StudyRaah StudyRaah XI-XIIOpen StudyRaah

Maharashtra State Board · HSC Commerce · Class 12 (Std XII)

Class 12 Secretarial Practice Chapter 4: Issue of Debentures

Short notes, key concepts, quick revision and practice MCQs with answers

Explains the laws and rules a company must follow when it issues debentures (Companies Act, Rule 18 and SEBI norms), the step-by-step procedure for an issue, and the role of debenture trustees.

Key concepts: Issue of Debentures

Debenture and its regulation
A debenture is a borrowing of the company. Its issue is governed by Section 71 of the Companies Act 2013, Rule 18 of the 2014 Rules, SEBI regulations and RBI guidelines for banks.
Board's borrowing powers
The Board of Directors has the authority to issue debentures, but only within the borrowing limit set by the Articles. To go beyond it, a Special Resolution of shareholders is needed.
Provisions of the Companies Act, 2013
No voting rights for debenture holders, secured or unsecured and convertible or not, interest and redemption as per terms, certificate in 6 months, DRR, trustees, NCLT help and penalties.
Debenture Redemption Reserve (DRR)
An account created out of profits available for dividend and used only to redeem debentures. It is not needed for listed companies, NBFCs and housing finance companies.
Rule 18 for secured debentures
Redeem within 10 years (up to 30 years for special companies), create an adequate charge on assets, appoint trustees and keep 25% of outstanding debentures in the DRR.
SEBI requirements
Minimum subscription of 75% of the base issue size, retention of over subscription up to 100% of base issue, optional underwriting and compulsory credit rating.
Credit rating
A rating given by an agency such as CRISIL or CARE showing the credit risk level of the debentures. It must be mentioned in the prospectus, offer letter or letter of offer.
Debenture trustees and trust deed
Institutions that protect debenture holders and hold the charge on assets. The Debenture Trust Deed is the contract that sets their duties and powers and the holders' rights.

Quick revision: important points

Practice MCQs with answers

  1. Which section of the Companies Act, 2013 contains the provisions for the issue of debentures?

    1. Section 56
    2. Section 73
    3. Section 71
    4. Section 92
    Show answer

    Answer: C. Section 71
    Section 71 of the Companies Act 2013 deals with the issue of debentures, while Sections 73 to 76 deal with deposits.

  2. Rule 18 of the Companies (Share Capital and Debentures) Rules, 2014 contains provisions for which type of debentures?

    1. Secured debentures
    2. Unsecured debentures only
    3. Bank deposits
    4. Bonus debentures
    Show answer

    Answer: A. Secured debentures
    Rule 18 sets out the conditions a company must meet when it issues secured debentures.

  3. Why can a company not give voting rights to its debenture holders?

    1. They are members of the company
    2. They are creditors of the company
    3. They are directors of the company
    4. They are trustees of the company
    Show answer

    Answer: B. They are creditors of the company
    Debenture holders lend money, so they are creditors and not owners. They vote only on matters that affect them.

  4. Which resolution has to be passed in a general meeting to issue convertible debentures?

    1. Ordinary resolution at a Board Meeting
    2. Resolution of the debenture trustees
    3. Resolution of the Registrar
    4. Special Resolution
    Show answer

    Answer: D. Special Resolution
    Convertible debentures can be issued only after a Special Resolution is passed in the general meeting.

  5. Within what time from allotment must a company issue the debenture certificate?

    1. 6 months
    2. 3 months
    3. 60 days
    4. 12 months
    Show answer

    Answer: A. 6 months
    The Companies Act requires the debenture certificate to be issued within 6 months of allotment.

All Class 12 Secretarial Practice chapters

Class 12 Secretarial Practice notes: all chapters