DHARMASHASTRA NATIONAL LAW

UNIVERSITY JABALPUR, MADHYA PRADESH

COMPANY LAW - I

Debentures: A critical study as a mode of capital

financing

Submitted by: Submitted to:

Kamod Patel Mrs. Shruti Nandwana
BALLB/043/2021 Associate Professor Company Law
V Semester DNLU, Jabalpur

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 Synopsis

Introduction

T he word ‘debenture’ has been derived from a Latin word ‘debere’ which means to
borrow.1Debenture 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. A debenture means a document, which creates or
acknowledges a debt.2

The term “debenture” has been defined in the act that “Debenture includes debenture stock,
bonds and any other instrument of a company evidencing a debt whether constituting a
charge on the company’s assets or not.”3 Debenture is most important instrument to raise
capital for a company. A company use debenture to raise debt capital. Debenture holders are
known as creditors of the company. Debenture holders are paid a fixed amount of interest at
precise intervals may be, six months or a year.
Debenture issued by public sector companies with government approval is called bonds.
Debenture may be Secured Debenture or Unsecured Debenture. According to Section 44, the
shares or debentures or other interest of any member in a company shall be movable property
transferable in the manner provided by the articles of the company.

According to Chitty “Debentures means a document which either creates a debt or

acknowledges it, and any document which fulfils either of those conditions is a debenture”.4

In India the company act 1956, Section 2 (12) defines debentures as “Debenture includes
debenture stock, bonds and any other securities of a company whether constituting a charge
on the Company’s assets or not.”5 Debenture means a document, which either creates a debt
or acknowledges it, and any document which fulfills either of these two conditions is a
debenture.
The project in its entirety tried to deal with major issues and technical/logical voids in the
system with respect to Debentures. The study also tries to address the concern and
recommend suitable solutions to the existing lacunas.

Research Question

1 Issue and Redemption of Debentures published on 7/11/17 available at:

http://ncert.nic.in/ncerts/l/leac202.pdf (Last seen on 20/10/17)
2 Levy v Abercorries State Co. (1887) 37 Ch D 260
3
Section 2(30), The Companies Act, 2013.
4
Levy v. Abercorris co, (1888) 37 Ch.D. 260-264
5
Companies Act, 1956 available at:
http://www.mca.gov.in/Ministry/actsbills/pdf/Companies_Act_1956_Part_1.pdf, last seen on 20/10/17

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 What makes debentures unique instrument for companies to raise money, and how its
different when compared to other funding options?
 How do the rules and regulations under the Companies Act, 2013 impact the process of
companies issuing debentures, and what challenges do businesses face in following these
rules?
 What are the different types of debentures, and how can companies use them effectively
to meet their financial needs?
 When it comes to paying back debentures, what are the strategies companies use, and
how do these strategies affect a company's financial health?

Research Objective

 To analyze the significance of debentures as a financial instrument and their role in

corporate finance, including their advantages and disadvantages in comparison to other
forms of financing.
 To investigate the legal and regulatory framework for issuing debentures in India under
the Companies Act, 2013, and assess the procedural requirements, compliance, and
documentation involved in the debenture issuance process.
 To categorize and examine the various types of debentures and applicability in different
business scenarios.
 To evaluate the methods and strategies for the redemption of debentures, focusing on the
financial management techniques, including sinking funds, redemption through profits,
and external sources, and to analyze the implications of each method on the company's
financial stability.
 To investigate case studies and empirical data to understand the practical challenges and
experiences of companies in issuing, managing, and redeeming debentures, thereby
providing insights into the real-world application of debenture-related concepts and best
practices.

Research Methodology
The researcher has adopted doctrinal method of legal research. The primary sources of data
include bare acts. And secondary sources being data from books, articles, blogs, websites,
legal databases, online journals, acts, etc.

Scope of Research
The study will deal with the debenture under the Companies Act, 2013 and Companies
(Share Capital and Debentures) Rules, 2014