Procedure to issue debenture by private company


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An overview on process to issue debenture by PVT LTD company in India

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Procedure to issue debenture by private company

  1. 1. Debentures – issue procedure1. Procedure to issue Debenture by Private Company a) Company needs to appoint Debenture trustees and create debenture trust. b) Board of directors needs to pass resolution to issue debenture under section 292(1)(d) of companies Act. c) Company needs to make draft trust deed and same needs to be approved by Board of directors. d) Company needs to issue letter of offer to targeted buyers. The draft letter of offer requires to be approved by the Board of Directors. The conditions relating to the payment for subscription, the Security, the rate of interest on the Debentures and the period by which the Debentures would be redeemed would have to be specified in offer letter. e) On receipt of the application from the person(s) subscribing for the Debentures, the Board needs to make the allotment of debenture certificates to subscribers of debenture. f) Company needs to create debenture redemption reserve account and company needs to transfer adequate amount from profits of every year till redemption of the debentures. Such amount would be utilized by company for payment of debenture amount.2. Period of Debenture: Minimum and Maximum period for maturity of debenture has not been prescribed under Companies Act.3. Interest rate on debenture: For debentures issued to Indian resident, minimum and maximum interest rate on debenture has not been prescribed under Companies Act.4. Stamp duty on debenture certificate: Stamp duty as prescribed under stamp duty Act required to be paid by company on value of debenture certificates.5. Debenture trust: Debenture trust would hold property which is provided as security for debenture.6. Debenture trustee: Company needs to appoint one or more debenture trustees before issuing the prospectus or letter of offer and to obtain their consent which shall be mentioned in the offer document. The Debenture Trustees shall not:
  2. 2. a) beneficially hold shares in a company. b) be beneficially entitled to monies which are to be paid by the company to the debenture trustees. c) enter into any guarantee in respect of principal debt secured by the debentures or interest thereon. Responsibilities of debenture trustees: a) To ensure that the assets of the company issuing debentures and each of the guarantors are sufficient to discharge the principal amount at all times. b) To satisfy that the prospectus or the letter of offer does not contain any matter which is inconsistent with the terms of debentures or with the trust deed. c) To ensure that the company does not commit any breach of covenants and provisions of the trust deed. d) To take such reasonable steps to remedy any breach of the covenants of the trust deed or the terms of issue of the debentures. e) To take steps to call a meeting of holders of debentures as and when such meeting is required to be held.7. Types of Debenture:8. Equitable Mortgage in case of secured debenture: The security would be created by way of Equitable Mortgage by way of deposit of title deeds of the immovable property of the Company. The deposit is required to make with the Trustees. The procedure relating to this is as follows:  The Board should authorize either of the Directors / Officer of the Company to Deposit the Title Deeds with the Trustees.  The person so authorized to call on the Trustee and Deposit the same.  The person so authorized should also convey the intention of the Company to create an Equitable Mortgage to the Trustee and instruct him to hold the Title Deeds till the time the debentures are redeemed in full.
  3. 3.  This consent is usually ORAL, and there would be no documentary proof for the same, for having deposited it. Once the title deeds are deposited, the person so authorized should write to the Trustee so as to confirm the Deposit of Title Deeds by way of a letter. In case of any clarification contact us at: