Debentures Under Companies Act 2013


Debentures have been stated under Section 2(12)[1] of the Companies Act, 2013.[2] Debentures include debentures stocks bonds or any other instrument of a company which contains a dept.[3]



Debentures can be categorised under following


Under the convertibility of instruments there are four types of debentures-

  1. Non Convertible Debentures

These are the type of debentures which cannot be converted into equity shares.[4]

  1. Partly Convertible Debentures

Under these types of debentures a part of this can be converted into equity shares.[5] This type of debentures is decided by issue that under what ratio it will be converted.[6]

  1. Fully Convertible Debentures

These are the debentures which can be fully converted into equity shares at issuer’s notice. Under these the ratio of conversion is decided by the issuer.[7] When these are converted the investors enjoy the same status as they used to enjoy as ordinary share holders of the company.[8]

  1. Optionally Convertible Debentures

Under this investor is the option whether they want to convert these debentures into the shares or not.[9]


  1. Secured Debentures

The debentures can also be secured by a charge on the fixed assets. If the payment by the issuer is fail then his assets can be sold to repay the liability to the investors.[10] Under Section 71 (3) of the Companies Act, 2013[11], Security Debentures can be issued by a company under such terms and condition that may be prescribed by the central government through the rules.[12]

  1. Unsecured Debentures

Under unsecured debentures, the issuer should have the default on the payment of the interest or principal amount.[13] The unsecured debentures are also known as naked debentures.[14]


Debentures can be classified as


Registered debentures are the debentures under which the name of a particular person is mention on the debenture certificate.[15] These debentures can be Transferable by a proper means of instrument.[16] For transferring these debentures requirement specified under Section 56 of the Company Act, 2013 must be fulfilled.[17]


Bearer debentures are debentures under which transfer is done by mere delivery. The person whom the debentures are transferred account holder in due course.[18] This has been stated under the case of Calcutta Safe Deposit Company Limited vs. Ranjit Mathurdas Sampat.[19]

Debenture Stock is a loan fund under which a composite stock which raised by the company instead of issuing debentures.[20] Debentures stock is a borrowed capital which has been consolidated from 1 mass for the sake of convenience.[21] Debenture stock is the description of a debt.[22]


Under Section 71 (2) of the Companies Act, 2013[23] it has been stated that no company can issue debentures which can carry any voting rights.[24] Under the rule (1) of Companies (Share Capital and Debentures) Rules, 2014, it has been stated that the company cannot issue secured debentures unless following conditions are fulfilled.[25] The rate of redemption cannot exceed 10 years from the date of issue.[26] The company which has been engaged in setting up of infrastructure projects can issue security debentures crossing 10 years but cannot exceed 30 years.[27] The issue of debentures should be secured by creation of a charged.[28] The security of debentures by the way of charge should be treated in the favour of debenture trustee.[29]


[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.

[2] The Companies Act, 2013 The Companies Act, 2013 & The Companies Rules, 2014 The Companies Rules, 2014 Notification of Sections and Rules Notification of Sections and Rules under Companies Act, 2013 under Companies Act, 2013 , , (last visited Apr 9, 2017).

[3] Companies Act, 2013 Key highlights and analysis, (last visited Apr 9, 2017).

[4] Debenture, (last visited Apr 9, 2017).

[5] Id.

[6] See .Pritishree Dash, Can Debentures Be Converted Into Shares And Vice-Versa? (2016), (last visited Apr 9, 2017).

[7] Convertibility of the Instrument Under Debentures, , OF THE INSTRUMENT UNDER DEBENTURES&source=bl&ots=atb7iuWCGd&sig=Sqa7wl1cPR-NMlrnjP6EtZp4dK0&hl=en&sa=X&ved=0ahUKEwi37onFm5fTAhVHto8KHUg8AlsQ6AEIMTAD#v=onepage&q=CONVERTIBILITY%20OF%20THE%20INSTRUMENT%20UNDER%20DEBENTURES&f=false (last visited Apr 9, 2017).

[8] Supra note 4.

[9] Supra note 2.

[10] Debenture: Meaning, Types and Salient Features, (2015), (last visited Apr 9, 2017).

[11]  Secured debentures may be issued by a company subject to such terms and conditions as may be prescribed.

[12] Section 71 of Companies Act, 2013, ,,_2013 (last visited Apr 9, 2017).

[13] Admin, Section 71- Issue of Debentures under Companies Act, 2013 (2015), (last visited Apr 9, 2017).

[14] Supra  note 13.

[15] Yogesh Malhan, India: Secured NCD’s Under Companies Act , 2013 (2014), NCDs Under Companies Act 2013 (last visited Apr 9, 2017).

[16] What is a debenture holder?, (last visited Apr 9, 2017).

[17] Section 56 of Companies Act, 2013, , (last visited Apr 9, 2017).

[18] India Infoline News Service, Differences between shareholders and debentures holders, (last visited Apr 9, 2017).

[19] Safe Deposit Company Limited Vs. Ranjit Mathurdas Sampat, (1971) 41 Com Cases 1063.

[20] Subordinated debentures – A Capital Supporting Instrument, (2015), (last visited Apr 9, 2017).

[21] Id.

[22] See.G.P.Sahi, Regulation of Debentures Issue- An overview, (last visited Apr 9, 2017).

[23] No company shall issue any debentures carrying any voting rights.

[24] Chandra Gopalan (2007); Company Law in Singapore 3rd Edition; McGraw-Hill Education (Asia).

[25] Convertible Debenture, , (last visited Apr 9, 2017).

[26] Abdul Khaliq Mohammed, Shareholder, Debenture Holders and their Rights, (last visited Apr 9, 2017).

[27] Debenture, , (last visited Apr 9, 2017).

[28] Vinod Kumar, Who are the Debenture Holders of a Company? (2011), (last visited Apr 9, 2017).

[29] BALBIR, Difference between shareholders and debenture-holders, (last visited Apr 9, 2017).

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