Overview of issue of Debentures
The companies Bill 2012 which was passed by Lok Sabha has got certain provisions relating to debentures which was not there in the existing Companies Act, 1956.
Debenture is defined in Clause 2 (30) as below:
“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”
It may be noted that this definition is identical to the definition provided in Section
2 (12) in the Companies Act 1956.
Let us analyze Clause 71 of the Bill which deals in detail with Debentures.
i) A Company can issue Debentures which can be later converted into equity either wholly or partly at the time of redemption; however this needs to be approved by shareholders by way of a Special Resolution.
ii) Debenture with voting rights shall not be issued by any Company.
iii) Secured debentures may be issued subject to terms and conditions as may be prescribed.
iv) After the issue of debenture, the company is required to create Debenture Redemption Reserve account out of the profits of the company. The amount credited in the debenture redemption reserve account will be utilized only for redemption of debentures.
v) No company shall issue a prospectus or make an offer or invitation to the public or to its members exceeding five hundred for the subscription of its debentures, unless the company has, before such issue or offer, appointed one or more debenture trustees and the conditions governing the appointment of such trustees shall be such as may be prescribed
vi) The Bill further provides that debenture trustee has to take necessary steps to protect the interest of the debenture holders and redress their grievances.
vii) The Bill also provides that the company shall pay interest and redeem the debentures. If the Debentures trustees feel that the assets of the Company are insufficient, then they can make a petition before the Company Law Tribunal and Tribunal after hearing both the parties may impose resetrictions on the Company preventing it from incurring further liabilities.
viii) If the Company does not pay interest properly or fails to redeem the Debentures in time, the Debenture holders or the Trustees may make an application to the Tribunal and the Tribunal can by an order, direct the company to redeem the debentures forthwith on payment of
principal and interest due thereon
ix) If the company does not adhere to Tribunal’s order ,then the Company and its officials will be punishable with imprisonment for a term which may extend to three years or with fine which shall not be less than two lakh rupees but which may be extended to five lakh rupees or with both.
x) The Tribunal or relevant authority can order specific performance for matters concerning Debenture interest or redemption.
Conclusion . The definition says that it is charge on the assets or not so debenture can be secured or unsecured. In the case of unsecured debenture, there is no need for trustee.
.
The companies Bill 2012 which was passed by Lok Sabha has got certain provisions relating to debentures which was not there in the existing Companies Act, 1956.
Debenture is defined in Clause 2 (30) as below:
“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”
It may be noted that this definition is identical to the definition provided in Section
2 (12) in the Companies Act 1956.
Let us analyze Clause 71 of the Bill which deals in detail with Debentures.
i) A Company can issue Debentures which can be later converted into equity either wholly or partly at the time of redemption; however this needs to be approved by shareholders by way of a Special Resolution.
ii) Debenture with voting rights shall not be issued by any Company.
iii) Secured debentures may be issued subject to terms and conditions as may be prescribed.
iv) After the issue of debenture, the company is required to create Debenture Redemption Reserve account out of the profits of the company. The amount credited in the debenture redemption reserve account will be utilized only for redemption of debentures.
v) No company shall issue a prospectus or make an offer or invitation to the public or to its members exceeding five hundred for the subscription of its debentures, unless the company has, before such issue or offer, appointed one or more debenture trustees and the conditions governing the appointment of such trustees shall be such as may be prescribed
vi) The Bill further provides that debenture trustee has to take necessary steps to protect the interest of the debenture holders and redress their grievances.
vii) The Bill also provides that the company shall pay interest and redeem the debentures. If the Debentures trustees feel that the assets of the Company are insufficient, then they can make a petition before the Company Law Tribunal and Tribunal after hearing both the parties may impose resetrictions on the Company preventing it from incurring further liabilities.
viii) If the Company does not pay interest properly or fails to redeem the Debentures in time, the Debenture holders or the Trustees may make an application to the Tribunal and the Tribunal can by an order, direct the company to redeem the debentures forthwith on payment of
principal and interest due thereon
ix) If the company does not adhere to Tribunal’s order ,then the Company and its officials will be punishable with imprisonment for a term which may extend to three years or with fine which shall not be less than two lakh rupees but which may be extended to five lakh rupees or with both.
x) The Tribunal or relevant authority can order specific performance for matters concerning Debenture interest or redemption.
Conclusion . The definition says that it is charge on the assets or not so debenture can be secured or unsecured. In the case of unsecured debenture, there is no need for trustee.
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