The
word ‘Debenture’ has been derived
from a Latin word ‘debere’ which
means to borrow.
Section
2(30) of the Companies Act, 2013 define “debenture" which 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.
Debenture can be classified as:
Secure Debenture
Unsecure Debenture
Debenture
is a written instrument acknowledging a debt to the Company. It contains a
contract for repayment of principal after a specified period or at intervals or
at the option of the company and for payment of interest at a fixed rate
payable usually either Quarterly, Half-yearly or Yearly basis.
Types of Debentures:
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Secured
and Unsecured:
Secured Debenture
creates a charge on the assets of the company, thereby mortgaging the assets of
the company.
Unsecured Debenture does not carry any charge or security on the assets of the company.
On the basis of Tenure:
Redeemable
and Irredeemable:
Redeemable Debentures are those which are payable on the expiry
of the specific period (Maximum period 10 years from the date of issue) either
in lump sum or in instalments during the life time of the company.
Irredeemable Debentures are also known as Perpetual Debentures because the company does not give any undertaking for the repayment of money borrowed by issuing such debentures. These debentures are repayable on the winding-up of a company or on the expiry of a long period. They can legally be framed as payable to bearer. In India, now days, no company can issue irredeemable debentures.
On the basis of mode of Redemption:
Convertible,
Non-convertible & Partly Convertible:
Convertible Debenture are converted into equity shares of the
company on the expiry of a specified period.
Non-convertible Debenture is those which cannot be converted into equity shares.
Partly Convertible Debenture are divided into two portions, viz., convertible and non-convertible portion. The convertible portion is converted into equity shares of the company at the expiry of specified period. The non-convertible portion is redeemed at the expiry of the specified period in terms of the issue.
On the basis of Negotiability:
Bearer
and Registered:
The
debenture which is transferable by mere delivery is called bearer debenture.
A registered debenture
is recorded in the register of debenture holders of the company. A
regular instrument of transfer is required for their transfer.
1. Debenture cannot be issued with voting
rights.
2. A Company shall create a Debenture Redemption Reserve
(DRR) out of the profits of the company available for payment of dividend and
the amount credited to such account shall not be utilised by the company except
for the redemption of debentures.
3. A company is required to pay interest and redeem the
debentures in accordance with the terms and conditions of their issue.
4.
If there is any
default in repayment of amount in the event of maturity or default in payment
of the interest thereon then the committee will be approached by the
Debenture-holders or Debenture Trustee to take appropriate measures.
Conditions
for issue of Debentures under the Companies Act, 2013
Debenture Redemption Reserve:
The company shall comply with the requirements
with regard to Debenture Redemption Reserve (DRR) and investment or deposit of
sum in respect of debentures maturing during the year ending on the 31st day of
March of next year, in accordance with the conditions given below:-
Quantum of Debenture Redemption Reserve:
