DEBENTURES

GHULAM MURTAZA KORAI IoBM

DEFINITION

Debenture is a document issued by the company as an evidence of its debt. It is a security issued or allotted to the investors under the seal of the company. It contains a contract for the repayment of a debt and the interest thereon at a specified rate. COMPANIES ORDINANCE DEFINES IT AS: Debenture includes debenture stock, bonds, Term Finance Certificate and any other securities, other than a share of a company, whether constituting a charge on the assets of the company or not

CLASSES OF DEBENTURES

Ordinary Debentures: The debentures issued without any security for repayment are called ordinary debentures. Redeemable Debentures: The debentures which are repayable either at a particular stated time or on the happening of an event or after an indefinite period are known as redeemable debentures. Irredeemable Debentures: The debentures which are not payable during the life time of the company. Bearer Debentures: The debentures which do not specify the name of the owner are called bearer debentures. Perpetual Debentures: The debentures which are not cancelled on redemption and can be re-issued at any time after their redemption.

CLASSES OF DEBENTURES

Secured Debentures: The debenture which is secured by a mortgage on the property of the company is called secured debenture. Convertible Debentures: The debentures which are convertible into the shares of the company are called convertible debentures.

RIGHTS OF DEBENTURE HOLDERS

A debenture holder has a right to have a copy of the trust deed on payment of fixed fee and if the company refuses to provide the said copy, penalty is up to Rs.500 + up to Rs.50 per day No debenture holder other than a convertible debenture, carrying voting right, not exceeding voting rights attached ordinary shares of equal paid up value. The trustees can sue the company if the company fails to redeem the debentures.

FIXED AND FLOATING CHARGES

CHAGE: Charge means encumbrance ( a legal claim), lien (a right to retain possession of property till the repayment of a debt) or a claim. Mortgage: A mortgage is an interest in land created by a written instrument providing security for the performance of a duty or the payment of a debt.

TYPES OF CHARGES

FLOATING CHARGE: Following are the major elements of a floating charge: It is on a class of assets present or future. Class of assets may change from time to time. Until some further step is taken, the company may ordinarily carry on business. FIXED CHARGE: A fixed charge is a mortgage of specific property and prevent the company from realizing that property i.e. disposing without the consent of the holders of the charge. A charge holder must be paid first whatever is due to him.

REGISTRATION OF MORTGAGES AND CHARGES

A company can create a charge or mortgage on its assets against loan or some other obligations by executing an agreement/contract, The agreement is placed before the Board of Directors and its approval is sought. Resolution is passed and a common seal is affixed on the agreement as token of acceptance and the agreement is signed by the chief executive or authorized director. Copies of mortgage or charge documents are made and got attested. It shall be the duty of the company to file

REGISTRATION OF MORTGAGES AND CHARGES

Days duly verified containing prescribed particulars along with copy of the instrument creating such mortgage and the challan fee of Rs.7,500 (Rs.5,000 in case of online submission). CETIFICATE OF REGISTRATION: The Registrar shall, after satisfying himself, issue a certificate of registration of mortgage stating the amount secured and the certificate is the conclusive evidence that all the requirements in respect of registration have been complied with.

MODIFICATION OF TERMS & CONDITIONS OF MORTGAGE

Modification of any terms and conditions of the mortgage shall be communicated to the Registrar by the company within 21 days of such modification along with the copy of the instrument evidencing such modification Modification may include enhancement in amount of mortgage, variation in the rate of

REGISTER OF MORTGAGE

THE REGISTER OF MORTGAGE BY THE REGISTRAR: The Registrar shall keep a register (along with index) and shall enter therein the following particulars in respect of each company separately for each mortgage: Date of creation of mortgage Amount secured by the mortgage Short particulars of the property mortgaged Names of the mortgagees The register shall be open to inspection by any person on payment of the prescribed fee.

REGISTER OF MORTGAGE

REISTER OF MORTGAGE BY THE COMPANY: Every company shall keep register of mortgage at its registered office stating: Short description of property mortgaged Amount of the mortgage Names of the mortgagees except in the case of bearer securities

PENALTY IN CASE OF DEFAULT

Default in filing of particulars of mortgage penalty up to Rs.500 per day. Default in filing of modification penalty up to Rs.5,000+ up to Rs.100 per day Default in maintaining the register by the company penalty up to Rs.2,000