Maharashtra Board Class 12 Secretarial Practice Chapter 4 Issue Of Debentures PDF Download

Issue Of Debentures

4.1 Regulations Governing Issue Of Debentures

4.1.1 Provisions for issue of Debentures as per Companies Act, 2013

4.1.2 Provisions for issue of Debentures as per Companies (Share Capital and Debentures) Rule 2014

4.1.3 Requirements as per SEBI

4.2 Procedure for issue of Debentures

4.3 Debentures Trustees

Introduction

Companies prefer issuing debentures to raise funds as they can be repaid after a long period.

A company can make public issue of debentures only if:

1) The company or its promoters or its Directors have not been prohibited from accessing the securities market by SEBI.

2) The company or its promoters or its Directors have not been declared as a willful defaulter or has not defaulted in repaying any principal or interest on any debt securities for a period of more than 6 months.

In this chapter, we will learn about the various regulations or provisions related to issue of debentures and the procedure for issuing debentures.

4.1 Regulations Governing Issue Of Debentures

A company issuing debentures has to comply with the provisions of the Companies Act, 2013, Companies (Share Capital and Debentures) Rules, 2014, RBI Guidelines and SEBI's various regulations.

Depending upon the type of Debenture, Company has to fulfill the following provisions/regulations:

Teacher's Note

Debentures are like loans that companies take. Just like you borrow money from a bank and pay interest, companies borrow money by issuing debentures and pay interest to people.

Exam Trick

Remember: Debentures = No voting rights. Debenture holders are lenders, not owners. Just like a bank does not vote in your house, debenture holders cannot vote in company meetings.

Points to Remember

Debentures are a way for companies to borrow money from the public.

Companies must follow rules from Companies Act, 2013 and SEBI when issuing debentures.

Debentures can be secured or unsecured.

Debenture holders get interest, not dividends.

A company must appoint a Debenture Trustee to protect the interests of debenture holders.

4.1.1 Provisions For Issues Of Debentures As Per Companies Act, 2013

Following are some of the provisions of the Act which a company has to comply while issuing debentures:

1. No Voting Rights: A company cannot issue debentures with voting rights. Debenture holders are creditors of the company and so they do not have any voting rights except in matters affecting them.

2. Types of Debentures: A company can issue secured or unsecured debentures and fully or partly convertible debentures or non-convertible debentures. To issue convertible debentures, a Special Resolution has to be passed in the General Meeting. All debentures are redeemable in nature.

3. Payment of Interest and Redemption: A company shall redeem the debentures and pay interest as per the terms and conditions of their issue.

4. Debenture Certificate: Company has to issue Debenture certificate to the debenture holders within 6 months of allotment of Debentures.

5. Create Debenture Redemption Reserve: Company has to create a Debenture Redemption Reserve account out of profits of the company available for payment of dividend. This money can be used only for redemption of debentures. As per companies (Share Capital and Debentures) Amendment Rules 2019, MCA has removed Debenture Redemption Reserve requirement for Listed companies, NBFCs and Housing Finance Companies.

6. Appoint Of Debenture Trustees: If the company issues prospectus or invites more than 500 people, (either to Public or its Member) company has to appoint one or more Debenture Trustees. Debenture trustees protect the interest of the debenture holders. Company has to appoint trustees by entering into a contract with them called as Debenture Trust Deed.

Debenture Trustees: They are institutions that protect the interest of Debenture holders.

7. Debentures Trustees can approach NCLT: Debenture Trustees have to redress the grievances of debenture holders. If the company defaults in repaying the principal amount, on maturity or defaults in paying interest there on, the Debenture Trustees can approach

Teacher's Note

Think of a Debenture Trustee like a guardian for the debenture holders. Just like a school appoints a monitor to protect class interests, a company appoints a Debenture Trustee to protect the interests of people who gave them money.

Exam Trick

Remember: Debenture Trustee = Guardian of debenture holders. When company does not pay money on time, the Trustee goes to NCLT (court) to get the money back for the debenture holders.

Points to Remember

Debenture Trustees are appointed when a company issues debentures to more than 500 people.

Debenture Trustees protect the money and interests of debenture holders.

If a company does not pay back the money, Trustees can go to NCLT for help.

The company and Trustees sign a document called Debenture Trust Deed.

Debenture holders can ask Trustees to help them if there is a problem.

This is a preview of the first 3 pages. To get the complete book, click below.