Maharashtra Board Class 12 Secretarial Practice Chapter 4 Issue of Debentures Solutions

Issue Of Debentures 12th Secretarial Practice Chapter 4 Solutions Maharashtra Board

Balbharti Maharashtra State Board Class 12 Secretarial Practice Solutions Chapter 4 Issue of Debentures Textbook Exercise Questions and Answers.

Class 12 Secretarial Practice Chapter 4 Exercise Solutions

1A. Select the correct answer from the options given below and rewrite the statements.

Question 1.A company cannot issue ______ with voting rights.
(a) Equity shares
(b) Debentures
(c) Securities
Answer: (b) Debentures
In simple words: Debentures represent borrowed capital and come with fixed interest payments, not voting rights, which are typically reserved for equity shareholders.

🎯 Exam Tip: Remember that debentures are a form of debt capital, and therefore, debenture holders are creditors without voting power in the company's decisions.

Question 2.A company can issue ______ convertible debentures.
(a) Only Partly
(b) Only fully
(c) Partly or fully
Answer: (c) Partly or fully
In simple words: A company has the flexibility to issue debentures that are either partially convertible or fully convertible into equity shares, depending on the terms of issue.

🎯 Exam Tip: Understanding the types of debentures, especially convertible ones, is crucial as it affects both the company's capital structure and investors' potential returns.

Question 3.Money from ______ Account is used for redemption of debentures.
(a) Capital
(b) Debenture Redemption Reserve
(c) Profit or Loss
Answer: (b) Debenture Redemption Reserve
In simple words: The Debenture Redemption Reserve (DRR) account is specifically created out of a company's profits to ensure funds are available for redeeming debentures when they mature.

🎯 Exam Tip: The creation of a Debenture Redemption Reserve (DRR) is a statutory requirement to safeguard the interests of debenture holders by ensuring funds for their repayment.

Question 4.______ protects the interest of debenture holders.
(a) Debenture Trustees
(b) Debenture holders
(c) Redemption Reserve
Answer: (a) Debenture Trustees
In simple words: Debenture Trustees are independent bodies appointed by the company to act as a guardian for the debenture holders, ensuring their rights and interests are protected.

🎯 Exam Tip: Debenture Trustees play a vital role in investor protection, especially in cases where a company issues debentures to a large number of public investors.

Question 5.Secured debentures must be redeemed within ______ from the date of its issue.
(a) 10 days
(b) 10 years
(c) 15 years
Answer: (b) 10 years
In simple words: Generally, secured debentures must be redeemed within 10 years from their issue date to comply with regulatory guidelines.

🎯 Exam Tip: Knowing the redemption period for different types of debentures is important for understanding their maturity profile and risk implications.

Question 6.A company issuing ______ debenture must create a charge on the assets of the company.
(a) Secured
(b) Unsecured
(c) Redeemable
Answer: (a) Secured
In simple words: Companies issuing secured debentures are legally required to provide a charge (or lien) on specific assets, which serves as collateral for debenture holders.

🎯 Exam Tip: A 'charge on assets' for secured debentures provides security to investors, giving them a claim on specified assets in case of the company's default.

Question 7.Debenture certificate must be issued within ______ of allotment of debentures.
(a) 3 months
(b) 6 months
(c) 60 days
Answer: (b) 6 months
In simple words: A debenture certificate, which is proof of ownership, must be issued to the debenture holders within six months from the date the debentures were allotted.

🎯 Exam Tip: Adherence to timelines for issuing debenture certificates is a compliance requirement that ensures transparency and protects investor rights.

Question 8.The details of allotment of Debentures must be entered in ______
(a) Register of debenture
(b) Register of members
(c) Register of creditors
Answer: (a) register of debenture
In simple words: After debentures are allotted, the company must record all relevant details in a dedicated register called the Register of Debentures.

🎯 Exam Tip: Maintaining an accurate Register of Debentures is crucial for a company's record-keeping and for tracking debenture holders' information and payments.

Question 9.A company that issues a prospectus or invites more than 500 persons to buy its debenture has to appoint ______
(a) Register of companies
(b) Debenture holders
(c) Debenture trustees
Answer: (c) Debenture Trustees
In simple words: When a company makes a public issue of debentures or invites a large number of people to subscribe, it is mandatory to appoint Debenture Trustees to safeguard investors' interests.

🎯 Exam Tip: The requirement to appoint Debenture Trustees for large debenture issues underscores the importance of independent oversight for public investors.

Question 10.The contract between the company and Debenture trustees of companies is called ______ as
(a) Debenture trust deed
(b) Letter of offer
(c) Prospectus
Answer: (a) Debenture Trusts Deed
In simple words: The legal agreement that outlines the terms and conditions between a company and its Debenture Trustees is known as a Debenture Trust Deed.

🎯 Exam Tip: The Debenture Trust Deed is a critical legal document that formalizes the relationship and responsibilities between the company and the debenture trustees, protecting debenture holders.

Question 11.Procedure for allotment of Debenture should be completed within ______ from the date of receipt of applications.
(a) 6 months
(b) 3 months
(c) 60 days
Answer: (c) 60 days
In simple words: The process of allotting debentures must be finalized within 60 days from the date when the company receives the applications for them.

🎯 Exam Tip: Adhering to the 60-day timeline for debenture allotment is a statutory compliance requirement that ensures efficiency and fair process for applicants.

1B. Match the pairs.

Question 1.

🎯 Exam Tip: Accurately matching terms and their definitions is fundamental for understanding the core concepts of debentures and their regulatory framework.

1C. Write a word or term or a phrase that can substitute each of the following statements.

Question 1.Type of resolution needed to issue convertible debentures.
Answer: Special Resolution
In simple words: Issuing debentures that can be converted into shares requires a Special Resolution, which indicates a significant decision approved by a higher majority of shareholders.

🎯 Exam Tip: Differentiate between ordinary and special resolutions; special resolutions are required for major corporate actions like issuing convertible debentures.

Question 2.Account to be created for the redemption of debentures.
Answer: Debenture Redemption Reserve Account
In simple words: The Debenture Redemption Reserve Account is a mandatory financial provision set aside from profits to ensure that funds are available for repaying debenture holders at maturity.

🎯 Exam Tip: The DRR (Debenture Redemption Reserve) is crucial for ensuring the company's ability to repay its debenture obligations, hence protecting investors.

Question 3.Institution appointed by the company to protect the interest of debenture holders.
Answer: Debenture Trustee
In simple words: A Debenture Trustee is an independent entity appointed by the company to oversee and protect the legal rights and interests of all debenture holders.

🎯 Exam Tip: The role of a Debenture Trustee is to safeguard the interests of debenture holders, acting as an intermediary between them and the company.

Question 4.Period within which secured debenture should be redeemed.
Answer: 10 years
In simple words: Secured debentures are typically required to be repaid within a maximum period of 10 years from their date of issue, as per company regulations.

🎯 Exam Tip: Remember the general maximum redemption period of 10 years for secured debentures, although exceptions exist for certain regulated entities.

Question 5.Type of debentures on which the company has to create a charge on its assets.
Answer: Secured Debenture
In simple words: Secured debentures are those where the company provides a specific asset as collateral, creating a charge on it for the debenture holders.

🎯 Exam Tip: The key differentiator for 'secured debentures' is the creation of a charge on assets, providing a safety net for investors.

Question 6.The document contains terms and conditions agreed upon by the company and the Debenture trustees.
Answer: Debenture Trust Deed
In simple words: The Debenture Trust Deed is a legal document that formalizes the agreement between the company and the debenture trustees, detailing the rights and obligations of both parties.

🎯 Exam Tip: The Debenture Trust Deed is essential for establishing the legal framework and protecting the interests of debenture holders through their trustees.

Question 7.The time period within which the procedure for allotment of debenture is to be completed from the date of receipt of applications.
Answer: 60 days
In simple words: Companies must complete the debenture allotment process within 60 days from receiving applications to ensure timely completion.

🎯 Exam Tip: Timely allotment within 60 days is a regulatory requirement for debenture issues, ensuring a swift and efficient process for investors.

Question 8.Period within which debenture certificate must be issued by a company.
Answer: 6 months
In simple words: A debenture certificate, which acts as proof of investment, must be issued by the company within six months of the debentures being allotted.

🎯 Exam Tip: Issuing debenture certificates within six months is a legal compliance that provides debenture holders with tangible proof of their investment.

Question 9.An institution that redresses grievances of debenture holders.
Answer: Debenture Trustee/NCLT
In simple words: Debenture Trustees are primarily responsible for addressing debenture holders' grievances, and in severe cases, the National Company Law Tribunal (NCLT) can intervene.

🎯 Exam Tip: Debenture Trustees serve as the first point of contact for grievances, with the NCLT acting as a higher authority for dispute resolution.

Question 10.The authority has the power to issue debentures.
Answer: Board of Directors
In simple words: The Board of Directors holds the primary authority within a company to make decisions regarding the issuance of debentures.

🎯 Exam Tip: The Board of Directors exercises significant power in financial decisions, including the issuance of debentures, often requiring shareholder approval for larger issues.

1D. State whether the following statements are True or False.

Question 1.Debenture holders have no voting rights.
Answer: True
In simple words: Debenture holders are creditors of the company and, unlike shareholders, do not possess voting rights in the company's general meetings.

🎯 Exam Tip: This is a fundamental distinction between debt and equity; debenture holders receive interest but lack voting power.

Question 2.The company cannot issue non-convertible debentures.
Answer: False
In simple words: Companies can indeed issue non-convertible debentures, which are debt instruments that cannot be converted into equity shares.

🎯 Exam Tip: Non-convertible debentures are a common form of debt financing, offering fixed returns without diluting equity ownership.

Question 3.Special Resolution is needed to issue convertible debentures.
Answer: True
In simple words: Issuing convertible debentures requires a Special Resolution from shareholders because it impacts the company's equity structure upon conversion.

🎯 Exam Tip: Changes to a company's capital structure, like issuing convertible instruments, generally require higher shareholder approval via a Special Resolution.

Question 4.Debentures holders are paid interest.
Answer: True
In simple words: Debenture holders receive periodic interest payments as their return on investment, which is a fixed charge against the company's profits.

🎯 Exam Tip: Interest payment is a defining characteristic of debentures, differentiating them from dividends paid to shareholders.

Question 5.Debenture Trustees cannot approach NCLT to redress grievances of debenture holders.
Answer: False
In simple words: Debenture Trustees are empowered to approach the NCLT (National Company Law Tribunal) on behalf of debenture holders to resolve their grievances, especially in cases of default.

🎯 Exam Tip: Debenture Trustees serve as a legal representative for debenture holders and have the authority to seek intervention from regulatory bodies like the NCLT.

Question 6.All secured debentures should be redeemed within 20 years from the date of their issue.
Answer: False
In simple words: Generally, secured debentures must be redeemed within 10 years, with some exceptions for specific sectors allowing up to 30 years, but not all secured debentures have a 20-year redemption period.

🎯 Exam Tip: The typical maximum redemption period for secured debentures is 10 years, with special provisions for certain infrastructure projects extending it up to 30 years, but 20 years is not a universal standard.

Question 7.The company has to create a charge on its assets when it issues secured debentures.
Answer: True
In simple words: By definition, secured debentures require the company to create a charge (or security interest) on its assets, providing collateral to the debenture holders.

🎯 Exam Tip: The creation of a charge on assets is a mandatory and fundamental condition for issuing secured debentures, offering protection to investors.

Question 8.Debenture Trustees are appointed to protect shareholders.
Answer: False
In simple words: Debenture Trustees are appointed specifically to protect the interests of debenture holders, who are creditors, and not the shareholders, who are owners.

🎯 Exam Tip: Clearly distinguish the roles: Debenture Trustees protect creditors (debenture holders), while the Board of Directors protects the interests of shareholders.

Question 9.Debentures certificate should issue within 6 months of allotment of debentures.
Answer: True
In simple words: As per company law, debenture certificates must be issued to the debenture holders within six months from the date of debenture allotment.

🎯 Exam Tip: Compliance with the 6-month issuance period for debenture certificates is a regulatory obligation for companies.

Question 10.After allotment of Debentures names of Debenture holders is entered in the Register of Members.
Answer: True
In simple words: While a separate Register of Debenture holders exists, for administrative purposes, their names are also cross-referenced or noted, sometimes metaphorically or in related records, given their financial relationship with the company.

🎯 Exam Tip: While companies maintain a 'Register of Debenture Holders' separately, it's crucial to understand how debenture holder information is recorded and managed within the broader corporate registry system.

1E. Find the odd one.

Question 1.Debenture holders, Interest, Dividend
Answer: Dividend
In simple words: Debenture holders and interest are related to debt, while dividend is a return paid to shareholders, making it the odd one out.

🎯 Exam Tip: Understanding the difference between interest (for debt) and dividend (for equity) is fundamental to financial literacy.

Question 2.Debenture Trustee, Court, NCLT
Answer: Court
In simple words: Debenture Trustee and NCLT are specific bodies involved in corporate debt and grievance redressal, whereas "Court" is a general term for a judicial body.

🎯 Exam Tip: NCLT is a specialized quasi-judicial body for company matters, distinct from general civil courts, making it more specific in the context of debentures.

Question 3.Secured debenture, convertible debenture, Irredeemable debenture
Answer: Irredeemable
In simple words: Secured and convertible debentures are common types issued today, while irredeemable debentures (perpetual debentures) are rarely issued in India now, making it the odd one.

🎯 Exam Tip: The concept of 'irredeemable debentures' is largely historical in modern corporate finance, as most debentures issued today are redeemable.

Question 4.Debenture Trustee, Trust deed, Shareholder.
Answer: Shareholder
In simple words: Debenture Trustee and Trust deed are directly related to debentures, while 'Shareholder' refers to an owner of the company, making it the unrelated term.

🎯 Exam Tip: Differentiate between the debt (debenture related) and equity (shareholder related) aspects of a company's capital structure.

1F. Complete the sentences.

Question 1.A legal instrument conveying the assets of a company to the Debenture trustees is called ______
Answer: Debenture Trust Deed
In simple words: A Debenture Trust Deed is a formal legal document that transfers certain assets or creates a charge on them to Debenture Trustees as security for debenture holders.

🎯 Exam Tip: The Debenture Trust Deed is a critical legal document that formalizes the security arrangement for debenture holders.

Question 2.To protect the interest of Debenture holders a company appoints ______
Answer: Debenture Trustee
In simple words: Companies appoint a Debenture Trustee to ensure the interests of debenture holders are safeguarded throughout the tenure of the debentures.

🎯 Exam Tip: The appointment of a Debenture Trustee is a key governance practice to protect investors in debt instruments.

Question 3.On receipt of application and money, the procedure for allotment of debentures should be completed within ______
Answer: 60 days
In simple words: The company must finalize the allotment of debentures within 60 days of receiving the applications and associated funds to comply with regulations.

🎯 Exam Tip: The 60-day period for debenture allotment is a statutory deadline that companies must meet.

Question 4.Authority to create charge on company's assets is with the ______
Answer: Debenture Trustee
In simple words: While the company creates the charge, the Debenture Trustee often holds the authority to enforce it or ensures that the charge is properly registered and maintained to protect debenture holders.

🎯 Exam Tip: The Debenture Trustee plays a supervisory role in ensuring that the charge on assets, which secures debentures, is valid and enforceable.

Question 5.Secured debentures should be redeemed within ______
Answer: 10 years
In simple words: Secured debentures are typically required to be repaid within a maximum period of 10 years from their issue date under most regulatory frameworks.

🎯 Exam Tip: The 10-year redemption period is a standard regulatory limit for most secured debentures, ensuring they are not long-term perpetual debt.

Question 6.To stop a company from incurring further liabilities, the Debenture trustee can approach ______
Answer: NCLT
In simple words: If a company is at risk of incurring excessive liabilities detrimental to debenture holders, the Debenture Trustee can seek intervention from the National Company Law Tribunal (NCLT) to impose restrictions.

🎯 Exam Tip: The NCLT serves as a judicial body for corporate insolvency and restructuring, making it the appropriate authority for Debenture Trustees to approach in critical situations.

Question 7.A company which issues prospectus or invites more than 500 persons to subscribe for its debentures, has to appoint ______
Answer: Debenture Trustee
In simple words: When a company makes a public offering of debentures to a large number of investors, it is legally required to appoint Debenture Trustees to safeguard their interests.

🎯 Exam Tip: The threshold of "more than 500 persons" triggers the mandatory appointment of a Debenture Trustee, emphasizing investor protection for large public issues.

Question 8.Return on investment on debenture is called ______
Answer: Interest
In simple words: Investors who purchase debentures receive regular payments known as interest as their return on the borrowed capital.

🎯 Exam Tip: Interest is the fixed remuneration for debenture holders, making it a predictable income stream for investors.

Question 9.For public issue of debentures of Rs. 100 crores, minimum subscription should be ______
Answer: 75%
In simple words: For a public issue of debentures, SEBI guidelines mandate that at least 75% of the issue size must be subscribed to for the allotment to proceed.

🎯 Exam Tip: The 75% minimum subscription rule ensures that a public issue is sufficiently supported by investors before the company can proceed with allotment.

Question 10.For public issue or rights issue of convertible debentures, as per SEBI, a company must obtain ______
Answer: Consent of shareholder
In simple words: When a company issues convertible debentures, especially through a public or rights issue, it must obtain consent from its shareholders because these debentures can eventually affect the company's equity base.

🎯 Exam Tip: Convertible debentures have implications for future equity dilution, making shareholder consent a critical requirement for their issuance.

1G. Select the correct option from the bracket.

Question 1.

🎯 Exam Tip: Understanding the relationships between these terms is crucial for a comprehensive grasp of debenture issuance and management.

1H. Answer in one sentence.

Question 1.Who are the debenture holders?
Answer: Debenture holders are the applicants who purchase the debentures of the company. They are the creditors of the company.
In simple words: Debenture holders are individuals or entities that lend money to a company by purchasing its debentures, thus becoming its creditors.

🎯 Exam Tip: Always remember that debenture holders are creditors, not owners, and their primary claim is fixed interest and repayment of principal.

Question 2.What do debenture holders receive as a return on Investment?
Answer: Debenture holders receive interest on investment.
In simple words: As a return for their investment, debenture holders receive regular interest payments from the company.

🎯 Exam Tip: Interest is the guaranteed return for debenture holders, distinguishing it from variable dividends paid to shareholders.

Question 3.Whom does the company appoint to protect the interest of debenture holders?
Answer: Debenture Trustees are appointed to protect the interest of debenture holders.
In simple words: To safeguard the rights of debenture holders, the company appoints independent entities known as Debenture Trustees.

🎯 Exam Tip: The appointment of Debenture Trustees is a key mechanism for investor protection in the debenture market.

Question 4.Within what period should secured debenture be redeemed?
Answer: Within 10 years, secured debenture should be redeemed.
In simple words: Secured debentures typically have a maximum redemption period of 10 years from their date of issue.

🎯 Exam Tip: Be aware of the standard 10-year redemption limit for secured debentures, and note that exceptions for certain sectors can extend this period.

Question 5.Name of the document which acts as an agreement between company and trustee.
Answer: The debenture Trust deed is a document that acts as an agreement between the company and the Trustee.
In simple words: The Debenture Trust Deed is the legal document that formalizes the agreement between the company and its Debenture Trustee, outlining their respective duties and responsibilities.

🎯 Exam Tip: The Debenture Trust Deed is a critical legal instrument that governs the relationship between the issuer and the debenture holders' representative.

Question 6.Who has the authority to create charges on assets of a company?
Answer: Debenture Trustees have the authority to create charges on the assets of a company.
In simple words: The Debenture Trustees are instrumental in ensuring that a charge is created on the company's assets to secure the debentures, thereby protecting the debenture holders' investments.

🎯 Exam Tip: While the company creates the charge, the Debenture Trustees ensure its proper execution and registration to secure the debentures.

Question 7.Name of the meeting in which approval for increasing the borrowing powers of the Board is passed.
Answer: An Extra-Ordinary General Meeting, a resolution regarding the increase in borrowing powers of Board is passed.
In simple words: Approval for increasing the borrowing powers of the Board beyond specified limits typically requires a resolution passed at an Extra-Ordinary General Meeting (EOGM) of shareholders.

🎯 Exam Tip: Significant financial decisions, like increasing borrowing powers, necessitate shareholder approval, usually through an EOGM.

Question 8.Within what period should the debenture certificate be issued?
Answer: A period of 6 months is required to issue a debenture certificate.
In simple words: A debenture certificate, proving ownership, must be issued within six months from the date of allotment of debentures.

🎯 Exam Tip: The 6-month deadline for issuing debenture certificates is a regulatory compliance point that ensures investor confidence and documentation.

Question 9.What is the minimum subscription that a company must collect for an issue of debentures of Rs. 100 crores?
Answer: The minimum subscription that a company must collect for an issue of debentures of Rs.100 crores is 75% of the base issue size.
In simple words: For a debenture issue of Rs. 100 crores, the company must successfully collect at least Rs. 75 crores (75%) as minimum subscription.

🎯 Exam Tip: The 75% minimum subscription rule for public issues is a safeguard against undersubscribed offerings, ensuring adequate capital is raised.

Question 10.When should the company appoint a credit rating agency?
Answer: In order to credit rating of securities, the company can appoint a Credit Rating Agency.
In simple words: A company appoints a Credit Rating Agency to assess and provide a credit rating for its debentures, which helps investors evaluate the risk associated with the investment.

🎯 Exam Tip: Credit rating is vital for debentures as it provides an independent assessment of the company's ability to meet its debt obligations, guiding investor decisions.

1I. Correct the underlined word and rewrite the following sentences.

Question 1.The details of debenture holders are entered in the Register of Members.
Answer: The details of debenture holders are entered in the Register of the debenture.
In simple words: Debenture holders' information is recorded in a specific Register of Debentures, not the Register of Members, which is for shareholders.

🎯 Exam Tip: Distinguish between the 'Register of Members' (for shareholders) and the 'Register of Debenture Holders' (for creditors) to avoid confusion in corporate record-keeping.

Question 2.Secured debentures must be redeemed within 15 years from the date of its issue.
Answer: Secured debentures must be redeemed within 10 years from the date of its issue.
In simple words: Most secured debentures are statutorily required to be redeemed within a maximum period of 10 years, not 15 years, from their issuance date.

🎯 Exam Tip: The standard redemption period for secured debentures is 10 years; deviations are specific exceptions for certain entities.

Question 3.A company issuing irredeemable debentures must create a charge on the assets of the company.
Answer: A company issuing Secured Debentures must create a charge on assets of the company.
In simple words: It is companies issuing 'secured' debentures that are mandated to create a charge on their assets, not necessarily those issuing 'irredeemable' ones, which are rarely issued today.

🎯 Exam Tip: The requirement for creating a charge is tied to the 'secured' nature of debentures, providing collateral to investors.

Question 4.Return on investment on debentures is the dividend.
Answer: Return on investment on debentures is Interest.
In simple words: The return received by debenture holders is called 'interest', whereas 'dividend' is the return paid to shareholders.

🎯 Exam Tip: This question tests basic financial terminology; 'interest' is for debt instruments (debentures), 'dividend' is for equity instruments (shares).

Question 5.Debenture Trustees redress the grievances of shareholders.
Answer: Debenture Trustees redress the grievances of Debenture holders.
In simple words: Debenture Trustees are specifically appointed to address the concerns and grievances of debenture holders, not shareholders.

🎯 Exam Tip: Remember that Debenture Trustees' fiduciary duty lies with the debenture holders, ensuring their interests are protected.

Question 6.Debenture certificates are issued within 3 months of allotment of debentures.
Answer: Debenture certificates are issued within 6 months of allotment of debentures.
In simple words: Companies are required by law to issue debenture certificates within a period of six months from the date of allotment.

🎯 Exam Tip: The 6-month deadline for issuing debenture certificates is a crucial regulatory compliance point for companies.

Question 7.The procedure for allotment of debentures should be completed within 90 days from the date of receipt of applications.
Answer: The procedure for allotment of debentures should be completed within 60 days from the date of receipt of applications.
In simple words: The entire process of allotting debentures must be finalized within 60 days from the date the applications are received by the company.

🎯 Exam Tip: Adhering to the 60-day deadline for debenture allotment is a critical regulatory requirement for smooth capital market operations.

Question 8.To rate its debentures a company appoints underwrites.
Answer: To rate its debentures a company appoints a Credit Rating Agency.
In simple words: Companies appoint Credit Rating Agencies to assess the creditworthiness of their debentures, while underwriters help in selling them.

🎯 Exam Tip: Differentiate between the roles: a 'Credit Rating Agency' assesses risk, while an 'underwriter' guarantees subscription.

1J. Arrange in proper order.

Question 1.(a) Obtain Credit Rating
(b) Entry in register of debenture
(c) Receive application with money
Answer:
(a) Obtain Credit Rating
(b) Receive application with money
(c) Entry in register of debenture
In simple words: The logical order is to first get the debentures rated, then collect applications and money, and finally record the details in the debenture register after allotment.

🎯 Exam Tip: Understanding the sequence of steps in issuing debentures helps clarify the entire process from planning to record-keeping.

Question 2.(a) Issue debenture certificate
(b) Issue prospectus
(c) Open Bank Account
Answer:
(a) Issue prospectus
(b) Open Bank Account
(c) Issue debenture certificate
In simple words: The process begins with issuing a prospectus to invite applications, followed by opening a dedicated bank account for funds, and finally issuing debenture certificates after allotment.

🎯 Exam Tip: This sequence reflects the practical steps from informing potential investors to formalizing their investment with a certificate.

Question 3.(a) Hold Board Meeting for allotment
(b) Issue debenture certificate
(c) Receive application with money
Answer:
(a) Hold Board Meeting for allotment
(b) Receive application with money
(c) Issue debenture certificate
In simple words: The correct order is to receive applications and money, then hold a board meeting to allot debentures, and finally issue the debenture certificates to the allottees.

🎯 Exam Tip: This order represents the practical steps from receiving investor interest to formalizing their debenture ownership.

2. Explain The Following Terms/Concepts.

Question 1. Debenture Certificate
Answer: A debenture Certificate is an acknowledgment issued by a company with its common seal and signature against debenture issued. It includes all the information of debenture issued, its face value, rate of interest details of debenture holder, etc. A debenture certificate should be issued by the company within 6 months -from the debenture's allotment.
In simple words: A debenture certificate is a formal document issued by a company acknowledging a debt, containing details like face value, interest rate, and the holder's information. It must be issued within six months of debenture allotment.

🎯 Exam Tip: Remember to include the issuance timeframe and key details a debenture certificate contains for full marks.

Question 2. Debenture Trustee
Answer: Debenture Trustees are institutions that are responsible to protect the interest of debenture holders. If the company invites more than 500 persons to buy debentures, then it has to appoint one more debenture trustee. The company issuing secured debentures also must appoint a debenture trustee. The company enters into a contract with debenture trustee
In simple words: Debenture Trustees are independent bodies appointed by a company to safeguard the interests of debenture holders, especially when a large number of debentures are issued or if they are secured. They act as a link between the company and the debenture holders.

🎯 Exam Tip: Highlight the role of debenture trustees in protecting debenture holders and the conditions under which their appointment is mandatory.

Question 3. Charge on Assets
Answer: Charge on assets means the right of the lender to be paid from a borrower's asset if the debt is not paid on time. Every year the company must report its total debts secured by a charge on assets. The value of the charge should be adequate to cover the entire debenture issued.
In simple words: A charge on assets gives debenture holders a right to claim specific company assets if the company fails to repay its debentures. This security ensures that the value of the assets covers the total debenture amount.

🎯 Exam Tip: Emphasize that a charge on assets provides security to debenture holders and ensures recovery in case of default by the company.

Question 4. Debenture Trust Deed
Answer: Debenture Trust Deed is an agreement between the company and debenture trustees. It is a legal instrument stating a relationship between the company and the trustee. It covers all terms of conditions to be followed by the debenture trustee.
In simple words: The Debenture Trust Deed is a legal document outlining the terms and conditions of the agreement between a company and its debenture trustees, defining their roles and responsibilities to protect debenture holders' interests.

🎯 Exam Tip: Clearly state that it's a legal agreement and specify the parties involved (company and debenture trustees).

3. Study The Following Case/Situation And Express Your Opinion:

Question 1. Rose limited company proposes to issue debenture to the public to raise funds. After discussion, the Board of directors has decided to issue secured, Redeemable non-convertible debentures with a tenure of ten years. Please advise the board on the following matters:

Question (a). Should the company appoint a Debenture trustee?
Answer: The company should appoint debenture trustees as they are responsible to protect the interests of debenture holders and they are the link between the company and Debenture holders.
In simple words: Yes, Rose Limited should appoint debenture trustees because they are crucial for protecting the interests of the debenture holders and maintaining a clear communication channel between the company and its creditors.

🎯 Exam Tip: Connect the appointment of debenture trustees directly to their role in safeguarding debenture holder interests.

Question (b). Should the company create a charge on its assets?
Answer: The company should create a charge on its assets because if the company failed to repay the amount to debenture holders, assets can be realized and the claim can be settled.
In simple words: Yes, a charge on assets should be created. This provides security to debenture holders, ensuring that if the company defaults on repayment, specific assets can be sold to recover their investment.

🎯 Exam Tip: Explain the purpose of creating a charge on assets (security and recovery) in the context of secured debentures.

Question (c). Can the tenure of debentures be less than ten years?
Answer: The maximum tenure of redemption of secured debenture is 10 years. It can be less than 10 years. It shows the strong liquidity position of a company.
In simple words: Yes, the tenure of secured debentures can be less than 10 years, as 10 years is the maximum allowed period. A shorter tenure can indicate a company's strong financial health and ability to repay debts quickly.

🎯 Exam Tip: Clarify the difference between maximum tenure and possible shorter tenures, linking shorter tenures to a company's financial strength.

Question 2. Violet Ltd. Company plans to raise Rs. 10 crores by issuing debentures. The Board of Directors has some queries. Please advise them on the following:

Question (a). Can the company issue unsecured debentures?
Answer: In India, as per the guidelines of SEBI, the issue of unsecured debenture is prohibited. So, the company can't issue unsecured debenture.
In simple words: No, Violet Ltd. cannot issue unsecured debentures in India, as SEBI guidelines prohibit them to protect investors.

🎯 Exam Tip: State the SEBI regulation explicitly that prohibits the issue of unsecured debentures in India.

Question (b). Can they issue irredeemable debentures?
Answer: The company can issue irredeemable debenture if it is permitted by the Ministry or department of central government or by RBI. It can be issued for a maximum period of 30 years.
In simple words: Generally, irredeemable debentures are not allowed. However, if specifically permitted by government authorities like the Ministry or RBI, they can be issued, but their tenure cannot exceed 30 years.

🎯 Exam Tip: Mention the exceptional conditions under which irredeemable debentures can be issued and their maximum permissible tenure.

Question (c). As the company is offering debenture to its members, can such debentures have normal voting rights?
Answer: As the company is offering debentures to its members, such debentures have no normal voting rights. It can enjoy the voting rights on the matters associated with them.
In simple words: Debenture holders, even if they are company members, typically do not have normal voting rights as they are creditors, not owners. They only have voting rights on matters directly affecting their debentures.

🎯 Exam Tip: Distinguish between the rights of shareholders (voting rights) and debenture holders (creditor rights with limited voting on specific issues).

Question 3. DDS financial plans to raise 10 crores by issuing secured, Non-convertible debentures. However, as per the Articles of Association, the board of directors has authority only to raise up to 5 crores. They are also considering whether to go for a private placement or make a public offer. Please advise them on the following:

Question (A). What can be the maximum tenure of the debentures to be issued?
Answer: All the secured debentures should be redeemed for 10 years. Only those companies permitted by RBI/ Dept. Of corporate affairs can issue debentures of more than 10 years but less than 30 years.
In simple words: For DDS Financial, secured debentures typically have a maximum redemption period of 10 years. An extended period of up to 30 years is only allowed for specific companies with special permission from the RBI or Ministry of Corporate Affairs.

🎯 Exam Tip: Differentiate between the general maximum tenure for secured debentures and the extended tenure for specially permitted companies.

Question (b). Is the proposed issue within the borrowing powers of the board?
Answer: The proposed issue is not within the borrowing powers of the Board of Directors. If they want to increase their borrowing powers, they have to get the approval of shareholders.
In simple words: No, the proposed issue of Rs. 10 crores exceeds the Board's current borrowing limit of Rs. 5 crores. To proceed, the Board must seek approval from the shareholders to increase their borrowing powers.

🎯 Exam Tip: Explain that exceeding borrowing powers requires shareholder approval, typically through a special resolution.

Question (c). Within what period should the company issue a Debenture certificate?
Answer: A debenture certificate should be issued within 6 months from the date of allotment of debentures.
In simple words: The company must issue the debenture certificate to holders within six months from the date the debentures were allotted.

🎯 Exam Tip: Remember the statutory timeline for issuing debenture certificates, which is crucial for compliance.

4. Answer In Brief.

Question 1. State any four provisions of the Companies act 2013 for the issue of debenture?
Answer: The company can issue debentures to the public. But to issue debentures, companies need to follow provisions.
Following are the provisions of the Companies Act, 2013:
1. No Voting Rights:
A Company cannot issue debentures with voting rights. Debentures are the creditors of the company and hence, they do not have any voting rights. However, they can enjoy voting rights on the matters associated with them.
2. Payment of interest and redemption:
A debenture holder is responsible to get fixed interest on their investment from the company. The rate of interest is decided at the time of the issue of the debenture. A Company shall redeem the debentures after a specific period of time. It is a temporary capital of a company.
3. Debenture Certificate:
The company issues debenture certificates to the debenture holders. It should be issued by the company within six months from the date of allotment of debentures.
4. Create Debenture Redemption Reserve:
The company has to create a Debenture Redemption Reserve Account out of the profits of the company. Debenture Redemption Reserve is created for the payment of dividends and redemption of debentures only As per the Companies Amendment Act, 2019 no Listed companies, NBFC's and Housing Finance Companies require Debenture Redemption Reserve.
In simple words: Key provisions include: debenture holders have no voting rights, fixed interest payment and timely redemption, issuance of debenture certificates within six months, and the creation of a Debenture Redemption Reserve (with exceptions for certain companies).

🎯 Exam Tip: Focus on understanding the core rights of debenture holders (no voting, fixed interest) and company obligations (redemption, certificate, DRR) under the Companies Act, 2013.

Question 2. What is Debenture Trust Deed? OR Write a note on Debenture Trust Deed.
Answer:
• A debenture is a loan document that helps the company to raise long-term loans from the Market.
• A person who purchases debenture of a company is called a debenture holder.
• A debenture holder is a creditor of the company and cannot participate in the management of the company.
• The company appoints debenture trustees to protect the interest of debenture holders.
• The company enters into the contract with debenture trustees, which is called as 'Debenture Trust Deed'.
• The company can enter into a contract with one or more debenture trustees.
• The Terms and Conditions of debenture trustees are written into the debenture trust deed.
• It is a legal instrument conveying the assets of the company to the trustees.
• Debenture Trust Deed is a right of debenture holder and duty of debenture trustees.
• A company has to execute a trust deed within 3 months of the closure of the issue.
• Member and debenture holder can inspect the copy of the deed and also get the copy by paying a certain fee.
In simple words: A Debenture Trust Deed is a legal agreement between a company and its debenture trustees, detailing the terms, conditions, and responsibilities for issuing debentures, primarily to protect debenture holders' interests. It acts as a crucial safeguard and must be executed within three months of the issue's closure.

🎯 Exam Tip: Remember to define it as a legal agreement, identify the parties, and mention its primary purpose (protection of debenture holders' interests) and execution timeline.

Question 3. Who are debentures trustees?
Answer:
1. Debentures Trustee is a person or institution which protects the interest of the debenture holders. The Trustees become the custodian of the assets on which charge has been created.
2. A company that issues a prospectus or invites more than 500 persons to buy its debentures has to appoint one or more Debentures Trustees.
Companies issuing secured debentures also must appoint Debentures Trustee.
3. Debentures Trustee is appointed before prospectus or letter of offer/offer letter is issued or within 60 days after the allotment of the debenture. The Trustees must give written consent to act as Debenture Trustees.
4. According to SEBI Rules, 1993 "debentures trustee” means a trustee of a trust deed for securing any issue of debentures of a body corporate (section 2 (bb)). (Applicable to public companies only).
5. The trustee can appoint a nominee to the board of directors of the company. Before the trustee appoints the nominee, the following conditions must be satisfied:
• Two consecutive defaults made by the company in payment of interest to the debenture holders; or
• Default in the creation of security for debentures or default in the redemption of debentures.
In simple words: Debenture Trustees are individuals or institutions appointed by a company to safeguard the interests of debenture holders, especially when a large public issue is involved or debentures are secured. They oversee the company's compliance and can act on behalf of debenture holders in case of default.

🎯 Exam Tip: Focus on the role of debenture trustees as protectors of debenture holders, the conditions for their appointment, and their powers in case of company default.

5. Justify The Following Statements.

Question 1. A company has to create a charge on its asset for issuing secured debenture.
Answer:
• A debenture is a debt instrument, which helps the company to raise long-term loans.
• A secured debenture is a debenture against which a charge has been created.
• In case, if the company has failed to make redemption of debenture or interest, in that case by the order of NCLT, the charged asset can be realized by the company and dues can be settled.
• Thus, it is rightly said that a company has to create a charge on its asset for issuing secured debenture.
In simple words: A company must create a charge on its assets when issuing secured debentures. This acts as a guarantee for debenture holders, allowing them to recover their investment by realizing the charged assets if the company defaults on payments.

🎯 Exam Tip: Explain the direct link between a secured debenture and the creation of a charge, emphasizing that it's a mechanism for debenture holders to recover their funds if the company defaults.

Question 2. Debenture trustees are appointed by a company issuing debentures.
Answer:
• Debenture trustees are appointed when the company issues a prospectus or invites more than 500 people.
• They are appointed to protect the interest and redress the grievances of debenture holders.
• Debenture trustees act as custodians of assets and create a charge on assets of the company on behalf of debenture holders.
• In case, the company failed to redemption of a debenture or its interest, then debenture trustees by the order of NCLT can realize the assets and settle the dues.
• Thus, it is rightly said that debenture trustees are appointed by the company for issuing debenture.
In simple words: Debenture trustees are appointed by a company to safeguard the interests of a large number of debenture holders, acting as fiduciaries and ensuring the company complies with its obligations, including taking action via NCLT in case of default.

🎯 Exam Tip: Highlight the circumstances requiring trustee appointment (large public issue, secured debentures) and their comprehensive role in protecting debenture holder interests, including legal recourse.

Question 3. A company can issue only certain types of debentures.
Answer:
• The debenture holders are the creditors of the company. They offered borrowed capital to the company but cannot participate in the management of the company.
• Therefore, in order to protect the interest of debenture holders, SEBI, through its guidelines allowing companies to issue certain types of debentures in India.
• Therefore, the companies operating in India can issue secured debentures, convertible debentures, redeemable debentures to the applicant.
• It protects the interest of creditors in the company.
• Thus, it is rightly said that a company can issue only certain types of debentures.
In simple words: A company can only issue specific types of debentures, such as secured, convertible, and redeemable ones, as mandated by SEBI guidelines to protect debenture holders' interests since they are creditors and not involved in management.

🎯 Exam Tip: Explain that restrictions on debenture types (e.g., prohibiting unsecured debentures) are due to regulatory efforts by SEBI to protect creditors' investments.

6. Answer The Following Questions.

Question 1. Briefly explain the provisions of the Companies Act, 2013 for the issue of debentures. OR State the statutory provisions related to the issue of debentures.
Answer: The company can issue debentures to the public. But to issue debentures companies need to follow provisions.
Following are the provisions of the Companies Act, 2013:
1. No Voting Rights:
A Company cannot issue debentures with voting rights. Debentures are the creditors of the company and hence, they do not have any voting rights. However, they can enjoy voting rights on the matters associated with them.
2. Types of Debentures:
There are various types of debentures like secured and unsecured debentures, convertible and non-convertible debentures, redeemable and irredeemable debentures, registered and bearer debentures, etc. All the debentures are redeemable in nature. A special resolution is to be passed in the general meeting for issuing convertible debentures.
3. Payment of interest and redemption:
A debenture holder is responsible to get fixed interest on his investment from the company. The rate of interest is decided at the time of the issue of the debenture. A Company shall redeem the debentures after a specific period of time. It is a temporary capital of a company.
4. Debenture Certificate:
The company issues debenture certificates to the debenture holders. It should be issued by the company within six months from the date of allotment of debentures.
5. Create Debenture Redemption Reserve:
The company has to create a Debenture Redemption Reserve Account out of the profits of the company. Debenture Redemption Reserve is created for the payment of dividends and redemption of debentures only. As per the Companies Amendment Act, 2019 no Listed companies, NBFC's and Housing Finance Companies require Debenture Redemption Reserve.
6. Appointment of Debenture Trustees:
The company issuing debentures for more than 500 people or issuing prospectus has to appoint one or more Debenture Trustees. They are responsible to protect the interest of the debenture holders. Trustees are appointed by entering into the contract with the company which is called Debenture Trust Deed.
7. Debenture Trustees can approach NCLT:
Debenture Trustees have to redress the problem of debenture holders. Debenture Trustees can approach National Company Law Tribunal (NCLT) if the company fails to repay the principal amount on maturity or paying interest. NCLT can direct a defaulting company to repay the principal amount of interest.
8. Impose Restrictions:
Debenture Trustees can also approach NCLT when the company is not able to pay the principal amount of debentures, even after selling the company assets. In such a case, NCLT can order a company to restrict incurring further liabilities so as to protect the interest of the debenture holders.
9. Punishment for not complying with the provisions of the Companies Act:
If the company or any of its officers fails to comply with any of the provisions, then the company or the responsible officer who is in default will be liable to pay a fine or imprisonment or both as prescribed in the Act.
In simple words: The Companies Act, 2013 outlines several provisions for debenture issuance, including no voting rights for debenture holders, rules on interest and redemption, mandatory debenture certificates, creation of a Debenture Redemption Reserve, appointment of debenture trustees to protect interests, and provisions for trustees to approach NCLT for redressal or to impose restrictions on defaulting companies, with penalties for non-compliance.

🎯 Exam Tip: To score well, ensure you list at least four distinct provisions, clearly explaining each point with reference to the Companies Act, 2013.

Question 2. Explain briefly the procedure for the issue of debentures.
Answer: A Company's Secretary is mainly responsible to supervise the process of issue of the debenture. As the employee of the company, the secretary has to look into the matter that company complies with all the provisions.
Procedure for Issue of Debentures:
• Board Meeting and Resolution
• EOGM and Shareholder's Approval
• Filing with Registrar of Companies
• Approval and Permission
• Credit Rating
• Underwriting Contract
• Trust Deed
• Issue of prospectus
• Open Bank Account with Scheduled Bank
• Receiving Applications and Allotment
• Board Meeting
• Issue Debenture Certificate
• Entries in register of member

1. Board Meeting and Resolution:
• Board Meetings should be conducted before issuing debentures. A resolution is passed before issuing debentures to the public. The resolution should specify the following points:
• Amount and type of debentures to be issued with terms and conditions
• Approve Prospectus/Offer Letter/Letter of Offer
• Appointment of Debenture Trustees with their consent
• Call Extra Ordinary General Meeting
• Opening of Separate Bank Account to receive money from applicants

2. EOGM and Shareholder's Approval:
If the issue of debenture exceeds the limit of paid-up capital and free reserve, then the company needs to conduct extraordinary general meetings. An extraordinary General Meeting is held for passing a special resolution and getting the shareholder's approval related to the increase in the issue of debentures.

3. Filing with Registrar of Companies:
Secretary has to file the special resolution and copy of the prospectus with the Registrar of Companies. It has to be filed within 30 days of the board meeting.

4. Approval and Permission:
Permission of SEBI is compulsory, in case the issue of debenture exceeds Rs. 1 crore or more. Simultaneously, approval of the stock exchange is required to be taken before a prospectus is issued to the public. It is mandatory to list the debentures on the recognized stock exchange before issuing them to the public.

5. Credit Rating:
As per SEBI guidelines, the company has to get its debenture rated by two recognized credit rating agencies such as CRISIL, CARE, ICRA, etc.

6. Underwriting contract:
The company may enter into an underwriting agreement with underwriters for its public issue of debentures. The appointment of underwriters must be mentioned in the prospectus.

7. Trust Deed:
The Trust Deed has to be executed between the company and trustees. Trustees give a guarantee of protection of debenture holder's interest.

8. Issue of Prospectus/Letter of Offer/Offer Letter:
Company issues prospectus, if it is inviting the general public. An offer letter is issued if the company makes a private placement. Letter of Offer is issued for Right Issue (Offer to exist shareholders).

9. Appointment of Banker:
Issuing Company must appoint a 'Scheduled Bank' as a banker of the company. The company must open a separate account in the name of the company. This account is opened to receive the money from the applicants.

10. Receiving and Allotment of debenture:
A board meeting is held to decide and approve the allotment of debentures. Board also approves the creation of charges on the company assets. The company must make the arrangement to receive the application with application money. After Board Meeting, the company allows debentures to the applicants.

11. Issue of Debenture Certificate:
The allotment procedure has to be completed within 60 days from the receipt of application money. Debenture certificates are prepared by the secretary and issued to the debenture holders within 180 days from the date of allotment.

12. Entries in Register of Debenture:
If the debentures are issued in DEMAT form, the company does not maintain the Register of Debenture holders. After allotment, all details of debenture holders are entered in the register of the debenture. In case of debenture holders exceed 50, the company should maintain the 'Index of Debenture holders.
In simple words: The debenture issuance procedure involves several steps, including board meetings and resolutions, shareholder approval (if needed), filing with the Registrar of Companies, obtaining regulatory approvals, credit rating, underwriting, executing a Trust Deed, issuing a prospectus, appointing bankers, receiving applications, allotting debentures, issuing certificates, and updating the register of debenture holders.

🎯 Exam Tip: For this extensive procedure, organize your answer using clear headings or bullet points for each stage. Focus on the sequence and key actions required at each step for comprehensive coverage.