Answer in brief.
1. State any four provisions of Companies Act 2013 for issue of debentures.
Ans: Provisions for issue of debentures as per Companies Act, 2013.
Following are some of the provisions of the Act which a company has to comply wine issuing debentures:
1. No voting rights: A company cannot issue debentures with voting rights. Debenture holders are creditors of the company and so they do not have any voting rights except in matters affecting them.
2. Types of Debentures: A company can issue secured or unsecured debentures and fully or partly convertible debentures or non-convertible debentures. To issue convertible debentures, a Special Resolution has to be passed in the General Meeting. All debentures are redeemable in nature,
3. Payment of interest and redemption: A company shall redeem the debentures and pay interest as per the terms and conditions of this issue
4. Debenture Certificate: Company has to issue a Debenture certificate to the debenture holders within 6 months of allotment of Debentures,
5. Create Debenture Redemption Reserve: Company has to create a Debenture Redemption Reserve account out of profits of the company available for payment of dividends. This money can be used only for the redemption of debentures. As per Companies (Share Capital and Debentures) Amendment Rules 2019, MCA has removed the Debenture Redemption Reserve requirement for Listed companies, NBFCs, and Housing Finance Companies.
6. Appoint of Debenture Trustees: If the company issues prospectus or invites more than 500 people, either to Public or its Member) the company has to appoint one or more Debenture Trustees. Debenture trustees protect the interest of the debenture holders. The company has to appoint trustees by entering into a contract with them called as Debenture Trust Deed.
7. Debentures Trustee can approach NCLT: Debenture Trustees have to redress the grievances of debenture holders. If the company defaults in repaying the principal amount, on maturity or defaults in paying interest there on the Debenture Trustees can approach the National Company Law Tribunal for redressal. NCLT can direct a defaulting company to repay the principal amount or interest.
8. Impose restrictions: When the Debenture Trustee is of the opinion that the assets of the company are insufficient or likely to become insufficient to redeem the principal amount of debentures, it may approach the NCLT. NCLT can order a company to restrict incurring further liabilities so as to protect the interest of the debenture holders.
9. Punishment for contravention of provisions of the Companies Act: If the company fails to comply with any provisions of the Act, then the company and its officers shall be liable to pay fine or imprisonment or both as prescribed in the Act.
2. What is debenture trust deed ?
(a) Trust Deed needs to be made between the company and trustees.
(b) The agreement created by the company, whereby trustees are appointed to protect the interest of debenture-holders before they are offered for public subscription is known as Debenture Trust Deed.
(c) Company enters into a contract with one or more Debenture Trustees. The terms and conditions of the agreement is written in the Debenture Trust Deed.
(d) It is a legal instrument conveying the assets of a company to the Trustees. The Deed also defines the rights of debenture holders and the duties and powers of Debenture Trustees.
(e) Company has to execute the Deed within 3 months of closure of the issue. Members as well as debenture holders can inspect the deed and also get a copy of it by paying a certain fee.
3. Who are debenture trustees ?
(1) Debentures Trustee is a person or institution which protects the interest of the debenture holders. The Trustees become the custodian of the assets on which charge has been created.
(2) A company which issues prospectus or invites more than 500 persons to buy its debentures has to appoint one or more Debentures Trustee. Companies issuing secured debentures also must appoint Debentures Trustee.
(3) Debentures Trustee is appointed before prospectus or letter of offer/offer letter is issued or within 60 days after the allotment of the debenture. The Trustees must give written consent to act as Debenture Trustees.
(4) According to SEBI Rules, 1993 “debentures trustee” means a trustee of a trust deed for securing any issue of debentures of a body corporate (section 2 (bb)). (Applicable to public companies only).
(5) The trustee can appoint a nominee to the board of directors of the company. Before the trustee appoints the nominee, the following conditions must be satisfied:
• Two consecutive defaults made by the company in payment of interest to the debenture holders; or
• Default in the creation of security for debentures or default in the redemption of debentures.