The document discusses various topics related to debentures and directors under business law. It defines debentures and describes their key characteristics, types, and remedies available to debenture holders. It also covers topics like kinds of debentures, government securities, treasury bills, cash management bills, and the differences between debentures and shares. For directors, it discusses their roles, appointment process, remuneration, duties, and powers. It also defines managing directors and their appointment process.

1. Business Law 16

2. Debentures
• The most common form of borrowing by co.
• It includes bonds, stock and any other securities
whether causing a charge on assets of co. or not
• It is a document that creates a debt or
acknowledges it
• Section 2(12) does not explain what a debenture
is
• It is commonly used in a manner similar to issue
of shares through prospectus.
• The amount may be payable by installments on
application allotment and calls.
• Amount payable in one lump sum.

3. Characteristic features of
debenture
• Issued by a company,Issued in form of certificate which
is an acknowledgement of debt,
• issued under seal, It need not however be necessarily
under the company seal.
• One of a series issued to a number of lenders, single
debenture is also not uncommon, thus as security for a
loan is debenture within the definition given earlier.
• Specifies a particular period or date as the date of
repayment.
• Creates a charge on the undertaking of the company or
some of its property
• Holder does not have right to vote in meetings
* Nature of debenture : they are movable property,
transferable in the manner provided by articles

4. Kinds of debenture
• Bearer debenture :
Unregistered debentures, payable to bearer.
Negotiable instruments and transferable by delivery and a bonafide
transfer not affected by the defect in the title of the prior parties.
Case : Bechunaland Exploration co. Vs London Trading Bank.
• Registered debenture :
Payable to registered holders
A holder is one whose name appears on certificate and in company
records
Can transfer them like shares
Transfer to be completed has to be registered with company
It should be transferred in the manner specified in the condition
endorsed thereon.
Registered debentures are not negotiable instruments.

5. • Secured debentures:
Which create some charge on the property of the company are
known as debentures. The charge may be fixed or floating
• Unsecured debenture
Which do not create any charge on the assets of the company are
known as unsecured or naked debentures.
The holders are like ordinary creditors and may sue for recovery of
debt.
• Redeemable debentures
Debentures issued issued on condition that they would be
redeemed after a certain period They may be re issued after
redemption in accordance with provision.

6. • Irredeemable or perpetual debentures
When debentures are irreedemable they are called perpetual.It is
irreedembale when it has no period fixed for repaytment.or
repayment is made conditional on happening of an event which may
not happen for an indefinite period or may happen only in certain
specified and contingent event ex. Closure of company, they are not
invalid.
• Convertible
This gives holder preference to transfer them to preference or equity
after a certain period., if they exercise this option they cease to be
lenders to the company and become memebers
The debentures may be FCD OR PCD
• Non convertible
This does not give any right to convert them into preference or equity
They are to be duly paid when they mature.

7. • Debenture with parri passu clause
Debentures are issued serially with this clause.
In such a case they are to be discharged
rateably though issued at various times. In the
event of a deficiency of assets to satisfy whole
debt secured by the issue of debentures., they
will abate proportionately., if there is no paari
passu clause then they are payable according to
date of issue.

8. • Debentures with voting rights not to be issued
Company cannot isssue any debenture carrying voting rights. This
has been done to with a view of securing the position of debenture
holders and in order to keep them off from influencing the policy of
general body of share holders.
Issue of debentures at a discount
Can be issued at discount unless the article provided otherwise. no
formalities need to be gone through, they do not form the capital of
company ,particulars of discount to be filed with registrar.

9. Remedies of debenture holders
• He may sue the principal
• Petition under sec. 439 for winding up, on condition they
are unable to pay debts.
The following course of action also available:
1.Debenture holders action: May sue on behalf of himself
and other holders of same class, this is debenture
holders action and if several sue separately the court
can club them together.
2.Appointment of receiver:
He may appoint a receiver , on appaintment the assets
become specifically charged in favor of debenture holder
and power of company to deal in them ceases.

10. 3.Foreclosure:
He may apply for foreclosure of company right to redeem the
debenture. Foreclosure is a process by which the mortagagor failing
to rapay the money lent on the security of a property is compelled to
forefeit his right to redeem the property.
4.Sale
He may sell the property charged as security if an express power to
do so is contained in the terms of issue of debentures, he may also
sell through trusteees.
5.Proof of balance
If the company is insolvent and his security is insufficient he may value
his security and prove for balance .

11. Governement Security
• A Government security is a tradable instrument
issued by the Central Government or the State
Governments.
• It acknowledges the Government’s debt
obligation. Such securities are short term
(usually called treasury bills, with original
maturities of less than one year) or long term
(usually called Government bonds or dated
securities with original maturity of one year or
more).

12. • In India, the Central Government issues both, treasury
bills and bonds or dated securities while the State
Governments issue only bonds or dated securities,
which are called the State Development Loans (SDLs).
• Government securities carry practically no risk of default
and, hence, are called risk-free gilt-edged instruments.
Government of India also issues savings instruments
(Savings Bonds, National Saving Certificates (NSCs),
etc.) or special securities (oil bonds, Food Corporation of
India bonds, fertiliser bonds, power bonds, etc.).
• They are, usually not fully tradable and are, therefore,
not eligible to be SLR securities.

13. Treasury Bills
• Treasury bills or T-bills, which are money market
instruments, are short term debt instruments issued by
the Government of India and are presently issued in
three tenors, namely, 91 day, 182 day and 364 day.
Treasury bills are zero coupon securities and pay no
interest.
• They are issued at a discount and redeemed at the face
value at maturity. For example, a 91 day Treasury bill of
Rs.100/- (face value) may be issued at say Rs. 98.20,
that is, at a discount of say, Rs.1.80 and would be
redeemed at the face value of Rs.100/-.

14. • The return to the investors is the
difference between the maturity value or
the face value (that is Rs.100) and the
issue price (for calculation of yield on
Treasury Bills please see answer to
question no. 26). The Reserve Bank of
India conducts auctions usually every
Wednesday to issue T-bills

15. Cash Management Bills
• Government of India, in consultation with
the Reserve Bank of India, has decided to
issue a new short-term instrument, known
as Cash Management Bills (CMBs), to
meet the temporary mismatches in the
cash flow of the Government. The CMBs
have the generic character of T-bills but
are issued for maturities less than 91
days.

16. Difference Between Debenture
and Shares
• Status:
• Nature of Security
• Income
• Rights
• Repurchase
• Position on winding up

17. Directors
• A company is artificial person in eye of
law.
• The directors are brain of the company
• They are main spring of company.

18. • Any person occupying the position of director by whichever name
called.
• To determine whether person is director or not is to refer to nature of
the office and its duties.
• It does not matter by what name he is called.
• Person having conmtrol over company,conduct , management, or
superintendence of affairs of company
• Any person in accordance with whose directions or instructions the
board of directors of company is accustomed to act is deemed
director
• Only individuals can be directors no body corporate or assosiation
can be appointed as director.

19. Number of directors
• Public company at least three
• Private company at least two
• A public company having paid up capital of Rs. 5 Crore
or more and one thousand or more small share holders
shall have at least one director elected by small share
holders. Small share holders means those having shares
of no,minal value of rs. 20,000 or less.
• Increase or reduction in directors : Subject to statutory
minimum limit the articles of company may prescribe the
maximum and minimum number of directors for its board
of directors.

20. Appointment of Directors
1) First Directors
The articles name directors
If directors are not named in the articles the no. and names
shall be determined in writing by the subscribers of
memorandum or majority of them
The subscribers who are individuals become directors.
2) Appointment of directors by the Company
Directors appointed by share holders in general meeting
2/3 rd directors shall be liable to retire by rotation and are
called rotational directors and shall be appointed by share
holders in meeting

21. Appointment of Directors
At annual meeting 1/3 rd of rotational directors shall retire
The directors to resign will be those who have longest in office
When a director resigns company may fill vacancy by appointing
him or some other person
If the place is not filled company may decide not to fill vacancy, if
at meeting the place of retiring director is not filled up nor is
there a resolution passed the retiring director is deemed to be
reappointed.
3) Appointment of directors by directors
a) Additional directors – any additional directors appointed by
directors shall hold office only up to the date of next annual
general meeting

22. Appointment of Directors
b) Casual vacancy – if the office of any director appointed by the
general meeting is vacated before his term of office expires in
normal course, the resulting casual vacancy may be filled by
directors at the meeting of the board. Such directors shall hold
office only up to the date of next annual general meeting
4) Appointment of directors by third parties – Articles of
association of company may give powers to the debenture
holders or other creditors (banks or financial institution) to
appoint nominees to the board
5) Appointment by proportional representation – the articles of a
company may provide not less than 2/3rd
of the total number of
directors according to the principle of proportional
representation

23. Appointment of Directors
6) Appointment of directors by the Central Government – SEC
408 of the companies act, empowers the Central Govt. to
appoint such number of directors on the board of directors to
effectively safeguard the interests of the company or its
shareholders or the public interest.

24. Managerial remuneration
Managerial personnel refers to a) managing director b) whole
time / part time directors or c) manager
Overall maximum managerial remuneration – the total
managerial remuneration of directors and the manager in
respect of any financial year shall not exceed 11% of the net
profits of the company. The remuneration shall be exclusive of
the fees payable to directors for attending the meetings of the
board of directors
Rules regarding directors remuneration
a) Remuneration shall be determined in the provisions of articles
of association or by resolution passed by general meeting

25. Managerial remuneration
b) Directors may receive remuneration by way of fees for
attending the meetings of the board
c) A whole-time or managing director may be paid by
remuneration by way of monthly remuneration or a specified
percentage of net profits of the company. It cannot exceed 5%
of the net profits, except approved by Central Govt.
d) A part time may be paid remuneration either by way of a
monthly, quarterly with the approval of the central Govt. or
annual payment or by way of commission, if the company by
special resolution authorizes such payment
e) The special resolution determining the remuneration of
directors shall be in force for a maximum period of 5 years

26. Managerial remuneration
f) The net profits of the company for the purpose of director
remuneration shall be computed in the prescribed manner
without deducting directors pay from the gross profits
g) If any director receives any sum in excess of remuneration to
him , he shall hold the excess amount in trust for the and
shall refund it to the company
h) A whole time director or M.D who receives a commission
from the company shall not be entitled to receive a
commission or remuneration from any subsidiary company
i) The above does not apply to a private company unless it is
a subsidiary of public company
j) Prohibition of tax free payment a company shall not pay to
any office or employee remuneration free of tax.

27. Duties of Directors
1.Fiduciary Duties
• Must exercise their powers honestly and
bonafide for the benefit of the company as
a whole
• Not place themselves in position where
there is conflict of duties
• Fiduciaries duties of director owe to the
company and not to the individual
shareholders .

28. 2.Duties of care ,skill and dilligence : Directors should carry
out their duties with reasonable care and exercise such
degree of skill and dilligence as is reasonably expected
of persons of their knowledge and status.He is not bound
to bring any special qualifications to his office.
The standards of care depend upon :
* The type and nature of work
• Division of powers between directors and other officers.
• General usage and customs in that type of business
• Whether directors work gratutiuosly or remuneratively

29. 3. Other duties
1. To attend board meetings
2. Not to delegate his functions ecept to the
extent authorised by the act or the
constitution of the company
3. To disclose his interest.

30. Powers of director
1. General powers of the board
*All such powers and to do all such things as the company authorized
to do.
*Powers of director are co extensive with those of the company.There
are two conditions:
The board shall not do any act which is to be done by the company in
general meeting
The board shall exercise its powers subject to the provisons contained
in the co. act or in MOA or the AOA or in any regulation made by co.
in general meeting.
But no regulation made by the company un general meeting shall
invalidate any prior act of the board which would have been valid if
that regulation had not been made.

31. 2. Powers to be exercised at the board
meetings : The board of directors shall
exercise the following power on behalf of the
company by means of resolution passed at the
meetings of the board. i.e
• Make calls on share holders in respect of
money unpaid on their shares
• Issue debentures
• Borrow otherwise than on debentures
• Invest fund of co.
• Make loans

32. • Powers to be exercised with the approval of company in general
meeting : The board of directors of public company or of a private
company which is a subsidiary of a public co.shall exrecise the
following powers with the consent of the company:
• To sell or lease or otherwise dispose the whole or substantial part of
undertaking of the company
• To remit or give time for repayment of any debt due to the company
by a directors except in case of renewal or continuance of an
advance made by a banking company to its director in ordinary
course of business.
• To invest the
• To borrow the money
• To contribute to charitable trust and other fund not directly involved
with the company

33. 4. Political contribution : With a view to
permitting the corporate sector to play a
legitimate role within the defined norms in
the functioning of our democracy sec 239
allows companies to make contributions to
political parties or for political purposes.

34. Managing director
• A m.d means the director entrusted with
substantial powers of management which
would not otherwise not be exercisable by
him.
• The power may be conferred by virtue of
agreement with co. or resolution passed
by the co. or by its board or by Moa, aoa
etc.

35. Appointment
• Compulsory appointment : every public co. having paid
up capital of 5 crores shall have a md, a whole time
director or a manager
• Prior approval od central government unless
appointment is in accordance with the condition specified
in schedule xiii no such appointment shall be made
except with prior approval of central government.
• However no such approval is required where the
appointment is made in accordance with the conditions
specified in schedule xiii