Debenture Ankur

Presented by Ankur Srivastava Bhuvnesh Balaji Bapi Hitin Krishnaji Raj Shekhar Girdharilal Dhanup Singh Abhay Kumar Singh

The most usual form of borrowing by a company is by the issue of debentures. According to sec.2(12) ‘debenture’ includes debenture stocks, bonds and any other securities of a company whether constituting a charge on the assets of the company or not. ‘Debenture’ means a document which either creates a debt or acknowledges it, and any document which fulfills either of these conditions is a debenture.

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It is issued by a company and is usually in the form of a certificate which is an acknowledgement of indebtedness

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It is issued under the company’s seal. It need not, however, be necessarily under the company’s seal.

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It is one of series issued to a number of lenders.

It usually specifies a particular period or date as the date of repayment It generally creates a charge on the undertaking of the company or some parts of its property ; but there may be debentures without any such charge. A debenture holder does not have any right to vote in the company

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Bearer debenture : These debentures also known as unregistered debentures, are payable to its bearer. These are regarded as negotiable instruments and are transferable by delivery. Registered debentures: These are the debentures which are payable to the register holders. These are transferable in the manner specified in the conditions endorsed thereon. These are not negotiable instruments

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Secured debentures : - Debentures which create some charge on the property of the company. The charge may be a fixed charge or a floating charge Unsecured or naked debenture :- Debentures which do not create any charge on the assets of the company. The holders of these debentures like ordinary unsecured creditors may sue the company for recovery of the debt.

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Redeemable debentures :- Debentures are usually issued on the condition that they shall be redeemed after a certain period. They may be re-issued after redemption in accordance with the provisions of section. 121.

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Irredeemable debentures :- A debenture will be treated as irredeemable where either there is no period fixed for repayment of the principal amount or repayment of it is made conditional on the happening of an event which may not happen for an indefinite period or may happen only in certain specified and contingent events.

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Convertibility debentures :- These debentures give an option to the holders to convert them into preference or equity shares at stated rates of exchange, after a certain period. If the holders exercise the right of conversion, they cease to be lenders to the company and become members instead.

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Non-convertible debentures :These debentures do not give any option to their holders to convert them equity shares. They are to be duly paid as and when they are mature.

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First debentures :- These are the debentures which are to be repaid in priority to other debentures which may be subsequently issued.

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Second debentures :- These are the debentures which are to be paid after the “first debentures” have been redeemed.

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Share, Capital and Debentures

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Debentures are usually issued in a series with a pari passu clause. In such a case they are to be discharged ratable, though issued at different and varying times. In the event of a deficiency of assets to satisfy the whole debt secured by the issue of debentures, they will abate proportionately.

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Share, Capital and Debentures

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The trust deed contains the terms and conditions endorsed in the debentures and defines the rights of debenture-holders and the company. It usually empowers the trustees to appoint a receiver to protect their interest. I t also contains other provisions concerning meeting of the debenture-holders supervision of the assets charged, and the keeping of a register of a debenture holders. Whenever ther is a default by the company, the security is enforced or action is taken by the trustees on behalf of all the debenture-holder

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