1. Debenture, Debenture Holder, and Debenture Trust Deed
Vrinda Sharma
BALLB 6th
Semester
Company Law
Meaning of Debenture
It is a promissory note issued by a government or company to meet its
financial requirements. These are issued by a company or government to their
creditors in exchange for money. In return, investors are compensated with
interest on the money invested.
Debenture Holders
Debenture Holders are the creditors of issuing companies who invest their
money in the company.
Example to explain Debenture.
Suppose the government is raising funds to construct roads for the public. The
people investing money in the project are called creditors. Debentures are
issued to these creditors and interest is given to the creditors. These creditors
are called Debenture Holders.
Interest on Debenture
The interest given on Debenture is usually fixed when they are of a floating
kind. A fixed rate of interest makes the investment less risky. There are also
floating rate of interest given which changes from time to time.
Feature of Debenture
1. These are long-term instruments. Their tenure lasts for 10 years or
above.
2. These are unsecured forms of bonds which are not backed by any
assets.
2. 3. They have a fixed rate of interest which is given at specific intervals to
the investors.
4. These are played before paying dividends. These interests are treated as
an expense by the company.
5. Some debentures can be changed into equity stocks after a specific
period.
6. They can be easily exchanged in the market just like other securities.
Types of Debentures
1. Secured and non-secured:
Investors do not hold any claim of non-secured Debenture but can claim over
the issue’s assets in case of secured Debenture.
1. Perpetual
These Debentures do not have maturity dates so the issuer can pay regular
interest for a lifelong period.
1. Convertible or Non-convertible:
Convertible debentures can be converted into equity shares after a specific
period, but non-convertible debentures cannot be converted.
1. Fixed charge or Floating charge:
A fixed rate of interest is given to the debenture holders in case of a fixed
charge, and it is less risky. The rate of interest is not fixed in a floating charge.
It changes according to the company’s circumstances.
Remedies Available Debenture Holders
1. Debenture holders can sue the company for his/her interest.
2. Debenture Holders can appoint a receiver.
3. Debenture Holder can file a petition for winding up of a company on the
ground that the company is unable to pay its debt.
4. The debenture Holder can sell the property of the company if such
power is given by a debenture trust deed.
Debenture trust deed :-
3. Debenture trust is made between the company and the trustees. This deed is
created by the company to protect the interest of debenture holders.
A debenture trust deed consists of the terms and conditions of a debenture
trust deed.
It acts as a legal instrument conveying Assets of a company to the interest. It
also defines the rights of the debenture holder and the duties and powers of
the debenture dress company to execute the dead within 3 months of the
closure of the issue.
The debenture holder can get a copy of this week's certain fees.
Who is the Debenture trustee; -
A debenture trustee is a person appointed by the issuer company to protect
the interest of debenture holders.
Debenture Trustee also acts as a mediator between the company and its
debenture holders.
A company can appoint more than one debenture trustee.
Duties of debenture trustees: -
1) to ensure that contains all provisions given in schedule 4.
2) to ensure security in the interest of debenture holders.
3) to call for annual reports from the company.
4) to resolve any issues of debenture holders.
5) to take possession of Trust property as per the provision of a trust
deed.
6) to protect the interest of shareholders.
7) to ensure that assets charged to debenture are free from any other
claim.
Requirements for serving as a debenture Trustee: -
Anyone interested in serving as a debenture Trustee: -
should be a scheduled commercial bank or a public financial institution
defined in section 4A of the Companies Act 1956, Or an insurance company or
a body corporate.
Procedure for appointment of debenture trustee: -
Application of certificate: -
An application can be made to the board of the company FORM -A4 granting
certificate. A non-refundable fee of rupees 50,000 shall be paid by demand
draft in favour of SEBI. These fees are paid in Mumbai.
4. Certificate of registration
Fees payable for certificate of initial registration is Rs 200,000,00 , For 10 year
of 5 years(regulation 8). Certificate of permanent registration of rupees 90 000
after the completion of an initial period (regulation 8A)
Board considerations. The applicants are considered by the board in following
points -:
1. The applicant must have the necessary infrastructure.
2. The person must not be guilty of any economic offence.
3. The person must be fit and the same.
4. The person must fulfil capital requirements according to regulation 7A.
