Presented by

Ankur Srivastava
Bhuvnesh
Balaji
Bapi
Hitin
Krishnaji
Raj Shekhar
Girdharilal
Dhanup Singh
Abhay Kumar Singh
The most usual form of borrowing by a company
is by the issue of debentures. According to
sec.2(12) ‘debenture’ includes debenture stocks,
bonds and any other securities of a company
whether constituting a charge on the assets of the
company or not.
‘Debenture’ means a document which either creates
a debt or acknowledges it, and any document
which fulfills either of these conditions is a
debenture.
 It is issued by a company and is usually in the
form of a certificate which is an
acknowledgement of indebtedness

 It is issued under the company’s seal. It need

not, however, be necessarily under the
company’s seal.

 It is one of series issued to a number of lenders.

It usually specifies a particular
period or date as the date of
repayment

It generally creates a charge on the

undertaking of the company or some
parts of its property ; but there may
be debentures without any such
charge.

A debenture holder does not have

any right to vote in the company
 Bearer debenture : These debentures also
known as unregistered debentures, are payable
to its bearer. These are regarded as negotiable
instruments and are transferable by delivery.
 Registered debentures: These are the
debentures which are payable to the register
holders. These are transferable in the manner
specified in the conditions endorsed thereon.
 These are not negotiable instruments
 Secured debentures : - Debentures which
create some charge on the property of the
company. The charge may be a fixed charge or
a floating charge
 Unsecured or naked debenture :- Debentures
which do not create any charge on the assets of
the company. The holders of these debentures
like ordinary unsecured creditors may sue the
company for recovery of the debt.
 Redeemable debentures :- Debentures are
usually issued on the condition that they shall
be redeemed after a certain period. They may
be re-issued after redemption in accordance
with the provisions of section. 121.
 Irredeemable debentures :- A debenture will
be treated as irredeemable where either there is
no period fixed for repayment of the principal
amount or repayment of it is made conditional
on the happening of an event which may not
happen for an indefinite period or may happen
only in certain specified and contingent events.
 Convertibility debentures :- These debentures
give an option to the holders to convert them
into preference or equity shares at stated rates
of exchange, after a certain period. If the
holders exercise the right of conversion, they
cease to be lenders to the company and become
members instead.
 Non-convertible debentures :- These
debentures do not give any option to their
holders to convert them equity shares. They
are to be duly paid as and when they are
mature.
 First debentures :- These are the debentures
which are to be repaid in priority to other
debentures which may be subsequently issued.

 Second debentures :- These are the debentures

which are to be paid after the “first
debentures” have been redeemed.

04/08/09 Share, Capital and Debentures 12

Debentures are usually issued in a series with a
pari passu clause. In such a case they are to be
discharged ratable, though issued at different
and varying times. In the event of a deficiency
of assets to satisfy the whole debt secured by
the issue of debentures, they will abate
proportionately.

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 The trust deed contains the terms and conditions endorsed in

the debentures and defines the rights of debenture-holders and

the company. It usually empowers the trustees to appoint a

receiver to protect their interest. I t also contains other

provisions concerning meeting of the debenture-holders

supervision of the assets charged, and the keeping of a register

of a debenture holders. Whenever ther is a default by the

company, the security is enforced or action is taken by the

trustees on behalf of all the debenture-holder

Question?
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