The power to issue debentures can be exercised on behalf of the Company as a meeting of the Board under the provisions of Section 179 (3) of the Companies Act, 2013. Along with Rule 18 of the Companies (Share Capital and Debentures) Rules, 2014
The power to issue debentures can be exercised on behalf of the Company as a meeting of the Board under the provisions of Section 179 (3) of the Companies Act, 2013.
Further Section 71 of the Companies Act, 2013 deals with the provisions relating to the issuance of debentures along with the penalties for non-compliance of the same which can be summarized as follows:
1. A company may issue debentures with an option to convert such debentures into shares, either wholly or partly at the time of redemption. Provided that the issue of debentures with an option to convert such debentures into shares shall be approved by a special resolution passed by the shareholders in a duly convened general meeting of the company.
2. Company can issue secured and unsecured debentures. Secured debentures may be issued by a company subject to such terms and conditions as may be prescribed. Further Company cannot issue any kind of debentures carrying any voting rights.
– Company shall create a debenture redemption reserve account out of the profits of the company available for payment of dividend and the amount credited to such account shall not be utilized by the company except for the redemption of debentures.
3. Company cannot issue a prospectus or make an offer or invitation to the public or to its members exceeding five hundred for the subscription of its debentures, unless it has, before such issue or offer, appointed one or more debenture trustees.
4. A debenture trustee shall take steps to protect the interests of the debenture holders and redress their grievances in accordance with such rules as may be prescribed.
5. Any provision contained in a trust deed for securing the issue of debentures, or in any contract with the debenture-holders secured by a trust deed, shall be void in so far as it would have the effect of exempting a trustee thereof from, or indemnifying him against, any liability for breach of trust, where he fails to show the degree of care and due diligence required of him as a trustee, having regard to the provisions of the trust deed conferring on him any power, authority or discretion; Provided that the liability of the debenture trustee shall be subject to such exemptions as may be agreed upon by a majority of debenture-holders holding not less than three fourths in value of the total debentures at a meeting held for the purpose.
– A company shall pay interest and redeem the debentures in accordance with the terms and conditions of their issue.
– Where at any time the debenture trustee comes to a conclusion that the assets of the company are insufficient or are likely to become insufficient to discharge the principal amount as and when it becomes due, the debenture trustee may file a petition before the Tribunal and the Tribunal may, after hearing the company and any other person interested in the matter, by order, impose such restrictions on the incurring of any further liabilities by the company as the Tribunal may consider necessary in the interests of the debenture-holders.
6. Where a company fails to redeem the debentures on the date of their maturity or fails to pay interest on the debentures when it is due, the Tribunal may, on the application of any or all of the debenture-holders, or debenture trustee and, after hearing the parties concerned, direct, by order, the company to redeem the debentures forthwith on payment of principal and interest due thereon.
7. If any default is made in complying with the order of the Tribunal under this section, every officer of the company who is in default shall be punishable with imprisonment for a term which may extend to three years or with fine which shall not be less than two lakh rupees but which may extend to five lakh rupees, or with both.
8. A contract with the company to take up and pay for any debentures of the company may be enforced by a decree for specific performance.
– And at last, the Central Government may prescribe the procedure, for securing the issue of debentures, the form of debenture trust deed, the procedure for the debenture-holders to inspect the trust deed and to obtain copies thereof, quantum of debenture redemption reserve required to be created and such other matters.
Rule 18 of the Companies (Share Capital and Debentures) Rules, 2014 (‘2014 Rules’) which prescribes certain conditions to be fulfilled by a company in order to issue secured debentures provides that:
The company shall not issue secured debentures, unless it complies with the following conditions, namely:-
1. An issue of secured debentures may be made, provided the date of its redemption shall not exceed ten years from the date of issue. Provided that a company engaged in the setting up of infrastructure projects may issue secured debentures for a period exceeding ten years but not exceeding thirty years;
2. Such an issue of debentures shall be secured by the creation of a charge, on the properties or assets of the company, having a value which is sufficient for the due repayment of the amount of debentures and interest thereon;
– the company shall appoint a debenture trustee before the issue of prospectus or letter of offer for subscription of its debentures and not later than sixty days after the allotment of the debentures, execute a debenture trust deed to protect the interest of the debenture holders; and
3. the security for the debentures by way of a charge or mortgage shall be created in favour of the debenture trustee on-
– any specific movable property of the company (not being in the nature of pledge); or
– any specific immovable property wherever situate, or any interest therein.
THE AUTHOR IS A PRACTICING COMPANY SECRETARY HAVING VAST EXPERIENCE IN HANDLING MATTERS RELATED TO COMPLIANCE AND LITIGATION OF THE COMPANY.THE AUTHOR CAN BE REACHED AT vinayak.charu@gmail.com and 6283643738
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