The document provides an overview of public issue of debentures by companies in India. It defines debentures and various types of debentures. It discusses the process of public issue of debentures which requires issue of a prospectus, appointment of a debenture trustee, creation of debenture redemption reserve, and compliance with various other statutory requirements. It also describes different types of prospectus that can be issued for public offer of debentures and exceptions available for certain companies.

1. Public issue of debentures
CS Meenakshi Jayaraman

2. Credits and Acknowledgments
Sundar Rajan S

3. Legends used in the Presentation
AIFI All India Financial Institutions
CG Central Government
FCB/FCCB Foreign Currency Bonds/ Foreign Currency Convertible Bonds
HFC Housing Finance Companies
ICDR Issue of Capital and Disclosure Requirements
NBFC Non-Banking Financial Companies
NHB National Housing Bank
Rule Companies (Share Capital and Debentures) Rules, 2014
RBI Reserve Bank of India
SG State Government

4. Presentation Schema
Meaning of
debentures
Types of
debentures
Issue of
debentures /
Public offer
Issue of
prospectus
Types of
prospectus
Secured
debentures
Exceptions to
maturity period
Creation of charge
Debenture trustee
and trust deed /
Inspection
Debenture
Redemption
Reserve
Specified
Investments
Exceptions to Rule
18 / Other
provisions
Securities to be in
Stock Exchange /
Commission
payment
Secretarial
compliance
Judicial
Precedents

5. Meaning of debentures
Debenture is a debt instrument issued by a Company for raising funds from the public or specified people
Debenture holders are the creditors of the Company
Following instruments shall not be treated as debenture:
Instruments referred to in Chapter III-D of the Reserve Bank of India Act, 1934
Such other instrument issued by a Company, as may be prescribed by CG in
consultation with RBI
“Debenture" includes debenture stock, bonds or any other instrument of a Company evidencing a debt, whether
constituting a charge on the assets of the Company or not – Section 2(30) of Companies Act, 2013

6. Types of debentures
Debentures
On the basis of
security
Secured Unsecured
On the basis of
convertibility to
shares
Convertible
(Fully/ partially)
Non-convertible
On the basis of
redemption
Redeemable Irredeemable

7. Issue of debentures
A Company may issue debentures with an option to convert such debentures into shares, either wholly or partly
at the time of redemption
Issue of debentures with option to convert into shares shall be approved by a special resolution passed at a
general meeting
No Company shall issue any debentures carrying any voting rights

8. Public offer includes
Initial public offer
Further public offer
Offer for sale of securities to the public by an
existing shareholder
Through issue of prospectus
In simple terms, issue of debentures to the general public by way of prospectus is termed as public issue
Public issue or public offer

9. Issue of prospectus
• It is a document which invites offers from the public for the
subscription or purchase of any securities of a body corporate
Prospectus
Issue of prospectus is mandatory for a public issue
There are various types of prospectus that can be issued by a Company to the public

10. Types of prospectus
Prospectus
Deemed prospectus
Shelf prospectus
Red herring prospectus
Abridged prospectus

11. Deemed prospectus – Section 25
When a Company allots or agrees to allot any securities with a view to offer those securities for sale to the public, any document by
which an offer for sale to the public is made will be deemed as a prospectus issued by the Company
It shall be an evidence that allotment of debentures was made with a view to offer the securities for sale to public if it is shown
that:
a. Offer for sale to public has been made within 6 months of allotment of debentures or
b. On the date of offer for sale to public, the whole consideration to be received had not been
received

12. Contd.
Signing of deemed prospectus in case of person making an offer to the public is a Company or a firm:
Company
Firm
Two directors of the Company
Atleast one half of the partners in the firm
Matters to be stated in prospectus under Section 26 shall have effect and in addition, the following matters to be specified:
a. Net amount of consideration received for the securities in respect of which offer is made;
b. Time and place of contract where under the said securities have been allotted may be inspected;
 Persons making the offer were persons named as directors in prospectus

13. Shelf prospectus – Section 31
• A prospectus in respect of which securities are issued for subscription in one or
more issues over a certain period without the issue of a further prospectus
Meaning
Any class or classes of Companies as prescribed by SEBI may file a shelf prospectus with the Registrar at the stage of the
first offer of securities
Such prospectus shall be valid for a period of 1 year which means that no further issue of prospectus is required for
subsequent offer of securities included in the prospectus for a period of 1 year
Any change between current and first issue is given in the form of information memorandum
Such information memorandum shall be prepared and filed with the Registrar in Form PAS-2 within 1 month prior to the
issue of second or subsequent offer of securities

14. Contd.
Where application for allotment of securities is being received by the Company or any other person along with advance
payment of subscription amount prior to making such change, then such applicant shall be informed about such change
After informing the applicant about such change, if he/she expresses desire to withdraw the application made, then the
Company or any other person shall refund all the monies received as subscription within 15 days thereof
Where an information memorandum is filed, such memorandum together with the shelf prospectus shall be deemed to
be a prospectus

15. Red herring prospectus – Section 32
• A prospectus which does not include complete particulars of the quantum or
price of the securities included therein
Meaning
A company proposing to make an offer of securities may issue a red herring prospectus prior to the issue of a prospectus
Red herring prospectus shall be filed with the Registrar at least 3 days prior to the opening of the subscription list and the offer
Any variation between the red herring prospectus and a prospectus shall be highlighted as variations in the prospectus
Once the offer is closed details of information that are not included in such prospectus is to be filed with the Registrar and SEBI

16. Abridged prospectus – Section 33
• A memorandum containing such salient features of a prospectus as may be
specified by SEBI by making regulations in this behalf
Meaning
Every form of application for the purchase of any of the securities of a company shall be accompanied by
an abridged prospectus
A copy of the prospectus shall be furnished to any person, on a request being made by such person, before the
closing of the subscription list and the offer
If a company makes any default in complying with the provisions of this section, it shall be liable to a penalty of Rs.
50,000 for each default

17. Contd.
In the following cases, abridged prospectus is not necessary to be issued
1. Application issued in connection with bona fide invitation to a person to enter into an underwriting
agreement with respect to such securities
2. Application issued in relation to securities which were not offered to the public

18. Secured debentures
Secured debentures are those that are secured by creation of charge on the assets of the Company
Company shall issue secured debentures only after complying with the conditions specified in Rule
18*
A Company shall issue secured debentures carrying a maturity period not exceeding 10 years
*Rule shall mean Companies (Share Capital and Debentures) Rules, 2014

19. Exceptions to maturity period
Following Companies shall issue secured debentures carrying maturity period upto 30 years:
Companies engaged in setting up of infrastructure projects
Infrastructure Finance Companies as defined in NBFC (Non-deposit
accepting or holding) Prudential Norms (Reserve Bank) Directions, 2007
Infrastructure Debt Fund NBFC as defined in Infrastructure Debt Fund NBFC (Reserve Bank) Directions, 2011
Companies permitted by a Ministry or Department of CG or by RBI or by NHB or by any other statutory authority

20. Creation of charge
Secured debentures shall be secured by the creation of a charge on the properties or
assets
of the Company or its subsidiaries or its holding Company or its associate Companies
having a value which is sufficient for the due repayment of the amount of debentures
and interest thereon

21. Contd.
Security for the debentures by way of a charge or mortgage shall be created in favour of the debenture trustee on:
any specific movable property of the Company
or its holding Company or subsidiaries or
associate companies or otherwise
any specific immovable property wherever
situate, or any interest therein
Exceptions
In case of NBFC, charge or mortgage shall be created on any movable property
In case of Government Company, debentures which are fully secured by the guarantee given by CG or one or
more SG or by both, creation of charge is not required
In case of any loan taken by a subsidiary Company from any bank or financial institution, the charge or
mortgage may also be created on the properties or assets of the holding Company

22. Debenture trustee and trust deed
Company shall appoint the debenture trustee before the issue of prospectus for subscription of its debentures
Company shall, within 60 days from the date of allotment of debentures, execute a debenture trust deed to
protect the interest of debenture holders
In case of companies issuing prospectus or making public offer or issue of debentures or inviting members
exceeding five hundred for subscription of debentures, appointment of debenture trustees is mandatory
Who can be appointed as a
debenture trustee?
a. a scheduled bank carrying on commercial activity
b. a public financial institution as defined in Section 2(72) of Companies Act, 2013
c. An insurance Company
d. body corporate as defined in Section 2(11) of Companies Act, 2013
Entity to be registered with SEBI
•Applicable to Companies or body corporate making public offer of convertible debentures
•As per SEBI (ICDR) Regulations, 2018 read with SEBI (Debenture Trustees), Regulations, 1993

23. Inspection of trust deed
A trust deed for securing any issue of debentures shall be open for inspection to any member or debenture holder
of the Company
in the same manner, to the same extent and on the payment of the same fees, as if it were the register of
members of the Company, and
A copy of the trust deed shall be forwarded to any member or debenture holder of the Company, at his request,
within seven days of the making thereof, on payment of fee

24. Debenture Redemption Reserve
Company issuing debentures shall create a debenture redemption reserve (DRR)
account
out of the profits of the Company available for payment of dividend
and the amount credited to DRR shall not be utilised by the Company except
for the redemption of debentures
The Company shall also make investment or deposit of sum as per specified conditions in respect of debentures maturing during the year
ending on the 31st day of March of next year

25. Who shall create DRR?
Type of
Entity
AIFI regulated by
RBI and Banking
Companies
Listed Companies
Other financial
institutions
Unlisted
Companies
DRR is not required
for both public and
privately placed
debentures
DRR is not required
for both public and
privately placed
debentures
NBFC and HFC
Other unlisted
Companies
Whether
debentures
issued on private
placement?
DRR is not required
DRR is to be created at
10% of the value of
outstanding debentures
NO
YES
Whether
listed?
NO
YES

26. Specified conditions: Investment / deposit
In case of every listed Company and unlisted Company other than NBFC and HFC, investment or deposit of atleast 15%
of the value of debentures maturing during 31st March of next year shall be made in any one or more of the following:
•deposits with any scheduled bank
•unencumbered securities of the Central methods of deposits or from any charge or lien; Government or any State Government
•unencumbered securities mentioned in sub-clause (a) to (d) and (ee) of section 20 of the Indian Trusts Act, 1882
• unencumbered bonds issued by any other Company which is notified under sub-clause (f) of section 20 of the Indian Trusts Act
In case of partly convertible debentures, DRR shall be created in respect of non-convertible portion of debenture issued
Note:

27. Exceptions to Rule 18
Any amount received by a Company against issue of commercial paper or any other similar instrument issued in
accordance with the guidelines or regulations or notification issued by RBI
Any offer of FCCB or FCB issued in accordance with the FCCB and Ordinary Shares (Through Depository Receipt
Mechanism) Scheme, 1993 or regulations or directions issued by RBI unless otherwise specified in those
legislations
Rupee denominated bonds issued exclusively to overseas investors in terms of A.P. (DIR Series) Circular No. 17 dated
September 29, 2015 of RBI
Rule 18 is not applicable in the following cases:

28. Other provisions
Trust deed containing any particulars regarding the exemption of trustee from the liability of breach of trust where he/she fails to show
the degree of care and due diligence required of him/her as a trustee shall be void
However, liability of the debenture trustee shall be subject to such exemptions as may be agreed upon by a majority
of debenture-holders holding atleast 75% of value of the total debentures at a meeting held for the purpose
When debenture trustee finds that the assets of the Company are insufficient or are likely to become insufficient to discharge the
principal amount as and when it becomes due, the debenture trustee may file a petition before the Tribunal
Tribunal may, after hearing the Company and any other person interested in the matter, by order, impose such restrictions on the
incurring of any further liabilities by the Company as the Tribunal may consider necessary in the interests of the debenture-holders
In case of failure to redeem debentures by the Company, Tribunal may, on the application of any or all of the debenture-holders, or
debenture trustee and, after hearing the parties concerned, direct, by order, the Company to redeem the debentures forthwith on
payment of principal and interest due thereon

29. Contd.
In case of default in complying with the order of Tribunal, every officer-in-default of the Company
shall be punishable with
Imprisonment upto a
maximum of 3 years
Fine ranging from Rs. 2
lakhs to 5 lakhs
Both imprisonment and
fineOR OR

30. Securities to be dealt with in Stock Exchanges –
Section 40
Every company making public offer shall, before making such offer, make an application to one or more RSE(s) and obtain
permission for the securities to be dealt with in such stock exchange(s)
Where a prospectus states that an application as stated above has been made, such prospectus shall also state the name or
names of the stock exchange in which the securities shall be dealt with
All monies received on application from the public for subscription to the securities shall be kept in a separate bank account in
a scheduled bank and shall not be utilised for any purpose other than adjustment against allotment or for repayment
Any condition purporting to require or bind any applicant for securities to waive compliance with any of the requirements of
this section shall be void
A company may pay commission to any person in connection with the subscription to its securities subject to such conditions as
may be prescribed (discussed in subsequent slide)
Contravening the provisions of this section:
Company Every officer in default
Fine - Rs. 5,00,000 to 50,00,000 Fine - Rs. 50,000 to 3,00,000 (OR)
Imprisonment – Maximum 1 year (OR) Both

31. Payment of commission
Commission shall be paid to any person in connection with subscription or procurement of subscription to its securities subject to following:
Such payment has been authorised by the Articles of Association of the Company
Commission may be paid out of proceeds of the issue or the profit of the company or both
Rate of commission shall not exceed 2.5% of the issue price of debentures or rate authorised by the Articles, whichever is lower
Copy of contract for payment of commission shall be filed with the Registrar
Commission shall not be paid to any underwriter on securities which are not offered to the public for subscription
Prospectus shall disclose name of underwriters, rate and amount of commission payable and the number of securities to be
underwritten

32. Secretarial compliance
Convene Board meeting for
public issue of debentures
by issuing notice atleast 7
days prior to the date of
meeting – Section 173(3)
Pass BOD resolution for
approving such issue and
prepare minutes of such
Board meeting
File MGT-14 within 30 days
of passing BOD resolution*
Issue notice along with
explanatory statement to
members for convening
general meeting
Pass special resolution for
getting approval from
members for public issue
of debentures
File MGT-14* within 30
days of passing special
resolution. Also, prepare
minutes of members’
meeting
*Form MGT-14 is not required to be filed by private and Specified IFSC public Companies for BOD resolution – Section 117(3)(g)
i. For approval of issue of debentures:

33. Contd.
Notice for Board meeting for
allotment of debentures should
be issued to the Directors atleast
7 days before the date of
meeting – Section 173(3)
Pass BOD resolutions for
allotment of debentures and
draft minutes of BOD meeting for
such allotment
File Form PAS-3 within 30 days
from the date of allotment of
debentures
Mandatory attachments to Form
PAS-3 shall be list of allotees,
certified copy of BOD resolution,
etc.
File Form CHG-9 for creation of
charge on debentures within 30
days from the date of creation
ii. For allotment of debentures:

34. Judicial precedents
Vijay Kumar Jalan vs. Bharat Hydropower Corporation Ltd. - [2014] 45 taxmann.com 41 (CLB - Kolkata)
Respondent Company issued optionally convertible debentures in joint names of applicants. Applicants requested respondent Company
to redeem debentures along with interest according to terms and conditions of issue
Reminder letters were also issued to Company, but Company did not respond to such letters nor did make any payments to applicants on
account of redemption of such debentures
Respondent argued that application was barred by limitation, application had been affirmed only by applicant No. 1 though applicants
were joint debenture holder and that aforesaid debentures were to be governed by Companies (Acceptance of Deposits) Rules, 1975
It was held that since claim of applicants for redemption of debentures had been duly lodged just after expiry of lock-in-period of 2 years
and respondent Company had not acted on said claim and discharged its obligations, contention of respondent Company that case of
applicants was barred by limitation was not tenable
It was also held that any of joint holders of such debentures was entitled to make application and provisions of section 117C(4) are
applicable to all debentures issued and pending redemption

35. Thank You
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