DEBENTURES
The term debenture is defined in the
Companies Act as, “debentures includes
debenture stock, bonds &any other securities of
a company whether constituting a charge on
the assets of the company or not .”[Sec.2 (12)].
CHARACTERISTICS OF A
DEBENTURE
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It is in the form of a certificate , like a share certificate.
In other words it is an instrument in writing .
The certificate is an acknowledgement of
indebtedness.
It is usually under the seal of the company but it is not
necessary. A certificate signed by two directors of a
company and without bearing company’s seal is a
valid debenture.
It is one of the series like debentures.
It, usually, provides for the repayment of a specified
principal sum at specified date.
It provides for the payment of interest at a specified
rate until the principal sum is paid back.
It is generally secured by a charge , fixed or floating on
any part of the company’s property or undertaking.
The debentures carry no voting rights at any meeting
of the company . (sec.117).
KINDS OF DEBENTURES
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REGISTERED DEBENTURES.
BEARER DEBENTURES .
SECURED DEBENTURES.
UNSECURED DEBENTURES.
REDEEMABLE DEBENTURES.
PERPETUAL DEBENTURES.
CONVERTIBLE DEBENTURES .
NON-CONVERTIBLE DEBENTURES.
DIFFERENCE BETWEEN
SHARES & DEBENTURES
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STATUS : A shareholder is the joint owner of
the company but a debenture holder is only a
creditor of the company.
VOTING RIGHTS: A shareholder has a voting
rights whereas a debenture holder has no such
rights.
INCOME: Interest on the debentures is
payable whether there are profits or not. But
dividend on shares is to be paid only when the
company has earned profits.
DISCOUNT ON ISSUE: Debentures can be
issued at a discount whereas shares cannot be
issued at discount .
PROCEDURE FOR THE
ISSUE OF DEBENTURES
Debentures are issued in accordance with the
provisions of the articles , usually by a resolution
of the Board of directors. Once a decision is taken
by the Board of directors to issue debentures the
next step will be to draft prospectus relating to the
issue. The provisions of section 56 relating to
prospectus apply to the issue of debentures as
they apply to an issue of share capital. Particulars
of any commission, discount or allowance paid
either directly or indirectly to any person for his
subscribing or procuring subscription for
debentures of the company must be filed with the
registrar. [Section 129].
DEBENTURES WITH PARI PASSU
CLAUSE
Debentures are often issued in a series with
the pari passu clause i.e. a clause
whereby all debentures of a particular
series, though issued at different and
varying times are to rank together, as
regards the security created by them.
TRANSFER & TRANSMISSION
OF DEBENTURES
Bearer debentures are transferable by
simple delivery. Registered debentures are
transferable in the same manner as the
shares of a company are transferred.
Section 82 of the Companies Act provides
that the debentures shall be a movable
property, transferable in a manner
provided by the articles of the company.