This document discusses debentures and the role of debenture trustees. It defines a debenture as a debt instrument issued by a company to investors that must be repaid at a specified interest rate. When large numbers of debentures are issued, a debenture trustee acts as an intermediary between the company and debenture holders. The trustee holds any assets used as collateral, enforces the debenture agreement, and ensures interest payments are made. The document outlines the types of debentures a company can issue, requirements for appointing a trustee, and the trustee's responsibilities to protect debenture holders' interests.
Corporatisation and demutualisation of stock exchangeSandeep Singh
This document discusses the demutualization and corporatization of stock exchanges in India. It provides background on the mutual structure of Indian stock exchanges prior to demutualization. It then outlines the steps taken towards demutualizing exchanges, including the BSE becoming a company limited by shares in 2005. Research analyzed BSE index and turnover data, finding more stability and increased turnover after demutualization in May 2005. Challenges of the process included potential ongoing conflicts of interest and loss of exchange identity.
1) The Life Insurance Corporation Act of 1956 nationalized the life insurance business in India and established the Life Insurance Corporation of India (LIC) to take over the business and assets of existing life insurers.
2) The LIC was given powers to carry on life insurance business both in India and abroad, invest funds, borrow money, and enter into arrangements to further its business operations.
3) The act also outlined the process for transferring existing life insurance policies, employees, assets, and documents of private insurers to the LIC.
1) The proposal form contains questions for the proposed insured to answer regarding their personal details, risk details, medical history, and previous insurance experience.
2) By signing the proposal form, the proposed insured represents that their answers are true and will form the basis of the insurance contract.
3) If it is later found that the proposed insured provided false or fraudulent statements, it would constitute a breach of contract on their part.
17 rights and_privileges_of_shareholdersMark Anders
The document discusses the rights and privileges of shareholders in a company. It outlines several key rights including the right to obtain company documents, transfer shares, attend general meetings, vote, receive dividends, inspect meeting minutes, and participate in director elections. It also discusses how strong investor protections are important for effective corporate governance and can help reduce agency costs by aligning manager and shareholder objectives.
It is a legislation in India that regulates all banking firms in India. it came into force from 16 March 1949 and changed to Banking Regulation Act 1949 from 1 March 1966. It is applicable in jammu and Kashmir from 1956.
Enacted: 10 March 1949
Enacted by: Parliament of India
Territorial extent: Whole of India
This presentation covers Merchant Banking History; Categories; Services provided by them; Methods of placement; underwriting; Issue management & SEBI guidelines.
Green shoe option allows underwriters of an IPO to purchase up to 15% additional shares of a company at the offering price in order to stabilize share prices. It originated from Green Shoe Manufacturing Company in the 1960s. The green shoe option reduces risk for both the issuing company and underwriters by allowing underwriters to buy back shares if the price falls below the offering price without incurring losses.
Corporatisation and demutualisation of stock exchangeSandeep Singh
This document discusses the demutualization and corporatization of stock exchanges in India. It provides background on the mutual structure of Indian stock exchanges prior to demutualization. It then outlines the steps taken towards demutualizing exchanges, including the BSE becoming a company limited by shares in 2005. Research analyzed BSE index and turnover data, finding more stability and increased turnover after demutualization in May 2005. Challenges of the process included potential ongoing conflicts of interest and loss of exchange identity.
1) The Life Insurance Corporation Act of 1956 nationalized the life insurance business in India and established the Life Insurance Corporation of India (LIC) to take over the business and assets of existing life insurers.
2) The LIC was given powers to carry on life insurance business both in India and abroad, invest funds, borrow money, and enter into arrangements to further its business operations.
3) The act also outlined the process for transferring existing life insurance policies, employees, assets, and documents of private insurers to the LIC.
1) The proposal form contains questions for the proposed insured to answer regarding their personal details, risk details, medical history, and previous insurance experience.
2) By signing the proposal form, the proposed insured represents that their answers are true and will form the basis of the insurance contract.
3) If it is later found that the proposed insured provided false or fraudulent statements, it would constitute a breach of contract on their part.
17 rights and_privileges_of_shareholdersMark Anders
The document discusses the rights and privileges of shareholders in a company. It outlines several key rights including the right to obtain company documents, transfer shares, attend general meetings, vote, receive dividends, inspect meeting minutes, and participate in director elections. It also discusses how strong investor protections are important for effective corporate governance and can help reduce agency costs by aligning manager and shareholder objectives.
It is a legislation in India that regulates all banking firms in India. it came into force from 16 March 1949 and changed to Banking Regulation Act 1949 from 1 March 1966. It is applicable in jammu and Kashmir from 1956.
Enacted: 10 March 1949
Enacted by: Parliament of India
Territorial extent: Whole of India
This presentation covers Merchant Banking History; Categories; Services provided by them; Methods of placement; underwriting; Issue management & SEBI guidelines.
Green shoe option allows underwriters of an IPO to purchase up to 15% additional shares of a company at the offering price in order to stabilize share prices. It originated from Green Shoe Manufacturing Company in the 1960s. The green shoe option reduces risk for both the issuing company and underwriters by allowing underwriters to buy back shares if the price falls below the offering price without incurring losses.
This document defines and describes a red herring prospectus. It discloses that a red herring prospectus is a preliminary prospectus for an initial public offering that does not contain complete details about the offering such as price and number of shares. The document provides information to investors about the issuing company and offering while the SEC reviews the registration statement before approving the offering. A red herring prospectus allows the company to generate interest in the offering before setting final share prices and quantities.
The document discusses penalties and prosecutions under India's tax laws. It outlines various defaults that can invite penalties such as failure to pay taxes on time or provide required records. Penalties range from interest charges to prosecution and imprisonment for serious offenses. While penalties are meant to deter non-compliance, some leniency exists such as reducing penalties for voluntary disclosures. Prosecution is necessary for tax evasion since monetary penalties alone are not a strong enough deterrent for willful defaulters.
The Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act (SARFAESI Act) allows banks and financial institutions to seize assets like property from borrowers who have defaulted on loans above Rs. 1 lakh. Under this Act, banks can take possession of secured assets without court intervention and auction them to recover unpaid debts. It aims to reduce non-performing assets of banks by expediting the recovery process. The Act also establishes Asset Reconstruction Companies that can acquire NPAs from banks to help resolve bad loans.
This document summarizes a seminar on cheques given by five students. It defines a cheque, outlines the essential features of a valid cheque, and describes the different types of cheques. It also discusses endorsement of cheques, the roles and responsibilities of a paying banker and collecting banker, circumstances for dishonoring a cheque, and the protections provided to paying and collecting bankers under Indian law.
The document discusses key topics in corporate finance including maximizing shareholder wealth, evaluating investment projects, valuing companies, mergers and acquisitions, corporate governance, and analyzing corporate financial statements. It also discusses the objective of corporate finance as maximizing shareholder value and the potential issues that can arise when manager and shareholder interests are not aligned.
This document provides an introduction and overview of marine insurance. It discusses the history and origins of marine insurance in ancient Greece, Rome, and Italy. It defines the nature and scope of marine insurance as covering losses related to ships, cargo, and transportation by sea. The document then outlines the main types of marine insurance, including hull insurance, cargo insurance, freight insurance, and marine liability insurance. It also mentions different types of marine insurance policies like voyage policies, time policies, and mixed policies.
Income tax authorities under Income tax act 1961Chirantan Tiwari
The document summarizes the key income tax authorities in India and their roles and responsibilities.
The main authorities are:
1) The Central Board of Direct Taxes (CBDT) which is responsible for policy and administration of direct taxes.
2) Income tax officers, tax recovery officers, and inspectors who handle assessments, collections, and enforcement.
3) The CBDT, directors general, commissioners, and joint commissioners can appoint other tax authorities and delegate powers.
4) The jurisdiction and powers of tax authorities are determined by the CBDT through orders and directions.
The document discusses the insurance sector in India. It covers the introduction and history of insurance in India, the privatization of insurance in the 1990s, and the major effects of privatization. Some key points include:
- Insurance provides protection against risks by distributing losses across many individuals.
- The Indian government nationalized private insurance companies in 1956.
- The government began privatizing insurance in the 1990s, opening it up to private players.
- Since privatization, the insurance sector has grown significantly, with the number of policies and premium income rising sharply. Top private players have also experienced strong growth.
- Privatization has led to increased competition, new products, better technology and customer service. It has
Non-Banking Financial Companies (NBFCs) are financial institutions that are registered under the Companies Act and provide banking services like loans and advances but cannot accept demand deposits. [1] NBFCs must be registered with the Reserve Bank of India (RBI) and are regulated by RBI guidelines regarding public deposits, capital adequacy ratios, liquidity requirements, and other operational conditions. [2] Major types of NBFCs include equipment leasing companies, loan companies, investment companies, and residuary non-banking companies. [3]
The document discusses various laws and regulations governing capital markets and companies in India, including the powers and functions of the Securities and Exchange Board of India (SEBI). It outlines SEBI's powers relating to registration and regulation of intermediaries, prohibition of unfair trade practices, and investigation and enforcement actions. It also describes various penalties that SEBI can impose under the SEBI Act for non-compliance, such as penalties for failure to furnish information or redress investor grievances.
This document discusses the purpose of insurance. It begins by defining insurance as a way to spread losses among a large number of people who contribute to a common fund. Insurance transfers risk from the insured to one or more insurers. It provides financial protection and compensation in the event of a claim. The importance of pooling risk is that it allows risks to be spread evenly among a large number of contributors, making it easier for insurance companies to bear losses than individuals. Insurance companies make profits based on the difference between premiums and investment income collected, and losses from claims paid out plus administrative costs.
SEBI-Securities and Exchange Board of IndiaKULDEEP MATHUR
The Securities and Exchange Board of India (SEBI) was established in 1988 as a non-statutory body and was given statutory powers through the SEBI Act of 1992 to regulate and develop the securities market in India. SEBI's objectives are to protect investors, regulate stock exchanges and other market intermediaries, and prohibit fraudulent and unfair trade practices. It performs regulatory, developmental, and capital market functions through various departments and committees to achieve its goals.
The document discusses the procedures for altering key clauses in a company's memorandum of association, including the name, registered office location, objects, liability, and capital. It requires special resolutions, board resolutions, government approvals, and registrar filings depending on the type of alteration. The memorandum of association is a key legal document that establishes a company and governs changes to its basic structure and operations.
The document discusses underwriting, which is an agreement where underwriters take on the risk of purchasing securities from an issuer in the event that the public demand is insufficient. It describes different types of underwriting arrangements and the roles and responsibilities of underwriters. It also outlines the eligibility criteria, registration process, operational guidelines, and record keeping requirements for underwriters according to SEBI regulations in India. As an example, it summarizes that Alibaba's 2014 IPO raised over $20 billion with six major banks serving as equal lead underwriters.
The document outlines various activities that banks are permitted to conduct according to the Banking Regulation Act of 1949 in India. It lists collecting and transmitting money, managing and dealing with property acquired to satisfy debts, undertaking trusts, acquiring and maintaining buildings, acquiring other businesses if permitted, and other incidental activities. It specifies that banks cannot conduct any other business or substitute other applicable laws unless stated. The Act does not apply to primary agricultural societies, cooperative land mortgage banks, or other cooperative societies except as provided. It also outlines restrictions on banks granting loans to directors and companies they have interests in.
The document summarizes the key aspects of the Banking Regulation Act of 1949 in India. It defines banking and banking companies. It outlines the main and subsidiary business activities banks can engage in, as well as prohibited activities. It discusses capital requirements for domestic and foreign banks. It also covers management structure requirements, liquidity reserves like SLR and CRR, licensing provisions, RBI powers of supervision and control, return filing obligations, winding up procedures, and reforms from the Narasimham committee.
Motor insurance provides protection against physical damage and liability arising from traffic collisions. It is mandatory in India to insure vehicles before driving them. Insurance protects one's life, money, and liability to third parties by covering expenses in case of an accident. Premiums are decided based on factors like age, driving history, vehicle type, location, etc. Policies can be liability-only or comprehensive. Comprehensive policies provide coverage for damages from various causes while liability covers third party liability. Exclusions include contractual liability, war/nuclear risks, driving under influence. A case study describes an insurance company unjustifiably delaying and rejecting a claim for a stolen car.
(1) The document discusses various types of shares such as equity shares, preference shares, and their characteristics. It explains concepts like share capital, types of share capital, rights of shareholders, and types of preference shares.
(2) It also covers topics like allotment of shares, declaration of dividends, transfer of shares, transmission of shares, and increase of share capital. Methods to increase capital include further issue of shares, rights issues, and conversion of loans or debentures into equity.
(3) SEBI guidelines related to rights issues are also summarized, setting limits on fund raising and requiring measures like underwriting and minimum subscription.
The document discusses debentures, which are a type of loan that companies issue to raise capital. Debentures can be classified in several ways, including based on whether they are convertible to shares, secured by company assets, redeemable at a set time, or registered to a holder. Debenture holders are creditors to the company rather than owners, and are entitled to fixed interest payments but do not share in company profits/losses. Debentures provide an important means for companies to supplement share capital with long-term loan funding.
KINDS OF DEBENTURES
CHARACTERISTICS OF DEBENTURES
Rules and Guidelines on Debentures
A debenture is the most important instrument and method of raising the loan capital by the company. A debenture is like a certificate of loan or a loan bond evidencing the fact that the company is liable to pay a specified amount with interest and although the money raised by the debentures becomes a part of the company’s capital structure, it does not become share capital.
This document defines and describes a red herring prospectus. It discloses that a red herring prospectus is a preliminary prospectus for an initial public offering that does not contain complete details about the offering such as price and number of shares. The document provides information to investors about the issuing company and offering while the SEC reviews the registration statement before approving the offering. A red herring prospectus allows the company to generate interest in the offering before setting final share prices and quantities.
The document discusses penalties and prosecutions under India's tax laws. It outlines various defaults that can invite penalties such as failure to pay taxes on time or provide required records. Penalties range from interest charges to prosecution and imprisonment for serious offenses. While penalties are meant to deter non-compliance, some leniency exists such as reducing penalties for voluntary disclosures. Prosecution is necessary for tax evasion since monetary penalties alone are not a strong enough deterrent for willful defaulters.
The Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act (SARFAESI Act) allows banks and financial institutions to seize assets like property from borrowers who have defaulted on loans above Rs. 1 lakh. Under this Act, banks can take possession of secured assets without court intervention and auction them to recover unpaid debts. It aims to reduce non-performing assets of banks by expediting the recovery process. The Act also establishes Asset Reconstruction Companies that can acquire NPAs from banks to help resolve bad loans.
This document summarizes a seminar on cheques given by five students. It defines a cheque, outlines the essential features of a valid cheque, and describes the different types of cheques. It also discusses endorsement of cheques, the roles and responsibilities of a paying banker and collecting banker, circumstances for dishonoring a cheque, and the protections provided to paying and collecting bankers under Indian law.
The document discusses key topics in corporate finance including maximizing shareholder wealth, evaluating investment projects, valuing companies, mergers and acquisitions, corporate governance, and analyzing corporate financial statements. It also discusses the objective of corporate finance as maximizing shareholder value and the potential issues that can arise when manager and shareholder interests are not aligned.
This document provides an introduction and overview of marine insurance. It discusses the history and origins of marine insurance in ancient Greece, Rome, and Italy. It defines the nature and scope of marine insurance as covering losses related to ships, cargo, and transportation by sea. The document then outlines the main types of marine insurance, including hull insurance, cargo insurance, freight insurance, and marine liability insurance. It also mentions different types of marine insurance policies like voyage policies, time policies, and mixed policies.
Income tax authorities under Income tax act 1961Chirantan Tiwari
The document summarizes the key income tax authorities in India and their roles and responsibilities.
The main authorities are:
1) The Central Board of Direct Taxes (CBDT) which is responsible for policy and administration of direct taxes.
2) Income tax officers, tax recovery officers, and inspectors who handle assessments, collections, and enforcement.
3) The CBDT, directors general, commissioners, and joint commissioners can appoint other tax authorities and delegate powers.
4) The jurisdiction and powers of tax authorities are determined by the CBDT through orders and directions.
The document discusses the insurance sector in India. It covers the introduction and history of insurance in India, the privatization of insurance in the 1990s, and the major effects of privatization. Some key points include:
- Insurance provides protection against risks by distributing losses across many individuals.
- The Indian government nationalized private insurance companies in 1956.
- The government began privatizing insurance in the 1990s, opening it up to private players.
- Since privatization, the insurance sector has grown significantly, with the number of policies and premium income rising sharply. Top private players have also experienced strong growth.
- Privatization has led to increased competition, new products, better technology and customer service. It has
Non-Banking Financial Companies (NBFCs) are financial institutions that are registered under the Companies Act and provide banking services like loans and advances but cannot accept demand deposits. [1] NBFCs must be registered with the Reserve Bank of India (RBI) and are regulated by RBI guidelines regarding public deposits, capital adequacy ratios, liquidity requirements, and other operational conditions. [2] Major types of NBFCs include equipment leasing companies, loan companies, investment companies, and residuary non-banking companies. [3]
The document discusses various laws and regulations governing capital markets and companies in India, including the powers and functions of the Securities and Exchange Board of India (SEBI). It outlines SEBI's powers relating to registration and regulation of intermediaries, prohibition of unfair trade practices, and investigation and enforcement actions. It also describes various penalties that SEBI can impose under the SEBI Act for non-compliance, such as penalties for failure to furnish information or redress investor grievances.
This document discusses the purpose of insurance. It begins by defining insurance as a way to spread losses among a large number of people who contribute to a common fund. Insurance transfers risk from the insured to one or more insurers. It provides financial protection and compensation in the event of a claim. The importance of pooling risk is that it allows risks to be spread evenly among a large number of contributors, making it easier for insurance companies to bear losses than individuals. Insurance companies make profits based on the difference between premiums and investment income collected, and losses from claims paid out plus administrative costs.
SEBI-Securities and Exchange Board of IndiaKULDEEP MATHUR
The Securities and Exchange Board of India (SEBI) was established in 1988 as a non-statutory body and was given statutory powers through the SEBI Act of 1992 to regulate and develop the securities market in India. SEBI's objectives are to protect investors, regulate stock exchanges and other market intermediaries, and prohibit fraudulent and unfair trade practices. It performs regulatory, developmental, and capital market functions through various departments and committees to achieve its goals.
The document discusses the procedures for altering key clauses in a company's memorandum of association, including the name, registered office location, objects, liability, and capital. It requires special resolutions, board resolutions, government approvals, and registrar filings depending on the type of alteration. The memorandum of association is a key legal document that establishes a company and governs changes to its basic structure and operations.
The document discusses underwriting, which is an agreement where underwriters take on the risk of purchasing securities from an issuer in the event that the public demand is insufficient. It describes different types of underwriting arrangements and the roles and responsibilities of underwriters. It also outlines the eligibility criteria, registration process, operational guidelines, and record keeping requirements for underwriters according to SEBI regulations in India. As an example, it summarizes that Alibaba's 2014 IPO raised over $20 billion with six major banks serving as equal lead underwriters.
The document outlines various activities that banks are permitted to conduct according to the Banking Regulation Act of 1949 in India. It lists collecting and transmitting money, managing and dealing with property acquired to satisfy debts, undertaking trusts, acquiring and maintaining buildings, acquiring other businesses if permitted, and other incidental activities. It specifies that banks cannot conduct any other business or substitute other applicable laws unless stated. The Act does not apply to primary agricultural societies, cooperative land mortgage banks, or other cooperative societies except as provided. It also outlines restrictions on banks granting loans to directors and companies they have interests in.
The document summarizes the key aspects of the Banking Regulation Act of 1949 in India. It defines banking and banking companies. It outlines the main and subsidiary business activities banks can engage in, as well as prohibited activities. It discusses capital requirements for domestic and foreign banks. It also covers management structure requirements, liquidity reserves like SLR and CRR, licensing provisions, RBI powers of supervision and control, return filing obligations, winding up procedures, and reforms from the Narasimham committee.
Motor insurance provides protection against physical damage and liability arising from traffic collisions. It is mandatory in India to insure vehicles before driving them. Insurance protects one's life, money, and liability to third parties by covering expenses in case of an accident. Premiums are decided based on factors like age, driving history, vehicle type, location, etc. Policies can be liability-only or comprehensive. Comprehensive policies provide coverage for damages from various causes while liability covers third party liability. Exclusions include contractual liability, war/nuclear risks, driving under influence. A case study describes an insurance company unjustifiably delaying and rejecting a claim for a stolen car.
(1) The document discusses various types of shares such as equity shares, preference shares, and their characteristics. It explains concepts like share capital, types of share capital, rights of shareholders, and types of preference shares.
(2) It also covers topics like allotment of shares, declaration of dividends, transfer of shares, transmission of shares, and increase of share capital. Methods to increase capital include further issue of shares, rights issues, and conversion of loans or debentures into equity.
(3) SEBI guidelines related to rights issues are also summarized, setting limits on fund raising and requiring measures like underwriting and minimum subscription.
The document discusses debentures, which are a type of loan that companies issue to raise capital. Debentures can be classified in several ways, including based on whether they are convertible to shares, secured by company assets, redeemable at a set time, or registered to a holder. Debenture holders are creditors to the company rather than owners, and are entitled to fixed interest payments but do not share in company profits/losses. Debentures provide an important means for companies to supplement share capital with long-term loan funding.
KINDS OF DEBENTURES
CHARACTERISTICS OF DEBENTURES
Rules and Guidelines on Debentures
A debenture is the most important instrument and method of raising the loan capital by the company. A debenture is like a certificate of loan or a loan bond evidencing the fact that the company is liable to pay a specified amount with interest and although the money raised by the debentures becomes a part of the company’s capital structure, it does not become share capital.
Goodwill arises when a company acquires another company at a price higher than the fair market value of its tangible and identifiable intangible assets. It represents the future economic benefits from assets that are not individually identified and separately recognized. Goodwill is an intangible asset that is reported on the acquiring company's balance sheet.
Revisiting A Panicked Securitization MarketIOSR Journals
With the passage of Finance Bill 2013 on April 30 in Lok Sabha proposing to Levy a 30% distribution tax on the investors in securitization deals through special purpose vehicles, there is a stir in the securitization market. The principal investors (banks) were paying the tax on their net income from the securitization transaction through SPVs. Now, they will be taxed on the gross income as per the new Finance Bill. The new securitization guidelines issued in May 2012 dipped the volume of fresh issue to Rs. 28,400 crore from Rs. 44,500 crore in the preceding fiscal.
Borrowed capital consists of funds raised through loans and credit from various sources such as debentures, bonds, and financial institutions. It creates obligations for the company to repay the principal and pay interest. Borrowed capital is temporary in nature compared to equity capital. Debentures are debt instruments used by companies to borrow money at fixed interest rates. Bonds are also debt instruments where an investor loans money to a corporate or government body. Financial institutions such as banks provide long-term loans to companies. Borrowed capital allows companies to raise funds for expansion while creating repayment obligations.
This document provides information about term loans. It defines term loans as monetary loans that are repaid in regular installments over a set period of time. It discusses the purposes of term loans including capital expenditure, new industrial undertakings, and acquisition of assets. It also outlines the procedures for term loans including application submission and processing, project appraisal, sanction letter, loan agreement execution, and disbursement. Different types of term loans like short, intermediate, and long term are described. Key features of term loans like interest payment schedules, security requirements, and covenants are summarized. Finally, an example repayment schedule for a term loan is shown.
This document discusses debentures and compares them to bonds. It defines debentures as an acknowledgement of debt issued by a company under its common seal. Debentures can be secured or unsecured, whereas bonds are generally more secure. Debentures are issued by companies to raise funds, while bonds are typically issued by governments or large corporations. Debentures carry higher risk than bonds but also offer higher interest rates. The document outlines the key characteristics of debentures, including different types classified by security, redemption period, negotiability, priority, coupon rates, and convertibility. It also compares debenture holders to shareholders.
Significant Advantages of Debentures in 2022.pdfyashikavarshney7
In this article you will get to know about advantages of debentures which you can take care of in the year 2022-23. So gain more information with us to know more.
The Latin word “debere” means to borrow money or take out a loan. A type of debt instrument that can or may not be secured with collateral is a debenture. They are used by companies and governments to raise capital from the public.
It is simply a legal document that lists the principal amount, the interest rate and the payment schedule. At the maturity, the investor will receive the principal and the interest.
These loans are similar to unsecured loans, where the investor does not have any rights to company assets in the event of default. Repayment depends solely on the creditworthiness and financial strength of the issuing company.
Securitization involves pooling financial assets like loans and converting them into marketable securities. This allows the originator to access funding and improve liquidity. In India, securitization grew out of similar developments in the US housing market in the 1970s. It involves an originator transferring assets to a special purpose vehicle which then issues bonds backed by the assets' cash flows. This benefits originators through lower funding costs, improved liquidity and balance sheet management.
A debenture is a certificate issued by a company to acknowledge its debt obligation. It provides details of the loan terms including the amount owed and interest rate. Debentures can be classified in several ways such as secured vs unsecured, redeemable vs non-redeemable, registered vs bearer, convertible vs non-convertible, and by coupon/interest rate. Companies issue debentures to borrow money which becomes part of their capital structure.
This document provides an overview of bank investment and lending functions. It discusses how banks apply their funds through statutory liquidity ratio investments, non-SLR investments, and lending. Lending includes various types of loans like cash credit, overdrafts, and bill discounting. It also discusses non-fund based lending through bank guarantees and letters of credit. Asset-based lending is described as using collateral like projects, receivables, or securities to secure loans.
A debenture is a type of loan issued by a company to raise funds. There are different types of debentures based on security, redemption period, record keeping, and convertibility. Debentures offer companies a way to raise funds for a specific period without diluting ownership, but carry more risk than shares if the company fails to repay on time. Debenture holders are creditors entitled to interest payments, while shareholders are owners entitled to potential dividend payments from company profits.
The document discusses debentures, which are debt instruments issued by companies to borrow money. It defines debentures and describes their key features, such as being a medium- to long-term debt that does not give debenture holders ownership in the company. The document then categorizes debentures based on their convertibility, security, and redemption terms. It provides examples of accounting entries for issuing debentures at par, premium, and discount, as well as for interest payments on debentures.
A bond is a long-term debt instrument issued by companies and governments. When an investor purchases a bond, they are loaning money to the bond issuer. The issuer pays regular interest payments to the investor and repays the principal at maturity. Bonds have characteristics like face value, coupon rate, maturity date, and issue price. A trustee acts on behalf of bondholders, and an indenture agreement sets out the terms and conditions of the bonds. There are different types of bonds like secured bonds, unsecured bonds, debentures, subordinate debentures, income bonds, junk bonds, and mortgage bonds.
1. The document discusses various finance-related topics including defining finance, preparing a bank reconciliation statement, factors affecting financial planning, innovations in finance, differences between debentures and shares, types of debentures, and ratio analysis.
2. Ratio analysis helps a company by defining whether it is profitable, meeting short-term obligations, and whether shareholders are satisfied. Key ratios include liquidity, leverage, activity, and profitability.
3. Being a finance manager, one would review past financial statements, discuss growth expectations with management, prepare provisional financial statements, and identify cost-cutting opportunities to forecast finances.
What role does collateral play in surety bonds? In this publication, we take a look at the types of collateral that sureties may accept, the right time to release a collateral, what happens to a collateral if you change sureties, and why a collateral may be necessary for riskier bonds.
The document provides an overview of various short-term financing sources available to companies, including trade credit, credit installments, advances, factoring, accrued expenses, deferred incomes, commercial paper, commercial banks, and public deposits. It also discusses various types of capital market instruments that provide short-term financing, such as equity shares, preference shares, debentures, and warrants. Key short-term financing sources discussed include bank loans, overdrafts, trade credit from suppliers, advances from customers, and public deposits. The document outlines the characteristics and terms of different types of shares that can be used as sources of short-term financing.
The document discusses securitization and asset reconstruction in India. It states that Section 5 of the Securitization and Reconstruction of Financial Assets and Enforcement Security Interest Act mandates that only banks and financial institutions can securitize their financial assets. It provides an example of how a bank called XYZ Bank can securitize its loan assets by transferring them to a special purpose vehicle, removing the assets from its books and freeing up capital for new lending. The special purpose vehicle then issues securities to investors to raise funds that are passed back to the originating bank.
Debentures are long-term debt instruments issued by companies to investors to raise funds. Debenture holders are the creditors that invest money in the company in exchange for regular interest payments. A debenture trust deed is created to protect debenture holders' interests by conveying company assets to a debenture trustee, who represents holders and ensures their rights are maintained. Requirements for serving as a debenture trustee include being a commercial bank, public financial institution, insurance company or body corporate.
This document provides an overview of various short-term financing sources including indigenous bankers, trade credit, installment credit, advances, factoring, accrued expenses, deferred incomes, commercial paper, commercial banks, and public deposits. It also discusses various types of equity such as equity shares, preference shares, debentures, and warrants. Preference shares are further classified as convertible/non-convertible, redeemable/irredeemable, participating/non-participating, and cumulative/non-cumulative preference shares. The document serves as a reference for various short-term financing options and equity instruments available to companies.
Transformation of farmers agitation 2021 in IndiaShantanu Basu
This movement began as a protest against controversial farm acts by farmers, but has expanded into a broader challenge and alliance against the government by 90% of India's population. It represents common people challenging the privileged elite and seeking to replace the existing political system that perpetuates inequalities. The movement signals dissatisfaction with a system skewed in favor of upper castes and brings together various disadvantaged groups including farmers, laborers, and the unemployed from across different states. It seeks equitable policies for both buyers and sellers in the agricultural sector and other reforms benefiting farmers and rural communities.
- War clouds are gathering as Russia threatens to invade Ukraine and China flexes its muscles on the Indian border. Both countries have rebuilt their economies and militaries while Western powers have aging equipment.
- China and Russia want to show strength domestically and see Western treaties as having truncated their nations. They have penetrated infrastructure overseas and tested new weapons.
- The global power balance has shifted eastward as Western nations ceded manufacturing and technology to Asia. A future world war would likely be in Asia between East and West. India would struggle to fight on multiple fronts against China and Pakistan.
Red challenges to Biden's blue presidencyShantanu Basu
Biden faces formidable challenges as President from Republican opposition in the Senate and from Trump supporters across America. His agenda will likely be stalled as the Senate is evenly split, requiring Vice President Kamala Harris's vote. The US economy also presents challenges as it relies on high debt and deficits. Biden will face stiff opposition to providing further COVID relief, returning to Obama-era policies, and replacing Trump administration officials. Relations with China may continue as both countries rely on trade, but Biden will face pressure over issues like India from Republicans portraying him as soft. As the first Democratic president in decades, Biden will have to navigate tensions over race, business interests, and personal freedoms to achieve his reform agenda.
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Debenture Trustees
1. 0
DEBENTURE TRUSTEE
Submitted to:
Mr. Vikas Gupta
Faculty-in-charge
Course: Investment Law
Course Code: LAW 455
Submitted by:
Kunal Basu
Enrol. No: A3256113116
Course: LL.B
Batch: 2013-16
Date of Submission: Feb. 25, 2015
2. 1
Contents
What is a Debenture?................................................................................................................... 2
Different Types of Debentures....................................................................................................... 4
Who is a Debenture Trustee?........................................................................................................ 4
Relevant Rules / Procedure in the Companies (Share Capital and Debentures) Rules, 2014 ............... 5
Who can be appointed a Debenture Trustee? ................................................................................ 6
What is the role of Debenture Trustee?......................................................................................... 7
Rights..................................................................................................................................7
Liabilities............................................................................................................................. 7
Contents of the Debenture Trustee Agreement.............................................................................. 9
Code of Conduct for Debenture Trustees(Regulation 16 & Sch. III)................................................ 10
Who can Appoint a Debenture Trustee? ...................................................................................... 11
Debenture Redemption Reserve.................................................................................................. 11
When can a nominee director be appointed?............................................................................... 12
Can a debenture issuebe transferred?If so,whencana debenture trustee relinquishhis
assignments?............................................................................................................................. 12
Contents of the Debenture Trustee Agreement............................................................................ 12
Role of debenture trustee with respect to creation or enforcing securityin a debenture issue........ 13
Is appointment of Debenture Trustee compulsory?...................................................................... 14
Regulator of Debenture Trustees................................................................................................. 14
Courts in India on the Role of Debenture Trustees........................................................................ 14
Author’s Viewpoint.................................................................................................................. 15
Citations……………………………………………………………………………………………………………………………………………..
15
3. 2
What is a Debenture?
A debenture is an instrument of debt executed by the company acknowledging its
obligation to repay the sum at a specified rate and also carrying an interest. It is one of the
methods of raising the loan capital of the company. A debenture is thus like a certificate of
loan or a loan bond evidencing the fact that the company is liable to pay a specified amount
with interest and although the money raised by the debentures becomes a part of the
company's capital structure, it does not become share capital. Debenture is essentially a
Corporate debt instrument acknowledging money lent and guaranteeing repayment with
interest and creating security on the assets of the company for due performance of its
obligation. A debenture is a type of debt instrument that is not secured by physical assets or
collateral. Debentures are backed only by the general creditworthiness and reputation of the
issuer. Both corporations and governments frequently issue this type of bond in order to
secure capital. Like other types of bonds, debentures are documented in an indenturei.
Debentures have no collateral. Bond buyers generally purchase debentures based on the
belief that the bond issuer is unlikely to default on the repayment. An example of a
government debenture would be any government-issued Treasury bond (T-bond) or Treasury
bill (T-bill). T-bonds and T-bills are generally considered risk free because governments, at
worst, can print off more money or raise taxes to pay these type of debts. This is a debt
instrument and is the commonest method of raising loan capital, as part of project financing.
A loan is a bilateral instrument, and is therefore a contract. A debenture is a securitised loan.
It becomes marketable. The contract between a debenture holder and debenture issuer is
inherent in the terms of issue of a debenture.
The basic distinction being, when one buys the shares of the company he becomes the
part owner of the company, but when one buys debentures issued by the company he
becomes a creditor to the company. We can conclude that debenture is a kind for formal loan
given to the company by another individual. The company is under obligation to repay the
loan within a specified period of time with interest. The advantage of being of being a
debenture holder is that, in case of winding-up/bankruptcy the debenture holders are
considered to be the creditors and they are the ones who would be repaid first.
Issuance of debentures is one of the ways of raising debt finance for a company.
Debenture is a recognized instrument used by the companies, which evidences creation of a
debt, whether such debt creates a charge on the assets of the company or not. Under the
4. 3
Companies Act, 2013, debentures being a security, it can be issued by a private company
only through the route of private placement. A company can issue debentures with an option
to convert such debentures into shares, either partially or fully, at the time of redemption of
the shareii. However, before such option is given, it must be approved by the shareholders of
the company by a special resolution in the general meeting of the company. Issuance of such
debentures does not give the debenture holder any voting rights.
On the basis of convertibility the debentures are of two types:
CONVERTIBLE: these are the debentures that can be converted into equity of the company
on the expiry of the specified period of time.
NON-CONVERTIBLE: these are the debentures that in no case can be converted into
equity shares of the company.
In case, the company opts for issuance of secured debentures, it needs to meet the following
conditions:
The date of redemption of such secured debentures should be made within 10 years
from the date of issue. However, companies involved in infrastructure projects,
infrastructure finance companies, infrastructure debt fund non-banking finance
company can issue debentures which can be redeemed within a period not exceeding
30 years.
Such issuance shall be secured by the creation of a charge in favour of the debenture
trustee, on the properties or assets of the company (including specific movable and
immovable property of the company), which must be of a sufficient value needed for
the due repayment of the amount of debentures and the interest.
The company shall appoint a debenture trustee before the issue of prospectus or letter
of offer for subscription of its debentures.
The company shall execute a debenture trust deed to protect the interest of the
debenture holders within sixty days from the date of allotment.
The company issuing debenture must create a debenture redemption reserve (DRR) account
out of the profits of the company, which will be utilized only for the redemption of
debentures. However, All India Financial Institutions (AIFIs) regulated by Reserve Bank of
India and Banking Companies are not required to maintain DRR account for both public as
well as privately placed debentures. NBFCs and companies engaged in manufacturing and
5. 4
infrastructure enjoys certain relaxation regarding maintenance of DRR account reserves. If a
company is issuing secured debentures or making an offer, or issue prospectus for more than
500 subscriptions of its debentures, it must appoint one or more debenture trustee as per the
conditions laid down in the Companies (Share Capital and Debentures) Rules, 2014iii.
Different Types of Debentures
The following diagram shows different types of debentures:
Who is a Debenture Trustee?
A debenture trustee is a person or entity that serves as the holder of debenture stock for the
benefit of another party. When a company is looking to raise capital, one method of
accomplishing this is by issuing stock as a form of debt with the obligation to repay the debt
at a specific interest rate. The trustee serves as a liaison between the company that issued the
debentures and the debenture holders that are collecting interest payments. When lending
money through a debenture offering, an investor will receive a debenture certificate entitling
him or her to a particular sum of money and a specified interest rate. As investors do not
receive an individual bond for their investments, their loans are really a small portion of one
large loan. This can be extremely risky in the event of a default as the smaller debenture
investors may lose their entire investment. As a result of this, a debenture trustee is appointed
when debenture stock is issued to a large number of investors. When a large amount of
debenture stock is issued, the company issuing the stock may be required to use its property
6. 5
as collateral. In this scenario, the property is mortgaged to the purchasers of the debentures
and the deed is placed in a trust. The debenture trustee serves are the official representative
for the debenture investors and is responsible for liquidating the collateral of the trust in the
event that the company defaults on its debentures.
The benefits of using a debenture trustee are that a professional trust company will
have extensive experience with this form of investment structure and will know what
information is needed from the issuing company in order to make an informed decision about
the debenture investment. The trustee will also be able to determine if a company is in
compliance with the terms and agreements set forth by the debenture offering. The company
issuing the debenture also benefits from using a debenture trustee in that it only has to work
with one person as opposed to the hundreds of investors who purchased its debentures.
The powers and duties of a debenture trustee will vary with each transaction. Generally, the
deed will contain a variety of parameters specifying the power, duties, and responsibilities of
the trustee. Although the rules and regulations surrounding a debenture trustee will vary from
country to country, there are clear benefits to using a trustee when dealing with a debenture
offering.
Relevant Rules / Procedure in the Companies (Share Capital and
Debentures) Rules,2014
A person shall not be appointed as a debenture trustee, if he-
(i) Beneficially holds shares in the company;
(ii) Is a promoter, director or key managerial personnel or any other officer or an employee of
the company or its holding, subsidiary or associate company;
(iii) Is beneficially entitled to moneys which are to be paid by the company otherwise than as
remuneration payable to the debenture trustee;
(iv) Is indebted to the company, or its subsidiary or its holding or associate company or a
subsidiary of such holding company;
(v) has furnished any guarantee in respect of the principal debts secured by the debentures or
interest thereon;
(vi) Has any pecuniary relationship with the company amounting to two per cent. or more of
its gross turnover or total income or fifty lakh rupees or such higher amount as may be
7. 6
prescribed, whichever is lower, during the two immediately preceding financial years or
during the current financial year;
(vii) is relative of any promoter or any person who is in the employment of the company as a
director or key managerial personnel
(d) The Board may fill any casual vacancy in the office of the trustee but while any such
vacancy continues, the remaining trustee or trustees, if any, may act:
Provided that where such vacancy is caused by the resignation of the debenture trustee, the
vacancy shall only be filled with the written consent of the majority of the debenture holders.
(e) Any debenture trustee may be removed from office before the expiry of his term only if it
is approved by the holders of not less than three fourth in value of the debentures outstanding,
at their meetingiv.
Who can be appointed a Debenture Trustee?
To act as debenture trustee, the entity should either be a scheduled bank carrying on
commercial activity, a public financial institution, an insurance company, or a body
corporate. The entity should be registered with SEBIv to act as a debenture trustee. In India
Whenever any Issuer is issuing Debenture / Bonds with tenure of over 12 months requires
appointing a Professional Debenture Trustee. A Body Corporate registered with Securities
and Exchange Board of India (SEBI) as Debenture Trustee (intermediary) is called
Professional Trusteevi. As per SEBI guidelines, Trustee should not act or associate with any
Debenture / Bond Issue where he is associated as Investor or Lender. All and sundry cannot
be appointed as trustees. A person holding shares beneficially in the issuer company or
beneficially entitled to receive moneys from that company and has provided any guarantee in
respect of principal debts secured by the debentures or interest thereon cannot be appointed as
a trustee, as specified in the Act. SEBI (Debenture Trustee) Regulations, 1993 additionally
provide that no entity shall be entitled to act as debenture trustee unless at is either a
scheduled bank carrying on commercial activity or a public financial institution within the
meaning of section 4A of the Act or an insurance company, or a body corporate. It is also
necessary that such an entity should have capital adequacy of net worth of one crore of rupees
and have been licensed by SEBI to act as a debenture trustee.
8. 7
What is the role ofDebenture Trustee?
All appointments to be made of the debenture trustee(s) shall be made under S. 71 of the
Companies Act, 2013.
Rights
Section 18 (c) a company in no cases can issue debentures before appointment of a
debenture trustee.
The company cannot issue debentures before obtaining the consent of the debenture
trustee.
The company has to specify the name of the name of the debenture trustee in the offer
letter.
The debenture trustee can call for periodical performance report of the company
The trustee can call for reports regarding the use of funds raised through issue of
debentures.
The trustee can communicate promptly to the debenture holders’ defaults, if any, with
regard to payment of interest or redemption of debentures and action taken by the
trustee therefor.
The trustee can appoint a nominee to board of director of the company.
Before the trustee appoints the nominee the conditions must be satisfied:
1. Two consecutive defaults in payment of interest to the
debenture holders; or
2. Default in creation of security for debentures; or default in
redemption of debentures
Liabilities
No one can be appointed as a debenture trustee if he has a share ownership in the
company.
He cannot be appointed if he is a promoter of the company, employee or the manager.
No appointment for Creditor to the company.
9. 8
The vacancy of the debenture can be filled by the company by the consent of the other
trustees.
Duties
The trustee ensures that there is no breach in the terms of issue of debentures.
The trustee can take steps to remedy the breach (above mentioned).
The trustee is the person who informs the debenture holders about such breach.
The trustee ensures that all the condition regarding creation of security for debentures
is met
The trustee convenes the meeting between the company and the debenture holders
The trustee is the person who ensures that the debentures are redeemed as per the
conditions agreed upon.
The trustee can take steps to resolve the dispute between the company and the holders
The trustee has to take necessary steps to ensure the interest of the debenture holders
Regulation 15 of SEBI (Debenture Trustees) Regulations, 1993 prescribes the following
duties of the Debenture Trustee:
(a) Call for periodical reports from the body corporate, i.e., issuer of debentures.
(b) Take possession of trust property in accordance with the provisions of the trust deed.
(c) Enforce security in the interest of the debenture holders.
(d) Ensure on a continuous basis that the property charged to the debenture is available and
adequate at all times to discharge the interest and principal amount payable in respect of the
debentures and that such property is free from any other encumbrances save and except those
which are specifically agreed with the debenture trustee.
(e) Exercise due diligence to ensure compliance by the body corporate with the provisions of
the Companies Act, the listing agreement of the stock exchange or the trust deed.
(f) To take appropriate measures for protecting the interest of the debenture holders as soon
as any breach of the trust deed or law comes to his notice.
(g) To ascertain that the debentures have been converted or redeemed in accordance with the
provisions and conditions under which they are offered to the debenture holders.
10. 9
(h) Inform the Board immediately of any breach of trust deed or provision of any law.
(i) Appoint a nominee director on the board of the body corporate in the event of : -
(i) two consecutive defaults in payment of interest to the debenture holders; or
(ii) default in creation of security for debentures, or
(iii) default in redemption of debentures.
(j) No debenture trustee shall relinquish its assignments as debenture trustee in respect of the
debenture issue of any body corporate, unless and until another debenture trustee is appointed
in its place by the body corporate.
Rule 17A of the aforesaid Regulation provides that every debenture trustee should
appoint a compliance officer and he shall be responsible for monitoring the compliance of the
Act, rules and regulations, notifications, etc., issued by the Board or the Central Government
for redressing of investor’s grievances. Thus a Debenture Trustee occupies a pivotal position
of trust and confidence between the company which issues debentures and the debenture
holders who subscribe for the debentures.
Contents of the Debenture TrusteeAgreement
Schedule IV to SEBI Regulations lists some of the clauses which are to be included in
the Debenture Trustee Agreement. They are:
(a) Preamble
(b) Description of the Instrument
(c) Details of charged securities
(i) Nature of charge
(ii) Examination of title
(iii) Rank of the charge, i.e., whether first, second, or pari passu charge, etc.
(iv) Charging of future assets
(v) Time limit for creation of charge,
(vi) Minimum security cover required
(vii) Valuation of security
(viii) Circumstances in which security becomes enforceable
11. 10
(ix) Method and preservation of secured property etc.
(d) Events of default
(e) Rights of Debenture Trustee
(f) Obligations of the body corporate (i.e. Issuer of debentures)
Apart from the above, the Agreement will have to include the following provisions:
(i) Definition and Interpretation
(ii) Appointment of Debenture trustee and its powers
(iii) Remuneration of Debenture Trustee
(iv) Appointment of debenture Trustee as Attorney
(v) Negative pledge i.e. not to create additional encumbrances on the secured asset
(vi) Description of Events of Default, which may arise due to Non-payment to
debenture holders, breach of any undertaking, avoidance or repudiation, etc.
(vii) Notice of exercise of trustee powers
(viii) Indemnity of trustee
(x) Retirement of trustee & appointment of new trustee
(xi) Reimbursement of expenses incurred by the trustee
(xii) General covenants etc.
Code ofConduct for Debenture Trustees (Regulation16& Sch. III)
1. Every debenture trustee shall maintain high standard of integrity, dignity and fairness
in discharging his functions as debenture trustees.
2. Every debenture trustee shall fulfil his obligations in an ethical manner.
3. Every debenture trustee shall at all times exercise due diligence, ensure proper care
and exercise independent professional judgement.
4. Every debenture trustee shall disclose to the Issuer Company his possible source or
potential areas of conflict of duties and interest while acting as debenture trustee.
5. Debenture trustee shall not indulge in any unfair competition, which is likely to be
harmful to the interest of other debenture trustees or debenture holders.
12. 11
6. No debenture trustee shall make any statement, either oral or written, which would
misrepresent the services that the debenture trustee is capable of performing for the,
or has rendered to other Issuer Company subject to the secrecy he is expected to keep
about Issuer Company's affairs;
7. No debenture trustee shall wilfully make untrue statement or suppress any material
fact in any documents, reports, papers or information furnished to the Board.
8. (a) A debenture trustee or any of his employees shall not render, directly or indirectly,
any investment advice about any security in the publicly accessible media, whether
real-time or non real-time unless a disclosure of his interest including long or short
position in the said security has been made, while rendering such advice.
8. (b) In case, an employee of the debenture trustee is rendering such advice, he shall
also disclose the interest of his dependent family members and the employer including
their long or short position in the said security, while rendering such advicevii.
Who can Appoint a Debenture Trustee?
Creation of security means mortgaging the property in favor of Debenture Trustee for the
benefit of debenture holders. This is an incidence of ownership of property and creation of
security has to be done by the owner of the property. However, the debenture holders are
beneficiaries and they have no access to mortgaged property. The Debenture Trustee holds
the secured property on behalf of issuer of security and for benefit of debenture holders. In
the event of default by the issuer of security, the Debenture Trustee will have the power and
authority to bring the secured property to sale following the procedure in the Transfer of
Property Act and the proceeds of sale will have to be applied to redeem the debentures. This
is one of the powers conferred on the Debenture Trustee by the SEBI Regulations. Effective
use of this power is possible if this power is included in the Debenture Trustee Agreement
and a suitable power of attorney is executed by the issuer of debentures in favor of Debenture
Trustee. This document has to be executed as a trust deed and not as a Mortgage deed or
bond.
Debenture RedemptionReserve
The Companies Act requires that every company issuing debentures should create DRR for
the purpose of redemption of debentures to which adequate amounts should be credited from
the profits of the company until debentures are redeemed. This is a mandatory provision.
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SEBI regulations also require companies issuing debentures to provide for DRR as required
under the Companies Act. It is the obligation of body corporate to create Debenture
Redemption Reserve as per SEBI DIP guidelines and SEBI (Debenture Trustees)
Regulations, 1993. DT has to ensure that the issuer furnishes an auditor’s certificate to it for
the same. Where debentures are compulsorily convertible into equity shares of the debenture
issuing company, as in the case of FEMA, creation of DRR is unavoidable till the date of
conversion. However, after conversion of debentures, the amount in the DRR may be
transferred to general reserve or in such other manner as the Board thinks fit and proper. The
amount credited to DRR cannot be utilized except for the redemption of debenturesviii.
When can a nominee director be appointed?
A nominee director can be appointed in the event of : -
(i) Two consecutive defaults in payment of interest to the debenture holders; or
(ii) Default in creation of security for debentures, or
(iii) Default in redemption of debentures.
Can a debenture issue be transferred? Ifso, when can a
debenture trusteerelinquishhis assignments?
A debenture issue can be transferred. A debenture trustee can relinquish its assignments in
respect of the debenture issue of any body corporate only when another debenture trustee is
appointed in its place by the body corporateix.
Contents of the Debenture TrusteeAgreement
Debenture Trustee Agreement should include the following:
(a) Preamble,
(b) Description of the Instrument,
(c) Details of charged securities
(i) Nature of charge,
(ii) Examination of title,
(iii) Rank of the charge, i.e., whether first, second, or pari passu charge, etc.
(iv) Charging of future assets,
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(v) Time limit for creation of charge,
(vi) Minimum security cover required,
(vii) Valuation of security,
(viii) Circumstances in which security becomes enforceable,
(ix) Method and preservation of secured property etc.
(d) Events of default.
(e) Rights of Debenture Trustee.
(f) Obligations of the body corporate (i.e., Issuer of debentures).
Apart from the above, the Agreement will have to include the following provisions:
(i) Definition and Interpretation,
(ii) Appointment of Debenture trustee and its powers
(iii) Remuneration of Debenture Trustee,
(iv) Appointment of debenture Trustee as Attorney,
(v) Negative pledge i.e. not to create additional encumbrances on the secured asset,
(vi) Description of Events of Default, which may arise due to Non-payment to debenture
holders, breach of any undertaking, avoidance or repudiation, etc.
(vii) Notice of exercise of trustee powers,
(viii) Indemnity of trustee,
(x) Retirement of trustee & appointment of new trustee,
(xi) Reimbursement of expenses incurred by the trustee,
(xii) General covenants etc.
Role of debenture trusteewithrespect to creationor enforcing
security in a debenture issue
Creation of security means mortgaging the property in favor of Debenture Trustee for
the benefit of debenture holders. This is an incidence of ownership of property and creation
of security has to be done by the owner of the property. However, the debenture holders are
beneficiaries and they have no access to mortgaged property. The Debenture Trustee holds
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the secured property on behalf of issuer of security and for benefit of debenture holders. In
the event of default by the issuer of security, the Debenture Trustee will have the power and
authority to bring the secured property to sale following the procedure in the Transfer of
Property Act and the proceeds of sale will have to be applied to redeem the debentures.
Is appointment of Debenture Trusteecompulsory?
As per the provisions of companies act, appointment of debenture trustee is
mandatory. However, issue of debentures / bonds with maturity of 18 months or less are
exempt from the requirement of appointment of Trustee.
(a) In case of debenture / bonds with maturity beyond 18 months, a trustee or an agent, by
whatever name called shall be appointed to take care of the interest of debenture / bond
holders irrespective of whether or not the debentures / bonds are secured.
(b) Where the debentures / bonds are unsecured, these are treated as fixed deposits, if
received from individual investors
10. Who pays to the Debenture Trustee?
In India, the issuer pays to the Debenture Trustee.
Regulator of Debenture Trustees
In India, Debenture Trustees are regulated by SEBI. The SEBI (Debenture Trustees)
Regulations, 1993 govern the Debenture Trustees and provide for eligibility criteria for
registration of Debenture Trustees, monitoring and review, registration, Code of Conduct,
procedure of action in case of defaults, avoidance of conflict of interest and inspection of
Debenture Trustees by SEBI, amongst other things. Public issues and issues proposed to be
listed are covered under the said regulations. A debenture trustee cannot act for any issue of
debentures of its associate or if it has lent and the loan is not yet fully repaid or is proposing
to lend money to the body corporate.
Courts in India on the Role ofDebenture Trustees
In Central Bank Of India vs Tadepalli Padmaja And Ors., the National Consumer
Disputes Forum, on Jul 4, 2008, held that “the Petitioner-Bank failed to discharge its
fiduciary duty with special care and skill as is expected from professional corporate trustee
and had not taken appropriate steps as contemplated under the SEBI Regulations.” In Baroda
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Rayon Corporation Ltd. vs ICICI Ltd.1 (Debenture Trustees), the Bombay High Court upheld
the right of the debenture trustee, i.e. ICICI Ltd. to sell off an unit of Baroda Rayon for the
benefit of the debenture-holders in respect of certain debentures. A similar situation happened
in Bombay High Court ICICI Ltd. (Debenture Trustees) v. Kothari Industrial Corporation2.
In Canara Bank (Debenture Trustees) vs Apple Finance Ltd3 the suit was filed by
Canara Bank as a Debenture Trustee for amounts due and payable by the Defendants Apple
Finance Limited (AFL) in respect of 7500 14% Secured Redeemable Rated Non-Convertible
Debentures (AAAIII) series for Rs. 75 crores together with interest, costs, charges thereon.
AFL failed to redeem the debentures and pay off the various loans granted by the Debenture
Holders. Consequently the Plaintiffs sued to obtain interim reliefs including appointment of
the Court Receiver. AFL mortgaged their immovable property to secure the said debentures.
AFL issued the said debentures of 75 crores to 6 debenture holders being 5 Nationalized
Banks and to a Limited Company. A first charge on the right, title and interest, inter alia, of
the suit property together with the plot on which it stood and the furniture, fittings and
fixtures thereon came to be created in favor of Canara Bank as the Debentures Trustee who
filed the Suit. The Bombay High Court upheld Canara Bank’s right to sell AFL’s mortgaged
property in the interest of debenture holders. In Administrator of the Specified Undertaking of
the Unit Trust of India (debenture trustee) v. Bank of Baroda, the Gujarat High Court upheld
the right of UTI as debenture trustee to draw Rs. 4 crore from the liquidation proceeds of Shri
Vallabh Glass Works Ltd., a company in liquidation.
Author’s Viewpoint
Issue of Debentures, whether redeemable or convertible, involves compliance with the
substantive and procedural aspects of law. Documentation is equally important .The benefit
of raising loan capital lies in the fact that it does not disturb equity structure of the company
and consequently the existing management. However, the success of a debenture issue be
they private or public issue, depends, to a large extent, on the goodwill and rapport built up
by the company with the investing public. Another aspect of the matter is the protection of
interest of debenture holders. This is sought to be achieved by an independent Debenture
Trustee who is required to be appointed by listed companies in regard to public issue or
further issue of capital as the number of debenture holders are considerably large. Creation of
1 2002 (2) BomCR 608, (2002) 2 BOMLR 915, 2003 113 CompCas 466 Bom, 2002 (2) MhLj 322
2 IV (2006) BC 34, 2005 (5) BomCR 213
3 AIR 2008 Bom 16, 2007 77 SCL 92 Bom
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DRR which is a statutory obligation is intended to provide liquid resource built out of profits
of a company for redemption of debentures. Recently, SEBI asked credit rating agencies
(CRAs) to share with the debenture trustees all relevant information about the ratings
assigned by them for debt securities and about the issuers of such instruments. This has
enabled a two-way information sharing arrangement between the credit rating agencies and
debenture trustees (DTs) to help them effectively discharge their respective functions. In
addition, rating agencies can also ask for periodic reports from lead banks about the progress
of the project for which funds have been raised through debentures. They can also ask for
certificates from issuer's auditors in respect of the utilization of fundsx. In fine, as debentures
have remained an easy source of finance for companies, the pace of their accountability has
increased concomitantly.
Citations
i Extracted on Feb 25, 2015 from http://www.investopedia.com/terms/d/debenture.asp
ii MoCA: Companies (Share Capital and Debentures) Rules, 2014 extracted on Feb 25, 2015 from
http://www.mca.gov.in/Ministry/pdf/NCARules_Chapter4.pdf.
iii Gupta, Mridul: Debentures and debenture trustees under Companies Act, 2013, extracted on Feb 25, 2015
from http://blog.ipleaders.in/debentures-and-debenture-trustees-under-companies-act-2013/
iv Arora, Navneet: Analysis of Debentures extracted on Feb 25, 2015 from http://www.navneetaroracs.com/wp-
content/uploads/2014/04/An-Analysis-on-Issue-of-Debentures.pdf.
v SEBI: The Securities and Exchange Board of India (Debenture Trustees) Regulations, 1993, extracted on Feb
25, 2015 from http://www.sebi.gov.in/acts/DebentureTrustees.html.
vi Extracted on Feb 25, 2015 from http://www.sbicaptrustee.com/main/faqs.aspx
vii Kannan, R: Capital Market of India - Role of SEBI Registered Intermediaries -
Debenture Trustees extracted on Feb 25, 2015 from
http://kannanpersonal.com/content/stock/intermediary/debenture-trustee.html
viii D K Prahlada Rao: All about Debentures :An Appraisal extracted on Feb 25, 2015 from
http://www.icsi.edu/cs/March2008/Articles/All%20about%20Debentures%20An%20Appraisal%20by%20D%2
0K%20Prahlada%20Rao%201.pdf.
ix SEBI: FAQs on Debenture Trustee extracted on Feb 25, 2015 from
http://www.sebi.gov.in/cms/sebi_data/attachdocs/1315462260419.pdf.
x NDTV: Sebi allows debenture trustees to seek credit rating details extracted on Feb 25, 2015 from
http://profit.ndtv.com/news/market/article-sebi-allows-debenture-trustees-to-seek-credit-rating-details-319587