.
Meaning: - When a company wants to borrow long
term finance then issuing debentures is the most convenient method. Because,
debentures can be repaid after a long period such as 10 years, 20 years, etc.
the term debenture originates from a Latin word ‘debare’ meaning ‘to owe’. In
simple term a debenture is an instrument of credit issued by a company to
acknowledge its debt/loan to debenture holder upto a certain sum of money under
certain terms and conditions. It is in the form of document known as Debenture
Certificate.
The Procedure of issuing
of debentures is as follows: -
1. Resolution
by Directors: -As empowered by Articles, Board of Directors will pass
a resolution in the board meeting. Authorizing the issue of debentures. The
resolution contain detail about
·
Number
of debentures to be issued.
·
Amount
of Face value.
·
Rate
of Interest.
·
Period
after which interest is payable.
·
Terms
of redemptions.
2. Resolution
By shareholders (if required): -The approval of shareholders is required,
if the total borrowing of the company exceeds the aggregate of paid up capital
and free reserves. For this the company has to convene a general meeting to
pass special resolution to issue debentures which exceeds the limit.
3. Consent
of SEBI:
The Company has to obtain consent of SEBI, if the issue of debentures exceed
Rs. One Crore or more.
4. Approval
of Stock Exchange: The issue of debentures must be listed with at least
one recognized stock exchange. For this, approval of stock exchange is required
to be taken before prospectus is issued to the public.
5. Credit
rating:
-As per the SEBI guidelines
of 2000, the company has to get its debentures rated by two recognized Credit
Rating agencies such as CRISIL, CARE.
It should be disclosed (show) in prospectus.
6. Filing
of prospectus: -The
Company is required to prepare and file prospectus with registrar, when
debentures are issued to the public. However, ‘Statement in Lieu of Prospectus’
is to be filed when debentures are issued through Private Placement.
7. Registration
of Trust deed: -
Before issue of prospectus to the public, company is required to appoint
Debenture Trustees, with their due consent. A company executes a Trust Deed
with trustees. By conveying company’s property to the trustees, the debentures
are secured through’ Trust Deed’.
8. Issue
of Prospectus: After
complying with all formalities noted above, the company secretary arranges for
issue of prospectus to general public. Wide publicity is given through print
media and electronic media by issuing advertisement.
9. Receipt of Application: -The
Company must make proper arrangement to receive application along with
application money, through company’s bankers. The application money must be
deposited in a scheduled bank in a separate account.
10. Allotment
of Debentures: - The
allotment of debentures is carried out by Board of Directors. For this a
suitable resolution is passed in the Board Meeting.
11. Issue
of Debenture Certificate:
- The Company has to issue the debenture certificate to the investors.
Nowadays, the debentures are credited directly to the Demat account of the
investors.
12. Register
and Index of Debenture holders: - The secretary should make proper entries in the register of
debenture-holders. Also, a suitable index must be prepared in respect of
debenture holders, if the number of debenture holders exceeds 50.
