11/20/2015

DEBENTURE(CompaniesAct2013)|AishMGhrana

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AishMGhrana
LAWGOVERNANCERESPONSIBILITY

DEBENTURE(CompaniesAct2013)
PostedonOctober15,2013|30Comments

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Debentureismostimportantinstrumenttoraisecapitalfora
company. A company use debenture to raise debt capital.
Popularly, debenture issued by public sector companies with
governmentapprovaliscalledbonds.
Section 2 (30) of the Companies Act, 2013 define inclusively
debenture as debenture includes debenture stock,
bonds or any other instrument of a company evidencing a
debt, whether constituting a charge on the assets of the
companyornot.
ThisisclearfromdefinitionthatdebenturemaybeSecured
DebentureorUnsecuredDebenture.

AbondfromtheDutchEastIndiaCompany,
datingfrom7November1623,fortheamountof
2,400florins.(Photocredit:Wikipedia)

According to Section 44, the shares or debentures or other

interest of any member in a company shall be movable
propertytransferableinthemannerprovidedbythearticlesof

thecompany.
Thecertificateofdebentureshallbeissuedwithinaperiodofsixmonthsfromthedateofallotmentinthecaseof
anyallotmentofdebenture.[Section56(4)(d)]
Section71extensivelydealswithdebentures.
Acompanymayissuedebentureswithanoptiontoconvertsuchdebenturesintoshares,eitherwhollyorpartlyatthe
timeofredemption.Theissueofdebentureswithanoptiontoconvertsuchdebenturesintoshares,whollyorpartly,
shallbeapprovedbyaspecialresolutionpassedatageneralmeeting.
Thismeansdebenturemaybenonconvertibledebentureorconvertibledebenture.Convertibledebenture
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mayeitherbeFullyConvertibleDebenture(FCD)orPartlyConvertibleDebenture.
Nocompanyshallissueanydebenturescarryinganyvotingrights.
Secureddebenturesmaybeissuedbyacompanysubjecttosuchtermsandconditionsasmaybeprescribed.
Wheredebenturesareissuedbyacompany,thecompanyshallcreateadebentureredemptionreserveaccount
outoftheprofitsofthecompanyavailableforpaymentofdividendandtheamountcreditedtosuchaccountshallnot
beutilisedbythecompanyexceptfortheredemptionofdebentures.
No company shall issue a prospectus or make an offer or invitation to the public or to its members exceeding five
hundredforthesubscriptionofitsdebentures,unlessthecompanyhas,beforesuchissueoroffer,appointedoneor
more debenture trustees and the conditions governing the appointment of such trustees shall be such as may be
prescribed.
Anissueofdebentureformorethanfivehundredmembersoranynumberofpublic(thisissubjecttoclarification
fromgovernment)withoutcreatingadebenturetrustisprohibited.
Adebenturetrusteeshalltakestepstoprotecttheinterestsofthedebentureholdersandredresstheirgrievances.
Anyprovisionoftrustdeedorcontractsecuredbytrustdeed,exemptingatrusteeorindemnifyinghimagainstany
liabilityforbreachoftrustshallbevoid.However,trusteemaybeindemnifiedwhereheshowthedegreeofcareand
duediligencerequiredofhimastrustee.
The liability of the debenture trustee shall be subject to such exemptions as may be agreed upon by a majority of
debentureholders holding not less than three fourths in value of the total debentures at a meeting held for the
purpose.
Acompanyshallpayinterestandredeemthedebenturesinaccordancewiththetermsandconditionsoftheirissue.
Whereatanytimethedebenturetrusteecomestoaconclusionthattheassetsofthecompanyareinsufficientorare
likelytobecomeinsufficienttodischargetheprincipalamountasand
whenitbecomesdue,thedebenturetrusteemayfileapetitionbeforetheTribunal.TheTribunalmay,afterhearingthe
company and any other person interested in the matter, by order, impose such restrictions on the incurring of any
furtherliabilitiesbythecompanyastheTribunalmayconsidernecessaryintheinterestsofthedebentureholders.
IfanydefaultismadeincomplyingwiththeorderoftheTribunalunderthissection,everyofficerofthecompanywho
isindefaultshallbepunishablewithimprisonmentforatermwhichmayextendtothreeyearsorwithfinewhich
shallnotbelessthantwolakhrupeesbutwhichmayextendtofivelakhrupees,orwithboth.
Acontractwiththecompanytotakeupandpayforanydebenturesofthecompanymaybeenforcedbyadecreefor
specificperformance.
TheCentralGovernmentmayprescribetheprocedure,forsecuringtheissueofdebentures,theformofdebenturetrust
deed, the procedure for the debentureholders to inspect the trust deed and to obtain copies thereof, quantum of
debentureredemptionreserverequiredtobecreatedandsuchothermatters.
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DEBENTURES
ACompanymayraiseadebt
capital,whichisnotanatureof
Deposits,byissueofdebentures
underSection71oftheCompanies
Act2013aswediscussedearlier
In"CorpLaw"
here.Debentureunderthe

DEBENTURETRUSTAND
TRUSTEES
Inlastposthere,wediscussed
someprovisionsrelatingto
Debentures.Now,wewillstudy
otherprovisionsrelatedto
DebentureTrustunderthe
In"CorpLaw"

DEBENTURETRUSTDEED
Inlastpostwediscussed
DebentureTrust.Nowwewill
discussformatfordebenturetrust
deedasgiveninFormSH12.The
debenturetrustdeedshall,inter
In"CorpLaw"
alia,containthefollowing:1.

ThisentrywaspostedinCorpLaw,GovernanceandResponsibility,LawsandtaggedBond,CompaniesAct2013,
CompaniesBill2012,convertibledebenture,CorpGov,CorpLaw,CorporateGovernance,CorporateLaw,Debenture,
DebentureStock,DebentureTrust,DebentureTrustDeed,DebentureTrustee,FullyConvertibleDebenture,India,Legal
Reforms,Ministryofcorporateaffairs,NonConvertibleDebenture,PartlyConvertibleDebenture,Reforms,Secured
Debenture,UnsecuredDebenture.Bookmarkthepermalink.

30RESPONSESTODEBENTURE(COMPANIESACT2013)

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Pingback:MEMBERSANDDEBENTURESHOLDERS|AishMGhrana
Pingback:REGISTERSANDANNUALRETURN|AishMGhrana

ApekshaJain|July15,2015at7:10pm|Reply
Sir,
Canyoupleasehelpmewiththeprocedureforissueofcompulsarilyconvertibledebenturesbypvtlimited
companyandrequireddocumentstobefiledwithROC?

Like
AishwaryaMohanGahrana|July15,2015at7:25pm|Reply
pleasereferrelevantpostslistedherehttp://aishmghrana.me/companiesact2013/chapteriv/

Like
PallabiMahato|June27,2015at11:20am|Reply
Sir,
KindlymentiontheSectionNo.orRuleNo.forissuanceofdebenturecertificatewithin6monthsof
allotment.

Like
AishwaryaMohanGahrana|June28,2015at10:48am|Reply
PleaseRefertoSection56(4)(d).

Like
GurpreetKaurChhabra|April1,2015at11:58am|Reply
Siristhereanyformatfordebenturecertificateundertheprovisionsofcompaniesact,2013

Like
AishwaryaMohanGahrana|April1,2015at1:40pm|Reply
No,youmayuseSH1withsuitablemodifications.

Like
RajgopalB|December25,2014at5:00pm|Reply
Sir,
Canpleasetellmetheprocedureforissueofcompulsaryconvertabledebenturesbypvtlimitedcompany
andrequireddocumentstobefiledwithroc

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Like
HariomRastogi|August22,2014at5:06pm|Reply
whatwillbethetreatmentundernewActofCA2013??
Apvtcompanyhadraisedunsecureddebenturesinearlieryearssuppose2010and2011andnotcreated
anychargeagainstthis.
whetheritwillbetreatedasdepositundernewact??
ifyesthenhowandifnothenhow??
pleasethrowsomelight.

Like
AmanKhera|August6,2014at7:06pm|Reply
WhethertheexpressionanyinstrumentevidencingadebtusedinSection2(30)ofCompaniesact2013
includealoanagreement?
Reason:Iputthisquerybecausedefinitionofdebenturein1956actusedthetermsecuritieswhich
narrowedtheambitvizavizdefinitionunderthenewact.

Like
AishwaryaMohanGahrana|August6,2014at7:31pm|Reply
Yes,itappearandcorrectlyappear.
ThisexpressionmayalsoincludetreasuryBills,Promissorynotes,andmanythings.
Hope,theremaybesomeRemovalofDifficultyOrderonthis.

Like
ssam|July7,2014at12:15pm|Reply
Whatwillbetheproceduretoissueunsecuredoptionallyconvertibledebentures??

Like
Sayan|June25,2014at2:24pm|Reply
WhatistheprocedureifaCompanywantstoissueoptionallyfullyconvertibledebenturesintheformof
deposits?

Like
CAAmitGoswami|June14,2014at7:23pm|Reply
Debenturescanbeissuedatdiscountornot

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Pleasereplyonemailgoswamica@gmail.com

Like
AishwaryaMohanGahrana|June14,2014at7:38pm|Reply
Yes,theActandRulesdonotprohibitissueofdebentureatdiscount.Section53prohibitissueofshares
atadiscount.
Imaynotreplycommentsofreadersbyemail.
ReadersmaypleaseuseNotifymeoffollowcommentsviaemailgivenbelowthecommentboxwhile
writingacomment.

Like
shashankshekhar|January7,2015at3:26pm|Reply
Anyexpressedprovision?

Like
shahdeep45|June14,2014at9:35am|Reply
Aredebenturescoveredunderdepositrules?

Like
AishwaryaMohanGahrana|June14,2014at10:29am|Reply
Clause(c)ofRule2oftheCompanies(AcceptanceofDeposits)Rules,2014saysdepositsdoesnot
include:
anyamountraisedbytheissueofbondsordebenturessecuredbyafirstchargeorachargerankingpari
passuwiththefirstchargeonanyassetsreferredtoinScheduleIIIoftheActexcludingintangibleassets
ofthecompanyorbondsordebenturescompulsorilyconvertibleintosharesofthecompanywithinfive
years

Like
Pingback:DEBENTURES|AishMGhrana

VaibhavJain|May19,2014at3:17pm|Reply
WhetherSecureddebenturesmaybeissuedbyacompanybygivingtheSecurityasanyimmovable
propertyinitsgroupcompanies/subisidiaries/undertakingsagainsttheRedeemableSecuredNCDsofthe
parentcompany?
Inotherwords,whetherasperCompanies(Companies(ShareCapitalandDebentures)Rules,2014),
chargeonanyimmmovablepropertieslikelandinthesubsidiarycompanyorpledgeofsharesofthe
subsidiarycompanyisallowedfortheissuanceofRedeemableSecuredNCDsoftheparentcompany?

Like
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AishwaryaMohanGahrana|May19,2014at7:02pm|Reply
Iwillpostrelatedprovisionsinnearfutureafterstudy.Pleasecheckupdates.

Like
VaibhavJain|July22,2014at10:07am|Reply
Whatisyourcallontheabovequery?

Like
AishwaryaMohanGahrana|July22,2014at12:24pm|Reply
AccordingtoRule18,anissueofdebenturesshallbesecuredbythecreationofacharge,onthe
propertiesorassetsofthecompany,havingavaluewhichissufficientfortheduerepaymentof
theamountofdebenturesandinterestthereon.
Accordingly,Assetsofthesubsidiarymaynotbecharged.
Pleasealsorefertomypostdated2ndJune2014.

Like
VaibhavJain|July25,2014at9:23am|Reply
ThanksforyourclarificationMrGahrana.Infurtherancetoyourreply,iwouldliketofurther
clarifythefollowing:
Forexample:ABCLtd.beingwhollyownedsubsidiaryofXYZLtd.,onconsolidatingthe
accountsasperSchedule3ofCompanysAct,2013formatforconsolidatingtheaccountsfor
parentcompany,alltheassetsandliabilitiesofthesubsidiarycompaniesaretobeaggregated
withtheassetsandliabilitiesoftheholdingcompany.
Canwesaythattherequirementoftenderingsecurityonlyofitsownpropertiesorassetsby
thecompanyasrequiredunderRule18(1)(b)ofCompanies(ShareCapitalandDebentures)
Rules,2014canbeinterpretedasthepropertiesandassetsofitswhollyownedsubsidiary
companiesalso?
Further,asperRule18(1)(d),thesecurityforthedebenturesbywayofachargeormortgage
shallbecreatedinfavourofdebenturetrusteeon
(i)anyspecificmovablepropertyofthecompany(notbeinginthenatureofpledge)or
(ii)anyspecificimmovablepropertywhereversituate,oranyinteresttherein.
Hence,inotherwords,canwesaythatRule18(1)(d)(ii)mandatescreationofsecurityin
favourofdebenturetrusteeonanyspecificimmovablepropertywithoutconditionof
ownershipattachedthereto?
Kindlyclarifyinthelightoftheabovescenario.
Regards

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Like
AishwaryaMohanGahrana|July25,2014at11:57am|Reply
Whatispurposeofsecurity?Trusteesmayrealizesomevalueincaseofdefault.
Irrespectiveofholdingsubsidiaryrelationship,companiesareindependentlegalperson.A
personcannotcreatechargeormortgageonpropertyofanother.ConsolidationofAccount
isrequirementofaccountingorgovernancenotofnaturallaw.
Further,Rule18(1)(d)usetermspecificmovablepropertyandspecificimmovable
property.Whatarethesespecificproperties?
Whenwecratesecurity,achargeisrequiredunderChapterVIoftheCompaniesAct,2013.
Aretheproperties,onwhichchargemaybecreated,specifiedproperties?
Please,youandotherreadersmaypleaseenlightenme.

Like
VaibhavJain|July25,2014at2:42pm|Reply
Thanksfortherevert.
Justwantedtobeclearwiththepracticalvisavisthelegal/regulatoryfightw.r.ttothis
newprovisioninCompaniesact,2013.
Infurtherancetoyourreply,iwantedtobeclarifiedofaverysmallpracticalaspectthat
comesinmymindwhendealingwithHoldingcompany(HC)anditswhollyowned
subsidiaries(WOS).
PleaseappreciatethattheshareholdinginaWOS(needlesstosaytotheextentof100%)
isnothingbutaninvestmentforitsHC(andhenceshownintheassetsideofthe
balancesheetforHC).MeaningtherebytheshareholdersofWOSarenobodybuttheHC
itself.Hence,inordertocreateanychargeorlienormortgageonanyimmovableor
movablepropertyinWOSbyHC,theshareholder(nottrusteesiftheincorporation
happenedasCompany)willnothaveanyproblemsbeingtheSAME.
iunderstandthatbothareseparatelegalentitiesbutjustwantedtounderstandthat
whichprovisionoflaw/statuewillrestrictorrefrainmefromcreatinganychargeonthe
assetsofWOSbyHCincaseofsecuringanissueofSecuredNCDs(forexample).
Hopeyouunderstandtheintent.

Like
AishwaryaMohanGahrana|July25,2014at3:12pm|Reply
ProvisionrelatedSecuredDebenturereadwithProvisionsrelatedwithChargeread
withtheTransferofPropertyActreadwithSection9oftheCompaniesAct,2013
ReadwithCommonLaw.

Like
VaibhavJain|July25,2014at5:51pm|Reply
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Thanksforthereply.
Istillrequestsyoutothinkabitmoreonmylastqueryandseeifyoucanfeelthe
intent.
SeeMrGahrana,theideatoseewhetherthesamecanbearguedtobebeeligibleif
wecaninterprettwoormorelawsatonetimefortheeaseofourclients.
Manyatimesourclientshaveassets(Landforexample)intheirsubsidiary
companiesbalancesheetbuttherequirementoffundsaroseattheholding
companylevelapartfromCorporateGuaranteeorBankguarantee.
Sohowtotackletheproblemisthemainconcernofmyposts/timehere.
Ihopetheconversationismorethanprovingoneselfcorrect.

Like
AishwaryaMohanGahrana|July25,2014at7:51pm|
Iamnotheretoprovemyselforanyoneelsecorrect.
FinalInterpretationalwayslieswithJudiciary.
Iwassuggestingtoreadallthesepointstogethertofindoutinterpretation.
Asblogger,myhobby/dutytoprovidegeneralinformationandinterpretation
toallreaders.
Ihereopenyourcommentstoallusers/readerstodiscussthisposer.

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