter of
option to R.O.C
5. Rate of Conversion
6. Rejection of conversion
offer

9. Procedure of Conversion
Board
Resolution
Letter of
Option
Allotment of
shares
Changes in
Register
Entries in
Register of
Members
Filing of Return
of Allotment

10. Redemption of Debentures
• Redemption of debentures
means payment of the amount
of debentures by the company.
When debentures are
redeemed, liability on account
of debentures is discharged.
• Normal Companies: up to 10
years.
• Infrastructure Development
Companies: More than 10 years
and less than 30 years
• Provisions
– To create Debenture
Redemption Reserve
Fund
– Default in Repayment
– Penalty for Default

11. Procedure for Redemption of Debentures
Board Meeting
Intimation to
Debenture holder
Refund
Entries in Register
of Debenture
holder
Changes in
Register of
charges
Intimation to
Registrar of
Companies

12. Methods of Redemption of Debentures
• Redemption after Fixed Period
• Redemption by Annual Installment
• Redemption by Draw Method
• Redemption by Own Purchase Method
• Redemption by Fresh Issue Method