Debentures Under Companies Act 2013

I. INTRODUCTION

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]

 

II. KINDS OF DEBENTURES

Debentures can be categorised under following

1.     CONVERTIBILITY OF THE INSTRUMENT

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]

2.     THE DEBENTURES CAN ALSO BE CLASSIFIED ON THE BASIS OF SECURITY

  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]

III. CLASSIFICATION OF DEBENTURES

Debentures can be classified as

1.     REGISTERED DEBENTURE

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]

2.     BEARER DEBENTURES

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]

IV.  DEBENTURE STOCK
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]

V.  VOTING RIGHTS

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 , , http://cii.in/WebCMS/Upload/CompaniesActRepresentation.pdf (last visited Apr 9, 2017).

[3] Companies Act, 2013 Key highlights and analysis, https://www.pwc.in/assets/pdfs/publications/2013/companies-act-2013-key-highlights-and-analysis.pdf (last visited Apr 9, 2017).

[4] Debenture, https://en.wikipedia.org/wiki/Debenture (last visited Apr 9, 2017).

[5] Id.

[6] See .Pritishree Dash, Can Debentures Be Converted Into Shares And Vice-Versa? (2016), https://blog.ipleaders.in/can-debentures-converted-shares-vice-versa/ (last visited Apr 9, 2017).

[7] Convertibility of the Instrument Under Debentures, , https://books.google.co.in/books?id=WJ9DDAAAQBAJ&pg=PA217&lpg=PA217&dq=CONVERTIBILITY 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 http://www.gktoday.in/blog/debentures/, (2015), http://www.gktoday.in/blog/debentures/ (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, , https://www.lawnotes.in/Section_71_of_Companies_Act,_2013 (last visited Apr 9, 2017).

[13] Admin, Section 71- Issue of Debentures under Companies Act, 2013 (2015), http://taxguru.in/company-law/section-71-issue-of-debentures-under-companies-act-2013.html (last visited Apr 9, 2017).

[14] Supra  note 13.

[15] Yogesh Malhan, India: Secured NCD’s Under Companies Act , 2013 (2014), http://www.mondaq.com/india/x/326478/Securities/Secured NCDs Under Companies Act 2013 (last visited Apr 9, 2017).

[16] What is a debenture holder?, https://www.reference.com/business-finance/debenture-holder-de943cd153d6fa40 (last visited Apr 9, 2017).

[17] Section 56 of Companies Act, 2013, , http://www.companiesact.org/2016/04/section-56-of-companies-act-2013.html (last visited Apr 9, 2017).

[18] India Infoline News Service, Differences between shareholders and debentures holders, http://www.indiainfoline.com/article/research-articles/differences-between-shareholders-and-debentures-holders-45923185_1.html (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), http://indiacorplaw.blogspot.in/2015/07/subordinated-debentures-capital.html (last visited Apr 9, 2017).

[21] Id.

[22] See.G.P.Sahi, Regulation of Debentures Issue- An overview, http://www.legalserviceindia.com/articles/debentures.htm (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, , http://www.investopedia.com/terms/c/convertibledebenture.asp (last visited Apr 9, 2017).

[26] Abdul Khaliq Mohammed, Shareholder, Debenture Holders and their Rights, https://www.academia.edu/12317751/Shareholder_Debenture_Holders_and_their_Rights_in_CA_2006 (last visited Apr 9, 2017).

[27] Debenture, , http://www.investopedia.com/terms/d/debenture.asp (last visited Apr 9, 2017).

[28] Vinod Kumar, Who are the Debenture Holders of a Company? (2011), http://www.svtuition.org/2011/04/who-are-debenture-holders-of-company.html (last visited Apr 9, 2017).

[29] BALBIR, Difference between shareholders and debenture-holders, http://www.preservearticles.com/201104065054/difference-between-shareholders-and-debenture-holders.html (last visited Apr 9, 2017).

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