Explain the following terms/concepts.
(1) The term debenture originates from a Latin word debere meaning to owe’. Thus, Debenture represents the borrowed capital. Debenture is a certificate that denotes such debt is given to the company. The person holding debenture is known as debenture holder.
(2) Section 2(30) of the Companies Act 2013, states that, “the word debenture includes debenture stock, bonds and any other instruments company evidencing a debt, whether constituting a charge on the assets of the company or not.”
2. Debenture holder
(1) Debenture is a certificate that denotes such debt is given to the company The person holding debenture is known as debenture holder.
(2) They are the creditors of the company. They receive interest as return on investment
(3) They have less risk as they get back their capital prior to shareholders in case of winding up of the company.
3. Interest on Debentures
(1) Debenture capital is a loan or borrowed capital of a company. Debenture holders are the creditors of the company.
(2) They receive interest as return on investment. They get fixed rate of interest. Interest is a debt. It does not depend upon profit. Company pays interest through Interest Warrant or through electronic mode, i.e, ECS or NEFT.
4. Redemption of debentures
(1) Redemption of debenture letter is issued to the debenture holders whose debenture are to be redeemed after the specific period of time.
(2) A Debenture Redemption Reserve Fund (DRRF) is created by the company to redeem the debenture. All the necessary documents has to be submitted by the company for the procedure of redemption.
5. Conversion of Debentures
(1) Debentures can be converted into equity shares on the expiry of specified period and at the specified rate, mentioned in terms of issue. (2) Company has to pass special resolution for conversion of debenture into equity shares, After receiving approval, the company sends letter of conversion of debentures to the debenture holders
6. Interest warrant
(1) Interest warrant is a warrant or cheque given by a company or an organization in payment of interest on deposit.
(2) Interest warrant has all the characteristics of a cheque. For instance, interest on bond.
(1) The letter acts as a representative of the organization. Thus, secretary should always provide all the information in concise or compact manner. (2) Correspondence with the debenture holders must be brief and to the point. A letter should not be lengthy. Secretary should provide maximum information in minimum words.
8. Precise information
(1) The letter acts as a representative of the organization. Secretary should always provide correct, up to date and factual information to the debenture holders in precise and compact manner.
(2) Utmost care should be taken by secretary while giving facts and figures to debenture holders.
(1) The letter to the debenture holders should be polite. A courteous letter shows empathy, respect and mutual understanding. It is helpful for getting favourable response and built up goodwill of the organization.
(2) Secretary should not use any harsh words while corresponding with members. Also, rude language should be avoided.
10. Debenture certificate
(1) Debenture certificate is the document of certificate given to debenture holder. It certifies that the holder is the creditor of the company to the limit of a number of debentures hold by him.
(2) Debenture may be secured by creating the charges on the assets of the company. Debenture is issued with due date stated in the ‘Debenture Certificate’.