Issue of Debentures

[Vinod Naik]

Dear Friends,

 

Could you share with me the procedure for issue of secured and unsecured debentures for a public limited company and a private limited company. Early reply will be very helpful.

 

Thanks and regards.

 

 

Vinod

[Jayashree Chandrasekaran]

you cannot issue unsecured debentures since it will come under the purview of deposits

Jayashree

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C.JAYASHREE

PARTNER

S.GANESH&ASSOCIATES

CHENNAI

98840 17120

[Vivek Hegde]

No Ma'am.

Here are the provisions:

Under the Companies (Acceptance of Deposit) Rules, 1975 “any amount raised by issue of debentures (including convertible debentures) secured by the mortgage of any immovable property of the company and that the market value of the immovable property secured is higher than the amount of debentures issued” is not considered to be a DEPOSIT.

Under Section 3(1)(d) of the Act, a Private Company is prohibited from accepting Deposit from persons other than its Directors, Members and their relatives.

Hence, the Private Company must issue Debentures only as a Secured Debenture.

A public company can issue unsecured debentures as there is no prohibition as such.

Attaching a note written by eminent writer Mr. Eshwar.

Vivek

Warm Regards

CS Vivek Hegde,B.com, ACS, CWA
Company Secretary in Practice
No. 405, 4th Block, 7th Cross
Koramangala, Bangalore-560034
Mob: 09019756940/09900898223

[Jayashree Chandrasekaran]

Dear Vivek,

Pls let me know how it will not be applicable to a Public limited company...will the undermentioned defintion not hold good?

Jayashree

[Vivek Hegde]

Dear Ma'am

I mean to say, public limited companies are allowed to accept deposits (so also debentures) unlike private limited cos. However after complying with provisions in this regard.

Even the private limited also issue unsecured debentures to Directors, Members and their relatives as section 3 (1) (iv) allows acceptance deposits from them.

Learned member's views solicited.

Vivek Hegde

[Ashish Aggarwal]

yes the definition holds good for a public company as well.

I think what Vivek is trying to suggest is a private company doesnt have any option except for issuing secured debentures becuase unsecured debentures will be treated as deposits which a private company cannot do except from director/member

 

regards,

 

Ashish

Ashish Aggarwal

[Jayashree Chandrasekaran]

yes now i follow...if a public limited company wants to issue unsecured debentures then it will have to follow the provisions of accepting fixed deposits too...

Jayashree

[Ashish Aggarwal]

true

It also means u cannot issue unsecured debentures for a period exceeding 36 months...

[Vivek Aggarwal]

Dear Ashish

I agree with your view.

 

Regards
CS Vivek Aggarwal

From: Ashish Aggarwal <ashi...@gmail.com>
To: csmy...@googlegroups.com
Cc:
Sent: Monday, 7 February 2011 5:19 PM
Subject: Re: [CSMysore] Issue of Debentures

[Vivek Hegde]

Further, if the debentures are being issued to a "Company", the issuer Company need not comply with the said provisions of acceptance of deposits due to the specific exemption provided therein.

Vivek

On Tue, Feb 8, 2011 at 10:53 AM, Jayashree Chandrasekaran <jayak...@gmail.com> wrote: