This document discusses debentures under Indian law. It defines debentures as instruments acknowledging a company's debt. Debentures can be secured or unsecured, with secured debentures requiring the creation of charges over company assets. A debenture trustee must be appointed to protect debenture holders' interests by ensuring assets are sufficient to repay debts and terms are followed. Companies must create a debenture redemption reserve from profits to repay debentures.

1. Presented By-:
CA. Mayank Mittal
ACA, PGDBA, CCBAF,B.Com
© 2013 Gurukul CA/CS Classes
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DEBENTURES-9A Lecture
© 2013 Gurukul CA/CS Classes
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As per section 2(30) of the companies act’2013 “Debenture includes debenture
stock, bonds or other instrument of a company evidencing a DEBT, whether
constituting a charge on the assets of the company or not”
In simple terms a debenture may be defined as an instrument acknowledging a
debt by a company to some person or persons.
DEBENTURE-DEBENTURE-
1.It is usually in the form of certificate.
2. This certificate itself acknowledged the debt.
3. It provides for payment of specified amount at specified date.
4. A debenture with Voting Right is NOT allowed.
5. Interest is normally paid till the time of payment of principal amount.
CharacteristicsCharacteristics
It means that whenever the Debentures are paid off, then a particular series of
debenture will be paid in same way i.e it must be allocated among all the debenture
holders in equal proportion…and if security is not enough then proportionately.
If not Pari Pasu then the payment will be made as per the Date of Issue.
(Moti moti baat agar pari pasu hai toh date of issue ki koi relevance nhi rahegi at
the time of redemption)
Pari Pasu ConceptPari Pasu Concept
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TYPES OF DEBENTURE-TYPES OF DEBENTURE-
1- Unsecured/ Naked Debenture-
A Debenture which is not secured by the creation of Charges over the
Assets/Property of the company.
2- Secured Debenture-
A Debenture which is secured by the creation of Charges over the Assets/Property of
the company..
However a company has to satisfy the following conditions for the issue of such
debenture-
A- Redemption Period can be maximum of 10 Years however where the company is
engaged in the business of Infrastructure projects it can be maximum of 30 Years.
B- Such an issue of Debenture should be secured by Creation of charge over the assets
of the company and value of asset should be enough for the repaymnet of Prinicpal +
Interest.
C- The Company shall appoint a debenture Trustee before the issue of prospectus.
D- The Company shall execute a /debenture Trust DEED.
3. Convertible Debentures-
A Debenture with an option with the Debenture holder to convert either whole or
part of their debentures into shares under certain conditions and limitations. However
before issuing theses debentures Company need to get Approval from Members by SR.

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DEBENTURE TRUSTEE -DEBENTURE TRUSTEE -
A Debenture Trustee is a person who is entrusted with the Responsibility of ensuring the
Rights of the Debentures. The Objective is to ensure that Assets of company are
sufficient to discharge the debentures. To ensure that company has not
committed any breach to provision of TRUST DEED.
Every company issuing a Prospectus or Offer letter for the Subscription of
Debenture should Appoint a Debenture Trustee. Or a Company making an offfer to
more than 500 person
Conditions for Appointment-
A- The name of Debenture Trustee should be mentioned in the Letter for Offer for
subscription of shares.
B- Before the Appointment of Trustee, A WRITTEN CONSENT should be obtained.
DISQUALIFICATION FOR TRUSTEE-
1- If he Beneficially hold the shares.
2- If he is a PROMOTER, KMP , DIRECTOR or OFFICER or EMPLOYEE of the
company, associate, holding or Subsidiary.
3- If Company is INDEBTED to the Trustee for amount other than Remuneration.
4- IF he is INDEBTED to Company, Subsidiary, Associate or Holding.
5- If he has given any Guarantee. In respect of the principal debts secured.
6- If he is Relative of Promoter/EMPLOYEE/DIRECTOR/KMP/ of the company
7- If he is having Pecuniary relationship with the company to the tune of 2% or more of
the Turnover.

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Functions of DEBENTURE TRUSTEE -Functions of DEBENTURE TRUSTEE -
1. TO Redress the grievances of Debenture holders effectively.
2. To Protect the interest of Debenture holders.
3. Ensuring that the Securities have been created within Stipulated time.
4. Inform the Debenture holder immediately if there is breach of terms of issue of
Debenture.
5. Call upon the meeting of the debenture holder wherever required.
6. Call for the reports on the utilization of funds raised by the issue of debentures.
Right to Obtain TRUST DEED -Right to Obtain TRUST DEED -
Every Debenture holder or a member of the company may inspect the Debenture
Trust Deed and may make a copy or take a extract of the same. during the business
hours (Normally 2 hours every day).
Company is bound to produce the same within 7 days of Demand.
If not provided the Appeal can be made to Tribunal which in turn will made Available
the Trust Deed.
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Liability of Debenture TrusteeLiability of Debenture Trustee
In General A debenture trustee is liable to Debenture holders for any type of Breach of
trust. However he may escape his liability in the following cases-
1- Where he can show that he has discharged his duty with utmost care and diligence.
2- Where majority (3/4th
) of the debenture holders present and voting in person agree at
a meeting summoned for the purpose to omission of the trustee.

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DEBENTURE REDEMTION RESERVE (DRR)-DEBENTURE REDEMTION RESERVE (DRR)-
A. It is Mandatory for every company to Create DRR(.
B. It shall be created out of PROFIT of the Company Only.
C. The company shall create DRR equivalent to at least 50% of the amount raised
through Debenture. before the commencement of Redemption.
D. DRR Shall be created unless all the Debentures are redeemed by the Company.
E. DRR shall be utilized only for the Purpose of Redemption of Debenture.
F. The Company shall Pay off the Principal Amount on Debenture along with the
Interest due on Debenture as per the Terms and Conditions mentioned in the deed.
G. If Company fails to Redeem the Debenture then an Appeal can be made to Tribunal
by the Debenture Trustee or Debenture holder which in turn will order the Company
to redeem the same.
H. The company is required to INVEST or DEPOSIT a sum not less than 15% of the
amount of its debentures maturing during the year by 31st
March of Next year by the
30th
April in-
1- In deposit of Scheduled Bank free from any Charge.
2- In Encumbered Securities Issued by CG & SG
3- In Encumbered Securities or Encumbered Bonds as specified in Indian Trust Act.
J- The Above amount so Invested should not fall below 15% of the Amount of Debenture
maturing during the 31st
March of that Year.
H- If company fails to comply the Order of Tribunal then every officer in default will be
be punishable with a imprisonment upto 3 years which may extent to 5 lakhs or 2
lakh rupees or both.

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Difference b/w Share/DebentureDifference b/w Share/Debenture
Basis Shares Debenture
Form Part Of Capital Part of Loan
Owner Equity Shareholders= Owners Creditors
Voting Right Voting Right No Voting Right
Charge No Charge on Assets Charge on Assets
Income Dividend Income Interest Income
Deed No trust deed Trust deed need to be executed
Repayment Repaid after Debentures Repaid prior to Shares