Debenture: The word ‘debenture’ has been derived from a Latin word

‘debere’ which means to borrow. Debenture is a written instrument

acknowledging a debt to the Company. It contains a contract for
repayment of principal after a specified period or at intervals or at the
option of the company and for payment of interest at a fixed rate
payable usually either half-yearly or yearly on fixed dates.
Debenture includes debenture stock, bonds and any other securities
of a company whether constituting a charge on the assets of a
company or not as defined in the Companies Act. This is an inclusive
definition and amounts to borrowing of monies from the holders of
debentures on such terms and conditions subject to which the
debentures have been issued.
This is an inclusive definition and amounts to borrowing of monies
from the holders of debentures on such terms and conditions subject
to which the debentures have been issued. Basically it is a document
or certificate signed by the authorized officers of a company
acknowledging money lent and guaranteeing repayment with interest
and creating security on the assets of the company for due
performance of its obligation.
A debenture means a document, which creates or acknowledges a
debt. [Levy vAbercorries State Co. (1887) 37 Ch D 260]
GOVERNING SECTIONS:
 Section 2(30): Definition of Deposit: “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.
 Section 44: Nature of Share and Debenture.
 Section 71: Provision relating to Debentures.
 Section 117(3) (a)A copy of every resolution or any agreement, in
respect of the matters specified in sub-section [1](3) of section 17
together with the explanatory statement under section 102, if any,
annexed to the notice calling the general meeting in which the
resolution is proposed, shall be filed with the Registrar within thirty
days of the passing of resolution.
 Section 179 (3) (c,d): (c) to issue securities, including debentures,
whether in or outside India;
*(d) to borrow monies;
 Section 180(1) (c): The Board of Directors of a company shall exercise
the powers “borrow money”, where the money to be borrowed,
together with the money already borrowed by the company will exceed
aggregate of its paid-up share capital and free reserves, only with the
consent of the company by a special resolution, namely.
 Section 56(4) (d):within a period of six months from the date of
allotment in the case of any allotmentof debenture.
 Section 42: Offer or invitation for subscription of securities on Private
Placement.
 GOVERNING RULES:
o Rule 18of the Companies (Share Capital and Debentures) Rules,
2014:
o Rule 24 The Companies (Management and Administration) Rules,
2014: Resolutions and agreements to be filed.
o Rule 1(c) of The Companies (Acceptance of Deposits) Rules, 2014:
“Deposit” does not include
“Any amount raised by the issue of debentures secured by a first
charge or a charge ranking paripassu with the first charge on any
assets referred 73 Proviso to in Schedule III of the Act excluding
intangible assets of the company or debentures compulsorily
convertible into shares of the company within five years.”
 Rule 14 of the Companies (Prospectus and Allotment of Securities)
Rules, 2014: Process of Issue and allotment of Securities
(Debentures).
 FORMS INVOLVED:
o MGT– 14: Filing of Special Resolutions to the Registrar of Companies.
o [2]MGT – 14: Filing of resolution for issue of Debenture.
o PAS-4: Letter of offerfor Private Placement of Securities
o PAS-5: Record of a private placement offer to be kept by the company
o GNL: 2 Form for submission of PAS-4 & PAS-5 with Registrar of
Companies
o SH-12: Debenture Trust Deed
o PAS-3: Return of allotment
o CHG-9: forcreation of charge on assets of the Company
 DRAFTING INVOLVED:
o Debenture Subscription Agreement.
o Letter of offer of Private Placement of Shares
o Debenture Trustee Agreement, if required.
o Mortgage Agreement for creation of charge on assets of the company,
if required.
PURPOSE OF FILING OF FORMS:
 MGT-14:This form is required to be filed within 30 days of passing of
Special resolution for All The Companies including Private Limited
Company {Section 117(3)(a)}.
 MGT-14:This form is required to be filed within 30 days of passing of
resolution to issue securities, including debentures, whether in or
outside India {Section 179(3)(c)}.
 GNL-2:PAS-4 & PAS-5 are physical form will file with ROC in e-form
GNL-2.
RESOLUTION REQUIREMENT:
Special Resolution:A Special resolution is required to be passed at a
General Meeting of the Company for following purposes:
 To issue Debentures.[Section 71(1)first proviso].
 To increase borrowing power of the Company, if Required.
First Board Resolution:Board resolution is required to be Pass for
following purposes:
 Pass resolution to increase borrowing power of the Company, subject
to approval of Shareholders.
 Pass resolution to issue Debentures, subject to approval of
Shareholders.
 Approval of draft offer letter (PAS-4) for issue of Debentures.
 Take note of valuation report
 Approval of draft Debenture Trustee Agreement and appointment of a
Debenture Trustee.
 Issue the Notice of General Meeting along with explanatory statement.
(According to SS-2).
 Authorize a Company Secretary or director of company to issue notice
of General Meeting.
 Open Separate Bank Account: for receipt of money on issue of
debentures.
Second Board Resolution:Board resolution is required to be Pass for
following purposes:
 To allot Debentures.
 To authorize directors to issue and sign the debenture certificates.
 To authorize director of the company to file e-form PAS-3 for allotment
of Security.
 To authorize director of the company to file e-form CHG-9 for Creation
of Charge.