DEBENTURES

INTRODUCTION

DEFINTION, NATURE AND FEATURE

LEGAL PROVISION

CRITICAL ANALYSIS

SUGGESTION AND CONCLUSION

Chapter 1

1.1.INTRODUCTION

Debenture is loan security. Debenture is a document given by a company under its seal as an
evidence of a debt to the holder usually arising out of a loan and most commonly secured by a
charge. It is an evidence of debt to the holder which is normally but not necessarily secured by a
charge over the property. It is an acknowledgement of debt by a company to same person or
persons. By issuing debentures means issue of certificate by the company under its seal which is
an acknowledgement of debt by the company. The procedure of issue of debentures by a company
is similar to that of the issue of shares. A prospectus is issued, applications are invited, and letters
of allotment are issued. On rejection of applications, application money is refunded. In case of
partial allotment , excess application money may be adjusted towards subsequent calls.
Debenture is an instrument in writing for a fixed period, given by accompany acknowledging
the liability for total amount received as a result of issue of debenture and agreeing there by to pay
the money raised after the expiry of stipulated period at a certain rate of interest.
A company for its extension & development may require to raise funds without increasing its
share capital. So, a company may invite the public by open declaration to lend money for a fixed
period at a declared rate to be paid on such money. In law, a debenture is a document that either
creates a debt or acknowledges it. In corporate finance, the term is used for a medium to long term
debt instrument used by large companies to borrow money. In some countries the term is used
interchangeably with bond, loan, stock or note. Debentures are generally freely transferable by the
debenture holder. Debenture holders have no rights to vote in the companys general meetings of
shareholders, but they may have separate meetings or votes e.g. on changes to the rights attached
to the debentures. The interest paid to them is a charge against profit in the companys financial
statements.

Chapter 2
2.1. Definition

A debenture is defined as a certificate of agreement of loans which is given under the company's
stamp and carries an undertaking that the debenture holder will get a fixed return (fixed on the
basis of interest rates) and the principal amount whenever the debenture matures. In finance, a
debenture is a long-term debt instrument used by governments and large companies to obtain
funds. It is defined as "a debt secured only by the debtors earning power, not by a lien on any
specific asset." It is similar to a bond except the security conditions are different. A debenture is
usually unsecured in the sense that there are no liens or pledges on specific assets. It is, however,
secured by all properties not otherwise pledged. In the case of bankruptcy, debenture holders are
considered general creditors. The advantage of debentures to the issuer is they leave specific assets
burden free, and thereby leave them open for subsequent financing.
Debentures are generally freely transferable by the debenture holder. Debenture holders have no
voting rights and the interest given to them is a charge against profit.
Section 2(30) of the Companies Act 2013 defines debenture as debenture 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.
2.2. Nature