Debentures
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Transcript of Debentures
Debentures
Mr. Atul Abhiman Agalawe(M. Com, B. Ed, D.B.M)
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.
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
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
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
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
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
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
• Provisions1. Prospectus/Letter of
Offer2. Letter of option3. Special Resolution4. Filing of copy of letter of
option to R.O.C5. Rate of Conversion6. Rejection of conversion
offer
Procedure of Conversion
Board Resolution
Letter of Option
Allotment of shares
Changes in Register
Entries in Register of Members
Filing of Return of Allotment
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
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
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