CORPRATEFI

NANCEPROJECT

UNDERTHESUPERVI
SIONOF:
Asst
.Pr
of.Ms.Pr
iyaMa'
am

Submi
tt
edby
:KumarAmar
tya
VI
IIsemest
er

DEBENTUREUNDERCORPORATELAW'
‘

I
NDOREI
NSTI
TUTEOFLAW,
INDORE

Page|
1
 Cer
ti
fi
cat
eOfSuper
visor

Thi
sist
o cer
ti
fyt
hatt
hepr
ojectwor
kent
it
led “
Debent
ureUnderCor
por
ateLaw”
submi
tt
edbyKumarAmar
tya,Fort
hepar
ti
alf
ulf
il
lmentoft
heB.
A.LLBDegr
ee(
Eight
h
semest
er)of
fer
edbyI
ndor
eInst
it
uteofLaw,I
ndor
e(af
fi
li
atedt
oD.
A.V.
V.andBCI
)
dur
ingt
heacademi
cyear2016-
21i
sar
ecor
doft
heSt
udent
’sownwor
kcar
ri
edoutby
herundermysuper
visi
on.Themat
terembodi
edi
nthi
sthesi
sisor
igi
nalandhasnot
beensubmi
tt
edf
ort
heawar
dofanyDegr
ee,
Dipl
omaorsuchot
hert
it
les.

Dat
e: 04-
05-
2020
NameofSuper
vi :AssistantProff.Ms.PriyaMa'am
sor

Si
gnat
ureofSuper
visor

Page|
2
 Decl
arat
ionofResear
cher

Thi
sist
ocer
ti
fyt
hatThesi
s/Repor
tent
it
led“
Debent
ureUnderCor
por
ateLaw”whi
chi
s
submi
tt
edbymei
npar
ti
alf
ulf
il
lmentoft
her
equi
rementf
ort
heawar
dofdegr
ee
B.
A.LLB.Degr
ee(
Eight
hSemest
er)of
fer
edbyI
ndor
eInst
it
uteofLaw,I
ndor
ecompr
ises
onl
ymyor
igi
nalwor
kanddueacknowl
edgementhasbeenmadei
nthet
extt
oal
lot
her
mat
eri
alused.

e:0
Dat 4-
05-
2020 NameofSt
udent
:

  KumarAmar
tya

Page|
3
 Acknowl
edgement

Iwoul
dli
ket
otaket
hisoppor
tuni
tyt
oexpr
essmypr
ofoundgr
ati
tudeanddeepr
egar
d
t
omy(
Proj
ectGui
deAsst
.Pr
of.Ms.Pr
iyaMa'
am)
,forherexempl
arygui
dance,
val
uabl
e
f
eedbackandconst
antencour
agementt
hroughoutt
hedur
ati
onoft
hepr
oject
.Her
v
aluabl
esuggest
ionswer
eofi
mmensehel
pthr
oughoutmypr
ojectwor
k.Herper
cept
ive
cr
it
ici
sm keptmewor
kingt
omaket
hispr
ojecti
namuchbet
terway
.Wor
kingunderher
wasanext
remel
yknowl
edgeabl
eexper
iencef
orme.

Iwoul
dal
sol
i
ket
ogi
vemysi
ncer
egr
ati
tudet
oal
lthef
ri
endsandcol
l
eagueswho
hel
pedmei
nthi
sresear
chwor
k,wi
thoutwhi
cht
hisr
esear
chwoul
dbei
ncompl
ete.

Dat
e:04-
05-
2020
Submi
tt
edby
:KumarAmar
tya

Page|
4
Debent
ureUnderCor
por
ateLaw

Page|
5
Cont
ent
s

CHAPTER-1RESEARCH METHODOLOGY 7
ABSTRACT 9
I
NTRODUCTI
ON 10
Meani
ngofDebent
ures 10
Di
sti
nct
ionbet
weenShar
esandDebent
ures 11
Fr
om t
hePoi
ntofv
iewofSecur
it
y 13
Secur
edDebent
ures: 13
Unsecur
edDebent
ures: 13
Fr
om t
hePoi
ntofv
iewofTenur
e 13
Redeemabl
eDebent
ures: 13
I
rr
edeemabl
eDebent
ures: 13
Fr
om t
hePoi
ntofv
iewofConv
ert
ibi
l
ity 13
Conv
ert
ibl
eDebent
ures: 14
Non-
Conv
ert
ibl
eDebent
ures: 14
Fr
om t
hev
iewPoi
ntofRegi
str
ati
on 14
LegalPr
ovi
sionsr
elat
edt
oDebent
ure 14
PROCEDURETOI
SSUEDEBENTURESUNDERTHECOMPANI
ESACT,
2013 18
Thesear
edi
scussedasbel
ow: 19
(
a)Adv
ant
agest
otheCompany
: 19
(
b)Adv
ant
agest
oInv
est
ors: 20
Di
sadv
ant
agesofDebent
ureFi
nance: 21
I
ssueofDebent
urebyaCompany 22-
24
KeyDi
ff
erences: 25
Conf
li
ctofi
nter
estpossi
bil
i
ties. 26
Concl
usi
on: 28

Page|
6
CHAPTER-1RESEARCH METHODOLOGY

RESEARCHPROBLEM
The paperunf
olds an anal
ysi
s oft
he conceptofDebent
ure as pr
ovi
ded under
Compani
esAct
.Debent
urer
efer
stot
hel
oanwhi
chacompanybor
rowsf
rom out
sider
s
ori
ssuesi
nit
snamei
nsi
mil
armannerast
heshar
esar
eissued,i
nor
dert
omeett
he
needsandr
equi
rement
sofi
nst
it
uti
ont
ofaci
l
itat
eef
fect
iver
unni
ngofbusi
nesst
her
eby
r
aisi
ng pr
ofi
tofcompany
.Thus,when a companywi
nds up t
he or
gani
zer
s and
manager
sregul
ati
ngbusi
nessofcompanyar
eatbur
denofr
epay
ingormeet
ingoutt
he
debent
ureswi
thwhi
cht
hecompanyi
schar
gedwi
th.Anddur
ingt
his 
process,t
he
asset
soft
hecompanyar
e r
eal
i
zedbyl
i
qui
dat
orandt
hedebt
soft
hecompanyar
e pai
d
of
foutofi
torf
rom t
hecont
ri
but
ori
esandi
fanysur
plusi
slef
t,i
tisdi
str
ibut
edamong
t
hemember
sinpr
opor
ti
ont
othei
r 
shar
ehol
dingi
nthecompany
.Thusi
tcanbesai
d
t
hatdebent
urei
sadebtwhi
chcompanyi
sboundt
orepayei
therofi
tspr
ofi
tort
hrough
i
tsasset
s.

AI
MSANDOBJECTI
VES
Thepur
posesoft
hisst
udyar
easf
oll
ows:
1.Toanal
yzeconceptandpr
ocedur
eofi
ssui
ngandr
epay
ingDebent
ures.
2.Ot
herl
egal
li
abi
l
iti
esofcompanywi
thr
espectt
odebent
ures.

SCOPEANDLI
MITATI
ONS
Thi
sst
udyempl
oysadat
abasei
nvol
vi
nganal
ysi
soft
heconceptofdebent
ureand
pr
ocedur
eofi
tsr
epay
menti
ntheev
entofWi
ndi
ngupofCompani
esaspr
ovi
dedi
n
Compani
esAct
,1956andAct
,2000.Anat
tempthasbeenmadet
osummar
izeal
l
r
elat
edf
act
s.Dat
a’swer
esel
ect
edusi
ngt
arget
edel
ect
roni
csear
ches.Theov
eral
l
dat
abasei
ncl
udesar
ti
cles,r
epor
ts,booksandr
eput
edwebsi
tesandev
eryef
for
twas
madet
oconf
inewi
thi
ntheambi
toft
opi
cbyf
ocusi
ngonl
yont
het
opi
c.

Page|
7
RESEARCHQUESTI
ONS

 st
atet
hemeani
ngandt
ypesofdebent
ures?

 expl
aint
hepr
ocedur
eofi
ssueofdebent
uresandi
tsaccount
ingt
reat
ment
?

 cal
cul
atei
nter
estondebent
ures?

RESEARCHHYPOTHESES
Ther
esear
chpr
ojecti
sent
it
led“
Debent
ureUnderCor
por
ateLaw”
.Ther
esear
chwor
k
compr
isesofpr
ovi
si
onsorgui
del
i
nesi
naccor
dancewi
thwhi
chDebent
urei
sissued.An
at
tempthasbeenmadet
oanal
yzet
hepr
ocedur
eofr
eal
i
zat
ionofdebent
urebyv
ari
ous
r
uli
ngsoft
heSupr
emeCour
t.

RESEARCHMETHODOLOGY
“
NORMATI
VE”Met
hodofResear
ch”hasbeenr
eli
eduponf
orconduct
ingt
her
esear
ch
gi
vent
heav
ail
abi
l
ityofr
esour
cesandt
ime.Ther
esear
cherhasr
eli
edmai
nlyupon
secondar
ysour
ces,i
ncl
udi
ngbooksav
ail
abl
einLi
brar
y,Dat
abases,Jour
nal
s,Ar
ti
cles
andNewspaper
s.

MODEOFCI
TATI
ON

Auni
for
m modeofci
tat
ioni
sfol
l
owedwhi
l
ewr
it
ingt
hepr
oject
.

Page|
8
ABSTRACT

ACompanyr
aisesi
tscapi
talbymeansofi
ssueofshar
es.Butt
hef
undsr
aisedby
t
hei
ssueofshar
esar
esel
dom adequat
etomeett
hel
ongt
ermf
inanci
alneedsof
company
.Hence,mostcompani
est
urnt
orai
singl
ong-
ter
mfundsal
sot
hrough
debent
ureswhi
char
eissuedei
thert
hrought
her
out
eofpr
ivat
epl
acementorby
of
fer
ingt
hesamet
othepubl
i
c.Thef
inancesr
aisedt
hroughdebent
uresar
eal
so
k
nownasl
ong-
ter
m debt
.
ADebent
urei
sauni
tofl
oanamount
.Whenacompanyi
ntendst
orai
set
hel
oanamount
f
rom t
hepubl
i
citi
ssuesdebent
ures.Aper
sonhol
dingdebent
ureordebent
uresi
scal
l
ed
adebent
urehol
der
.Adebent
urei
sadocumenti
ssuedundert
hesealoft
hecompany
.It
i
sanacknowl
edgmentoft
hel
oanr
ecei
vedbyt
hecompanyequalt
othenomi
nalv
alue
oft
hedebent
ure.I
tbear
sthedat
eofr
edempt
ionandr
ateandmodeofpay
mentof
i
nter
est
.Adebent
urehol
deri
sthecr
edi
toroft
hecompany
.
Compani
eswheni
ncor
por
atednotonl
yut
il
izest
heequi
typr
ovi
dedbyt
heshar
ehol
der
s,
i
tal
sobor
rowsf
rom t
hev
ari
ouspr
ovi
der
stoseekgr h1 i
owt nit
sact
ivi
tyandpr
ovi
de
benef
it
stoi
ts shar
ehol
der
s. Her
e,t
he l
egalr
elat
ionshi
p est
abl
i
shes wi
tht
he
shar
ehol
der
s(pr
ovi
desequi
ty)and debent
ure hol
der
s(pr
ovi
desl
oansorcr
edi
tat
cer
tai
nter
msandcondi
ti
ons)wi
thagi
vencompanyassoci
atedt
othecapi
talt
heyhav
e
i
nvest
ed,
theyi
nvestwi
thav
iewt
oenhanci
ngt
hei
rval
ueofequi
tyandcr
edi
tor
slookf
or
i
nter
est
s.Thust
heyhav
edi
ff
erentr
ight
sunderdi
ff
erentagr
eement
swi
tht
hecompany
.
Thi
spaperunf
oldst
hec
onc
eptofDebent
ureonabr
oadper
spec
tiv
ether
ebys
ummar
izi
ng

1
Gr
owt hissoughtbyacompanyt hr
oughent repreneurial activ
iti
es,largescaleact i
v i
tyrequi
reslarge
amount sofcapi tal
,whi chisavailabl
ethroughout si
deinv est ors(shareholdersdonott endtoinvestal
l
thei
rmoni esinonebasket )t
hroughpool i
ngofr esources…weseet odaycr owdf undingasaphenomenon
forcharit
ablepur poses, butWikipedi
aandot herentrepr eneur i
alcompani esgoi ngbustwoul dseekcr owd
fundingtoav oidbankr uptcyonlywheni nvestorsar ereluct anttosuppor ttheircause.Howev er,
to
encourageani nvest
ort oinvest,acompanyneedst opr ov i
dei ncenti
v es.Mostoft hecompani eswhoar e
l
iquidorar esol v
enttradeonst ockmar ket,throughwhi chi nvestorsreali
set heirinvestment.Thisall
ows
compani est oraisenecessar yfundsthrought radingstocks( shares)ont hemar ket.Oneoft hereasons
weseehi ghandl oworv olat
il
it
yinmar ketsisduet othel i
qui di
tyoft hecompanywher edebtwoul dhave
ri
senandt hecompanymi ghtnotbeabl etor eturnthedebt s.

Page|
9
t
he pr
ocedur
e wi
thr
espectt
o account
ing t
reat
mentofi
ssue and r
edempt
ion of
debent
uresandot
herr
elat
edaspect
s,wewi
l
lfur
therdi
scusst
hei
rri
ght
sinr
elat
iont
o
i
ncome,r
etur
noft
hei
rcapi
tal
,thei
rvot
ingr
ight
sandal
sodi
scusst
hekeydi
ff
erences
bet
weenashar
ehol
deranddebent
urehol
der
.

I
NTRODUCTI
ON

Asweal
lknow shar
ecapi
tali
sthemai
nsour
ceoff
inanceofaj
ointst
ockcompany
.
Suchcapi
tali
srai
sedbyi
ssui
ngshar
es.Thosewhohol
dtheshar
esoft
hecompanyar
e
cal
l
edt
heshar
ehol
der
sandar
eowner
soft
hecompany
.Companymayneedaddi
ti
onal
amountofmoneyf
oral
ongper
iod.I
tcannoti
ssueshar
esev
eryt
ime.I
tcanr
aisel
oan
f
rom t
hepubl
i
c.Theamountofl
oancanbedi
vi
dedi
ntouni
tsofsmal
ldenomi
nat
ions
andt
hecompanycansel
lthem t
othepubl
i
c.Eachuni
tiscal
l
eda‘
debent
ure’
andhol
der
ofsuchuni
tsi
scal
l
edDebent
urehol
der
.Theamountsor
aisedi
sloanf
ort
hecompany
.
I
nthi
slessonweshal
ll
ear
nabouti
ssueofdebent
uresandi
tsaccount
ingt
reat
ment
.

Meani
ngofDebent
ures

Thewor
d‘debent
ure’hasbeender
ivedf
rom aLat
inwor
d‘deber
e’whi
chmeanst
o
bor
row.Debent
urei
sawr
it
teni
nst
rumentacknowl
edgi
ngadebtundert
hecommon
sealoft
hecompany
.Itcont
ainsacont
ractf
orr
epay
mentofpr
inci
palaf
teraspeci
fi
ed
per
iodorati
nter
val
soratt
heopt
ionoft
hecompanyandf
orpay
mentofi
nter
estata
f
ixedr
atepay
abl
eusual
l
yei
therhal
f-
year
lyory
ear
lyonf
ixeddat
es.Accor
dingt
osect
ion
2(
12)ofTheCompani
esAct
,1956‘
Debent
ure’i
ncl
udesDebent
ureI
nvent
ory
,Bondsand
anyot
hersecur
it
iesofacompanywhet
herconst
it
uti
ngachar
geont
heasset
soft
he
companyornot
.

Page|
10
Anot
hert
erm usedi
ncompani
esi
nsameper
spect
ivei
s‘Bond’
.Bondi
sani
nst
rumentof
acknowl
edgementofdebt
.Tr
adi
ti
onal
l
y,t
heGov
ernmenti
ssuedbonds,butt
heseday
s,
bondsar
eal
sobei
ngi
ssuedbysemi
-gov
ernmentandnon-
gov
ernment
alor
gani
zat
ions.
Thet
erms‘
debent
ures’
and‘
Bonds’
arenowbei
ngusedi
nter
-changeabl
y.

Di
sti
nct
ionbet
weenShar
esandDebent
ures

Shar
es Debent
ures

Owner
shi
p  Repr
esent
s owner
shi
p oft
he  A debent
ure i
s onl
y
company
. acknowl
edgementofDebt
.

 Ashar
eisapar
toft
heowned  A debent
urei
s a par
tof
capi
tal bor
rowedcapi
tal
.

Ret
urn  Ther
etur
nonshar
esi
sknown  Ther
etur
nondebent
uresi
s
asdi
vi
dend cal
l
edi
nter
est

 Ther
ateofr
etur
nonshar
es  The r
ate of i
nter
est on
may v
aryf
rom y
eart
oyear debent
uresi
spr
efi
xed.
dependi
ngupont
hepr
ofi
tsof
 t
hepay
mentofi
nter
esti
sa
t
hecompany
char
geonpr
ofi
tsandi
sto
 Thepay
mentofdi
vi
dendi
san bepai
dev
eni
fther
eisno
appr
opr
iat
ionofpr
ofi
ts pr
ofi
t

Repay
ment  Theamountofshar
esi
snot  The debent
uresar
eissued
r
etur
neddur
ingt
hel
i
feoft
he f
ora speci
fi
ed per
iod and
company
. r
epay
abl
e on t
he expi
ryof
t
hatper
iod
 I
n t
he y
ear 1998, t
he
amendement
s (
Sect
ion 77A
and77BsubSect
ion2)i
nthe

Page|
11
 Compani
esAct
,1956per
mit
ted
compani
es t
o buy back i
ts
shar
esspeci
all
ywhenmar
ket
v
alueofshar
esar
elesst
han
i
tsbookv
alue.

Vot
ingRi
ght
s  Shar
ehol
der
s enj
oy v
oti
ng  Debent
ure hol
der
s do not
r
ight
s. nor
mal
l
y enj
oy any v
oti
ng
r
ight
.

Rat
e of  Canbei
ssuedatdi
scounti
n  Canbei
ssuedatanyr
ateof
di
scount on accor
dance wi
th t
he di
scount
.
i
ssue pr
ovi
sions ofSect
ion 79 of
The Compani
es Act
, 1956
whi
chst
ipul
atest
hatt
her
ate
ofdi
scountmustnotexceed
10%oft
hef
acev
alue

Secur
it
y  Shar
esar
enotsecur
edbyany  The debent
ures ar
e
char
ge gener
all
ysecur
edandcar
ry
af
ixed orf
loat
ing char
ge
ov
er t
he asset
s of t
he
company
.

Conv
ert
ibi
l
ity  Shar
es cannotbe conv
ert
ed  Debent
ures can be
i
ntodebent
ures conv
ert
edi
ntoshar
esi
fthe
t
ermsofi
ssue so pr
ovi
de,
andi
nthatcaset
hesear
e
known as conv
ert
ibl
e
debent
ures.

Page|
12
Ty
pesofDebent
ure/
Bond

Fr
om t
hePoi
ntofv
iewofSecur
it
y

Secur
edDebent
ures:
Secur
eddebent
uresr
efert
othosedebent
ureswher
eachar
gei
scr
eat
edont
heasset
s
oft
hecompanyf
ort
hepur
poseofpay
menti
ncaseofdef
aul
t.Thechar
gemaybef
ixed
orf
loat
ing.Af
ixedchar
gei
scr
eat
edonaspeci
fi
cassetwher
easaf
loat
ingchar
gei
son
t
hegener
alasset
soft
hecompany
.Thef
ixedchar
gei
scr
eat
edagai
nstt
hoseasset
s
whi
char
ehel
dbyacompanyf
orusei
noper
ati
onsnotmeantf
orsal
ewher
easf
loat
ing
char
gei
nvol
vesal
lasset
sexcl
udi
ngt
hoseassi
gnedt
othesecur
edcr
edi
tor
s.

Unsecur
edDebent
ures:
Unsecur
eddebent
uresdonothav
easpeci
fi
cchar
geont
heasset
soft
hecompany
.
Howev
er,af
loat
ingchar
gemaybecr
eat
edont
hesedebent
uresbydef
aul
t.Nor
mal
l
y,
t
heseki
ndsofdebent
uresar
enoti
ssued.

Fr
om t
hePoi
ntofv
iewofTenur
e

Redeemabl
eDebent
ures:
Redeemabl
edebent
uresar
ethosewhi
char
epay
abl
eont
heexpi
ryoft
hespeci
fi
cper
iod
ei
theri
nlumpsum ori
nInst
all
ment
sdur
ingt
hel
i
fet
imeoft
hecompany
.Debent
ures
canber
edeemedei
theratparoratpr
emi
um.

I
rr
edeemabl
eDebent
ures:
I
rr
edeemabl
e debent
ures ar so known as Per
e al pet
ualDebent
ures because t
he
companydoesnotgi
veanyunder
taki
ngf
ort
her
epay
mentofmoneybor
rowedby
i
ssui
ng such debent
ures.Thesedebent
uresar
erepay
abl
eon t
hewi
ndi
ng-
up ofa

Page|
13
companyoront
heexpi
ryofal
ongper
iod.

Fr
om t
hePoi
ntofv
iewofConv
ert
ibi
li
ty

Conv
ert
ibl
eDebent
ures:

Debent
ureswhi
char
econv
ert
ibl
eint
oequi
tyshar
esori
nanyot
hersecur
it
yei
theratt
he
opt
ionoft
hecompanyort
hedebent
urehol
der
sar
ecal
l
edconv
ert
ibl
edebent
ures.
These
2
debent
uresar
eei
therf
ull
yconv
ert
ibl
eorpar
tl
yconv
ert
ibl
e.

Non-
Conver
ti
bleDebent
ures:

Thedebent
ureswhi
chcannotbeconv
ert
edi
ntoshar
esori
nanyot
hersecur
it
iesar
e
cal
l
ednonconv
ert
ibl
edebent
ures.Mostdebent
uresi
ssuedbycompani
esf
alli
nthi
s
cat
egor
y.

Fr
om t
hev
iewPoi
ntofRegi
str
ati
on

(
a) Regi
ster
edDebent
ures:

Regi
ster
eddebent
uresar
ethosedebent
uresi
nrespectofwhi
chal
ldet
ail
sincl
udi
ng
names,addr
essesandpar
ti
cul
arsofhol
dingoft
hedebent
urehol
der
sar
eent
eredi
na
r
egi
sterkeptbyt
hecompany
.Suchdebent
urescanbet
ransf
err
edonl
ybyexecut
inga
r
egul
art
ransf
erdeed.

(
b) Bear
erDebent
ures:

Bear
erdebent
uresar
ethedebent
ureswhi
chcanbet
ransf
err
edbywayofdel
i
ver
yand
t
hecompanydoesnotkeepanyr
ecor
doft
hedebent
urehol
der
sInt
erestondebent
ures

2
ht
tp:
//www.
inv
est
opedi
a.com/
ter
ms/
d/debent
ure.
asp/
latv
isi
tedon24/
06/
2017

Page|
14
i
spai
dtoaper
sonwhopr
oducest
hei
nter
estcouponat
tachedt
osuchdebent
ures.

LegalPr
ovi
sionsr
elat
edt
oDebent
ure

Debent
urei
smosti
mpor
tanti
nst
rumentandmet
hodofr
aisi
ngt
hel
oancapi
talbyt
he
company
.Adebent
urei
sli
keacer
ti
fi
cat
eofl
oanoral
oanbondev
idenci
ngt
hef
actt
hat
t
hecompanyi
sli
abl
etopayaspeci
fi
edamountwi
thi
nter
estandal
thought
hemoney
r
aisedbyt
hedebent
uresbecomesapar
toft
hecompany
'scapi
tal
str
uct
ure3,
itdoesnot
becomeshar
ecapi
tal
.

Sect
ion2(
30)oft
heCompani
esAct
,2013def
inei
ncl
usi
vel
ydebent
ureas"
debent
ure"
i
ncl
udesdebent
urest
ock,bondsoranyot
heri
nst
rumentofacompanyev
idenci
nga
debt
,whet
herconst
it
uti
ngachar
geont
heasset
soft
hecompanyornot
.

Thepowert
oissuedebent
urescanbeexer
cisedonbehal
foft
heCompanyasa
meet
ingoft
heBoar
dundert
hepr
ovi
sionsofSect
ion179(
3)oft
heCompani
esAct
,
2013.Fur
therSect
ion71oft
heCompani
esAct
,2013deal
swi
tht
hepr
ovi
sionsr
elat
ing
t
othei
ssuanceofdebent
uresal
ongwi
tht
hepenal
ti
esf
ornoncompl
i
anceoft
hesame
whi
chcanbesummar
izedasf
oll
ows:

 Acompanymayi
ssuedebent
ureswi
thanopt
iont
oconv
ertsuchdebent
uresi
nto
shar
es,ei
therwhol
l
yorpar
tl
yatt
het
imeofr
edempt
ion.Pr
ovi
dedt
hatt
hei
ssue
ofdebent
ureswi
thanopt
iont
oconv
ertsuchdebent
uresi
ntoshar
esshal
lbe
appr
ovedbyaspeci
alr
esol
uti
onpassedbyt
heshar
ehol
der
sinadul
yconv
ened
gener
almeet
ingoft
hecompany
.
 Companycani
ssuesecur
edandunsecur
eddebent
ures.Secur
eddebent
ures
maybei
ssuedbyacompanysubj
ectt
osucht
ermsandcondi
ti
onsasmaybe
pr
escr
ibed.Fur
therCompanycannoti
ssueanyki
ndofdebent
urescar
ryi
ngany
v
oti
ngr
ight
s.

3
ht
tps:
//debi
toor
.com/
dict
ionar
y/debent
ure/
lastv
isi
tedon24-
06-
2017

Page|
15
  Companyshal
lcr
eat
eadebent
urer
edempt
ionr
eser
veaccountoutoft
hepr
ofi
ts
oft
hecompanyav
ail
abl
eforpay
mentofdi
vi
dendandt
heamountcr
edi
tedt
o
suchaccountshal
lnotbeut
il
izedbyt
hecompanyexceptf
ort
her
edempt
ionof
debent
ures.
 Companycannoti
ssueapr
ospect
usormakeanof
ferori
nvi
tat
iont
othepubl
i
c
ort
oit
smember
sexceedi
ngf
ivehundr
edf
ort
hesubscr
ipt
ionofi
tsdebent
ures,
unl
essi
thas,bef
oresuchi
ssueorof
fer
,appoi
ntedoneormor
edebent
ure
t
rust
ees.
 Adebent
uret
rust
eeshal
ltakest
epst
opr
otectt
hei
nter
est
soft
hedebent
ure
hol
der
sandr
edr
esst
hei
rgr
iev
ancesi
naccor
dancewi
thsuchr
ulesasmaybe
pr
escr
ibed.
 Anypr
ovi
si
oncont
ainedi
nat
rustdeedf
orsecur
ingt
hei
ssueofdebent
ures,
ori
n
anycont
ractwi
tht
hedebent
ure-
hol
der
ssecur
edbyat
rustdeed,shal
lbev
oidi
n
so f
arasi
twoul
dhav
etheef
fectofexempt
ingat
rust
eet
her
eoff
rom,or
i
ndemni
fyi
nghi
m agai
nst
,anyl
i
abi
l
ityf
orbr
eachoft
rust
,wher
ehef
ail
stoshow
t
hedegr
eeofcar
eandduedi
l
igencer
equi
redofhi
m asat
rust
ee,hav
ingr
egar
d
t
othepr
ovi
sionsoft
het
rustdeedconf
err
ingonhi
m anypower
,aut
hor
it
yor
di
scr
eti
on;Pr
ovi
dedt
hatt
hel
i
abi
l
ityoft
hedebent
uret
rust
eeshal
lbesubj
ectt
o
suchexempt
ionsasmaybeagr
eeduponbyamaj
ori
tyofdebent
ure-
hol
der
s
hol
dingnotl
esst
hant
hreef
our
thsi
nval
ueoft
het
otaldebent
uresatameet
ing
hel
dfort pose4.
hepur
 Acompanyshal
lpayi
nter
estandr
edeem t
hedebent
uresi
naccor
dancewi
tht
he
t
ermsandcondi
ti
onsoft
hei
rissue.
 Wher
eatanyt
imet
hedebent
uret
rust
eecomest
oaconcl
usi
ont
hatt
heasset
s
oft
hecompanyar
einsuf
fi
cientorar
eli
kel
ytobecomei
nsuf
fi
cientt
odi
schar
ge
t
hepr
inci
palamountasandwheni
tbecomesdue,
thedebent
uret
rust
eemayf
il
e
apet
it
ionbef
oret
heTr
ibunalandt
heTr
ibunalmay
,af
terhear
ingt
hecompany
andanyot
herper
soni
nter
est
edi
nthemat
ter
,byor
der
,imposesuchr
est
ri
cti
ons

4
htt
ps:
//efi
nancemanagement
.com/
sour
ces-
of-
fi
nance/
how-
is-
debent
ure-
dif
fer
ent
-f
rom-
bank-
loans-
equi
ty/
lastvi
sit
eon26-06-
2017

Page|
16
 ont
hei
ncur
ri
ngofanyf
urt
herl
i
abi
l
iti
esbyt
hecompanyast
heTr
ibunalmay
consi
dernecessar
yint
hei
nter
est
soft
hedebent
ure-
hol
der
s.
 Wher
eacompanyf
ail
stor
edeem t
hedebent
uresont
hedat
eoft
hei
rmat
uri
tyor
f
ail
stopayi
nter
estont
hedebent
ureswheni
tisdue,t
heTr
ibunalmay
,ont
he
appl
i
cat
ionofanyoral
loft
hedebent
ure-
hol
der
s,ordebent
uret
rust
eeand,af
ter
hear
ingt
hepar
ti
esconcer
ned,di
rect
,byor
der
,thecompanyt
oredeem t
he
debent
uresf
ort
hwi
thonpay
mentofpr
inci
pal
andi
nter
estduet
her
eon.
 I
fanydef
aul
tismadei
ncompl
yi
ngwi
tht
heor
deroft
heTr
ibunalundert
his
sect
ion,ev
eryof
fi
ceroft
hecompanywhoi
sindef
aul
tshal
lbepuni
shabl
ewi
th
i
mpr
isonmentf
orat
erm whi
chmayext
endt
othr
eey
ear
sorwi
thf
inewhi
chshal
l
notbel
esst
hant
wol
akhr
upeesbutwhi
chmayext
endt
ofi
vel
akhr
upees,or
5
wi
thbot
h.
 A cont
ractwi
tht
hecompanyt
otakeupandpayf
oranydebent
uresoft
he
companymaybeenf
orcedbyadecr
eef
orspeci
fi
cper
for
mance.
 Andatl
ast
,theCent
ralGov
ernmentmaypr
escr
ibet
hepr
ocedur
e,f
orsecur
ing
t
hei
ssueofdebent
ures,t
hef
orm ofdebent
uret
rustdeed,t
hepr
ocedur
efort
he
debent
ure-
hol
der
stoi
nspectt
he t
rustdeed and t
o obt
ain copi
es t
her
eof
,
quant
um ofdebent
urer
edempt
ionr
eser
ver
equi
redt
obecr
eat
edandsuchot
her
mat
ter
s.

Fur
therRul
e18oft
heCompani
es(
Shar
eCapi
talandDebent
ur es,20146 (
es)Rul '2014
Rul
es'
)whi
chpr
escr
ibescer
tai
ncondi
ti
onst
obef
ulf
il
ledbyacompanyi
nor
dert
oissue
secur
eddebent
urespr
ovi
dest
hat
:

Thecompanyshal
lnoti
ssuesecur
eddebent
ures,unl
essi
tcompl
i
eswi
tht
hef
oll
owi
ng
condi
ti
ons,
namel
y:
-

 An i
ssue ofsecur
ed debent
ures may be made,pr
ovi
ded t
he dat
e ofi
ts
r
edempt
ionshal
lnotexceedt
eny
ear
sfr
om t
hedat
eofi
ssue.Pr
ovi
dedt
hata

5
ht
tps:
//debi
toor
.com/dicti
onary
/debent
ure/visi
tedon24-06-
2017.
6
Pr
ashantKumar, ‘
DebentureundercompaniesAct, ,
2013’ht
tps:
//www.
li
nkedi
n.com/
lastv
isi
tedon06-
06-
2017.

Page|
17
 companyengagedi
ntheset
ti
ngupofi
nfr
ast
ruct
urepr
oject
smayi
ssuesecur
ed
debent
uresf
oraper
iodexceedi
ngt
eny
ear
sbutnotexceedi
ngt
hir
tyy
ear
s;
 Suchani
ssueofdebent
uresshal
lbesecur
edbyt
hecr
eat
ionofachar
ge,
ont
he
pr
oper
ti
esorasset
soft
hecompany
,hav
ingav
aluewhi
chi
ssuf
fi
cientf
ort
he
duer
epay
mentoft
heamountofdebent
uresandi
nter
estt
her
eon;
 t
hecompanyshal
lappoi
ntadebent
uret
rust
eebef
oret
hei
ssueofpr
ospect
usor
l
ett
erofof
ferf
orsubscr
ipt
ionofi
tsdebent
uresandnotl
atert
hansi
xtyday
saf
ter
t
heal
l
otmentoft
hedebent
ures,execut
eadebent
uret
rustdeedt
opr
otectt
he
i
nter
estoft
hedebent
urehol
der
s;and
 t
hesecur
it
yfort
hedebent
uresbywayofachar
geormor
tgageshal
lbecr
eat
ed
i
nfav
ouroft
hedebent
uret
rust
eeon-

-Anyspeci
fi
cmov
abl
epr
oper
tyoft
hecompany(
notbei
ngi
nthenat
ureofpl
edge)
;or

-Anyspeci
fi
cimmov
abl
epr
oper
tywher
eversi
tuat
e,oranyi
nter
estt
her
ein.

PROCEDURE TO I
SSUE DEBENTURES UNDER THE COMPANI
ES ACT,
2013

[
Appl
i
cabl
ePr
ovi
si
ons:Sect
ion56,72,oft
heCompani
esAct
,2013r
eadwi
thRul
e18
and19oft
heCompani
es(
Shar
eCapi
tal
andDebent
ures)Rul
es,
2014]

 Cal
landhol
dBoar
dmeet
inganddeci
dewhi
cht
ypesoft
hedebent
urewi
l
lbe
i
ssuedbyt
heCompany
.
 I
ftheCompanydeci
dest
oissuesecur
eddebent
uret
hecompanyhast
ocompl
y
wi
tht
hecondi
ti
onpr
escr
ibedi
ntheRul
e18oft
heCompani
es(
Shar
eCapi
tal&
Debent
ures)Rul
es,
2014.
 I
ncaseappoi
ntmentofDebent
ureTr
ust
ee,consentshal
lbeobt
ainedf
rom a
SEBIr
egi
ster
ed Debent
ure Tr
ust
ee,who i
s pr
oposed t
o be appoi
nted.I
f

Page|
18
 debent
urest
obei
ssuedar
eSecur
edDebent
ures,aDebent
ureTr
ustDeedi
n
For
m No.SH – 12orasneart
her
etoaspossi
bleshal
lbeexecut
edbyt
he
Companyi
nfav
ourofDebent
ureTr
ust
eeswi
thi
nsi
xtyday
sofal
l
otmentof
Debent
ures7.
 I
ntheBoar
dmeet
ingpassr
esol
uti
onsf
ori
)Appr
ovalofOf
ferl
ett
erf
orpr
ivat
e
pl
acementi
nFor
m No.PAS – 4andAppl
i
cat
ionFor I
ms(ncaseofpr
ivat
e
pl
acementofdebent
ures)
;ii
)Appr
ovalofFor I
m No.PAS–5(ncaseofpr
ivat
e
pl
acementofdebent
ures)
;ii
i
)Appr
ovalofDebent
ureTr
ust
eeAgr
eementand
appoi
ntmentofaDebent
ureTr
ust I
ee(ncaseofSecur
edDebent
uresonl
y);i
v)
Appoi
ntmentofan exper
tforv
aluat
i I
on (n case ofpr
ivat
e pl
acementof
debent
ures)
;v)Appr
ovalofi
ncr
easeofbor
rowi
ngpower
s,i
frequi
red;v
i)To
aut
hor
izef
orcr
eat
ionofchar
geont
heasset
soft
hecompany
;vi
i
)Appr
ovet
he
Debent
ure Subscr
ipt
ion Agr
eement
;vi
i
i)To f
ix day
,dat
e and t
ime f
ort
he
ext
raor
dinar
ygener
almeet
ingofshar
ehol
der
s.
 Pr
epar
ethedr
aftofi
)Debent
ureSubscr
ipt
ionAgr
eement
;ii
)Of
ferLet
terf
or
pr
ivat
epl
acementi
nFor
m No.PAS–4andAppl
i
cat
ionFor
ms;i
i
i)Recor
dsofa
pr
ivat
epl
acementof
feri
nFor
m No.PAS–5;
iv)Debent
ureTr
ust
eeAgr
eement
;v)
Mor
tgageAgr
eementf
orcr
eat
ionofchar
geonasset
soft
hecompany
.
 I
ssue not
ices ofext
raor
dinar
y gener
almeet
ing al
ong wi
tht
he expl
anat
ory
st
atement
.
 Hol
d ext
raor
dinar
y gener
almeet
ing and pass speci
alr
esol
uti
on t
oissue
conv
ert
ibl
esecur
eddebent
uresandi
ncr
easebor
rowi
ngpower
soft
hecompany
andt
oaut
hor
izet
heBoar
dtocr
eat
echar
geont
heasset
soft
hecompany
.
 Fi
l
eFor
m No.PAS–4andPAS–5i
nFor
m No.GNL–2wi
tht
heRegi
str
arof
Compani
es.
 Fi
l
eOf
ferLet
teri
nFor
m No.MGT–14wi
tht
heRegi
str
aroft
heCompani
es.
 Fi
l
e copy ofBoar
dresol
uti
ons,Speci
alResol
uti
on,Debent
ure Subscr
ipt
ion
Agr
eement
,Debent
ureTr
ust
eeAgr
eementet
cinFor
m No.MGT–14wi
tht
he
Regi
str
arofCompani
es.

7
Samuel
cahi
l
l,
’I
ssui
ngofDebent
ure’
,
htt
ps:
//www.
academi
a.edu/l
astv
isi
tedon04-
06-
2017.

Page|
19
  Fi
l
eFor
m No.PAS–3(
Ret
urnofal
l
otment
)wi
tht
heRegi
str
arofCompani
es
af
termaki
ngal
l
otmentofdebent
ures.
 Fi
l
eFor
m NoCHG–9f
orcr
eat
ionofchar
geonasset
soft
heCompany
.

I
ssueofDebent
ures,whet
herr
edeemabl
eorconv
ert
ibl
einv
olv
escompl
i
ancewi
tht
he
subst
ant
iveandpr
ocedur
alaspect
sofl
aw,t
her
efor
e,document
ati
onbecomesv
ery
i
mpor
tant
.

1.Adv
ant
agesofDebent
ure:

Debent
uresof
feranumberofadv
ant
agesbot
htot
hecompanyaswel
lasi
nvest
ors.

Thesear
edi
scussedasbel
ow:

(a)Adv
ant
agestot
heCompany:
Thecompanyhast
hefol
l
owingmai
nadv
ant
agesofusi
ngdebent
uresandbondsasa
sour
ceoff
inance8:
(
i)Debent
urespr
ovi
del
ong-
ter
mfundst
oacompany
.

(
ii
)Ther
ateofi
nter
estpay
abl
eondebent
uresi
s,usual
l
y,l
owert
hant
her
ateofdi
vi
dend
pai
donshar
es.

(
ii
i)Thei
nter
estondebent
uresi
sat
ax-
deduct
ibl
eexpenseandhencet
heef
fect
ivecost
ofdebent
ures (
debt
-capi
tal
)isl
oweras compar
ed t
o owner
shi
p secur
it
ies wher
e
di
vi
dendi
snotat
ax-
deduct
ibl
eex
pense.

(
iv)Debtf
inanci
ngdoesnotr
esul
tint
odi
l
uti
onofcont
rolbecausedebent
ure-
hol
der
sdo
nothav
eanyv
oti
ngr
ight
s.

(
v)Acompanycant
radeonequi
tybymi
xi
ngdebent
uresi
nit
scapi
talst
ruct
ureand
t
her
ebyi
ncr
easei
tsear
ningspershar
e.

8
AbdulKal
i
qMohammed,
‘i
ssui
ngofDebent
uresandl
i
abi
l
iti
es’
,www.
academi
a.edu.
in/
/lastv
isi
tedon
05-06-
2017.

Page|
20
(
vi)Manycompani
espr
eferi
ssueofdebent
uresbecauseoft
hef
ixedr
ateofi
nter
est
at
tachedt
othem i
rr
espect
iveoft
hechangesi
npr
icel
evel
s.

(
vii
)Debent
urespr
ovi
def
lexi
bil
i
tyi
nthecapi
talst
ruct
ureofacompanyast
hesamecan
ber
edeemedasandwhent
hecompanyhassur
plusf
undsanddesi
rest
odoso.

(
vii
i
)Ev
endur
ingdepr
essi
on,
whenst
ockmar
ketsent
imenti
sver
ylow,
acompanymay
beabl
etor
aisef
undst
hroughi
ssueofdebent
uresorbondsbecauseofcer
tai
ntyof
i
ncomeandl
owr
iskt
oinv
est
ors.

(
b)Adv
ant
agest
oInv
est
ors:
I
tisnotonl
ythecompanybutal
sot
hei
nvest
orswhoar
ebenef
it
edbyi
nvest
ingi
n
debent
uresorbonds.

Thef
oll
owi
ngar
ethemai
nadv
ant
agesf
rom t
hepoi
ntofv
iewofi
nvest
ors:
(
i)Debent
urespr
ovi
deaf
ixed,
regul
arandst
abl
esour
ceofi
ncomet
oit
sinv
est
ors.

(
ii
)Iti
scompar
ati
vel
yasaf
eri
nvest
mentbecausedebent
ure-
hol
der
shav
eei
thera
speci
fi
coraf
loat
ingchar
geonal
ltheasset
soft
hecompanyandenj
oyt
hest
atusofa
super
iorcr
edi
tori
ntheev
entofl
i
qui
dat
ionoft
hecompany
.

(
ii
i)Manyi
nvest
orspr
eferdebent
uresbecauseofadef
ini
temat
uri
typer
iod.

(
iv)Adebent
urei
susual
l
ymor
eli
qui
dinv
est
mentandani
nvest
orcansel
lormor
tgage
hi
sinst
rumentt
oobt
ainl
oansf
rom f
inanci
ali
nst
it
uti
ons.

(
v)Thei
nter
estofdebent
ure-
hol
der
sispr
otect
edbyv
ari
ouspr
ovi
sionsoft
hedebent
ure
t
rustdeedandt
hegui
del
i
nesi
ssuedbyt
heSecur
it
iesandExchangeBoar
dofI
ndi
ain
t
hisr
egar
d.

Page|
21
Di
sadv
ant
agesofDebent
ureFi
nance:

I
nspi
teofmanyadv
ant
ages,debent
uref
inanci
ngsuf
fer
sfr
om cer
tai
nli
mit
ati
ons.The
f
oll
owi
ngar
ethemaj
ordi
sadv
ant
agesofdebent
ures:

(
a) 
From t
hePoi
ntofVi
ewofCompany
:
Acompanysuf
fer
sfr
om t
hef
oll
owi
ngdi
sadv
ant
agesofdebt
-fi
nanci
ng:
(
i)Thef
ixedi
nter
estchar
gesandr
epay
mentofpr
inci
palamountonmat
uri
tyar
elegal
obl
i
gat
ionsoft
hecompany
.Thesehav
etobepai
dev
enwhent
her
ear
enopr
ofi
ts.
Hence,i
tisaper
manentbur
denont
hecompany
.Def
aul
tint
hesepay
ment
s,adv
ersel
y
af
fect
sthecr
edi
t-
wor
thi
nessoft
hef
ir
m andev
enmayl
eadt
owi
ndi
ngupoft
he
company
.

(
ii
)Char
geont
heasset
soft
hecompanyandot
herpr
otect
ivemeasur
espr
ovi
dedt
o
i
nvest
orsbyt
hei
ssueofdebent
uresusual
l
yrest
ri
ctacompanyf
rom usi
ngt
hissour
ce
off
inance.Acompanycannotr
aisef
urt
herl
oansagai
nstt
hesecur
it
yofasset
sal
ready
mor
tgagedt
odebent
ure-
hol
der
s.

(
ii
i)Theuseofdebtf
inanci
ngusual
l
yincr
easest
her
iskper
cept
ionofi
nvest
orsi
nthe
f
ir
m.Thi
senhancedf
inanci
alr
iski
ncr
easest
hecostofequi
tycapi
tal
.

(
iv)Costofr
aisi
ngf
inancet
hroughdebent
uresi
sal
sohi
ghbecauseofhi
ghst
ampdut
y.

(
v)Acompanywhoseexpect
edf
utur
eear
ningsar
enotst
abl
eorwhodeal
sinpr
oduct
s
wi
thhi
ghl
yel
ast
icdemandorwhodoesnothav
esuf
fi
cientf
ixedasset
stoof
feras
secur
it
ytodebent
ure-
hol
der
scannotuset
hissour
ceofr
asi
ngf
undst
oit
sbenef
it
.

(
b) 
From t
hePoi
ntofVi
ewofI
nvest
ors:
Manyi
nvest
orsdonotf
inddebent
uresorbondsasanat
tract
ivei
nvest
mentbecauseof
t
hef
oll
owi
ng:

Page|
22
 9
(
i)Debent
uresdonotcar
ryanyv
oti
ngr
ight
sandhencei
tshol
der
sdonothav
eany
cont
rol
l
ingpowerov
ert
hemanagementoft
hecompany
.

(
ii
)Debent
ure-
hol
der
sar
emer
elycr
edi
tor
sandnott
heowner
soft
hecompany
.Theydo
nothav
eanycl
aim ont
hesur
plusasset
sandpr
ofi
toft
hecompanybey
ondt
hef
ixed
i
nter
estandt
hei
rpr
inci
pal
amount
.

(
ii
i)I
nter
estondebent
uresi
sful
l
ytaxabl
ewhi
l
eshar
ehol
der
smayav
oidt
axbywayof
st
ockdi
vi
dend(
bonusshar
es)i
npl
aceofcashdi
vi
dend.

(
iv)Thepr
icesofdebent
uresi
nthemar
ketf
luct
uat
ewi
tht
hechangesi
nthei
nter
est
r
ates.

(
v)Uncer
tai
ntyaboutr
edempt
ional
sor
est
ri
ctscer
tai
ninv
est
orsf
rom i
nvest
ingi
nsuch
secur
it
ies.

I
ssueofDebent
urebyaCompany
Adebent
urei
sal
egaldocumentt
hat
 r
epr
esent
sasecur
emeansbywhi
chacr
edi
tor
canl
endmoneyt
othedebt
or.I
nthi
sar
ti
cle,wel
ookatt
hepr
ocedur
efori
ssui
ngof
debent
uresbya 
companyr
egi
ster
edi
nIndi
a.

Debent
urei
smosti
mpor
tanti
nst
rumentandmet
hodofr
aisi
ngt
hel
oancapi
talbyt
he
company
.Adebent
urei
sli
keacer
ti
fi
cat
eofl
oanoral
oanbondev
idenci
ngt
hef
actt
hat
t
hecompanyi
sli
abl
etopayaspeci
fi
edamountwi
thi
nter
estandal
thought
hemoney
r
aisedbyt
hedebent
uresbecomesapar
toft
hecompany
'scapi
talst
ruct
ure,
itdoesnot
becomeshar
ecapi
tal
.

9
Pr
amodKushwah,8083,
‘
Debent
urei
tsAdv
ant
agesandDi
sadv
ant
ages’
,
www.
account
ingnot
es.
net
//l
ast
v
isi
tedon04-
06-
2017

Page|
23
 
Debent
ures

Sect
ion2(
30)oft
heCompani
esAct
,2013def
inei
ncl
usi
vel
ydebent
ureas"
debent
ure"
i
ncl
udesdebent
urest
ock,bondsoranyot
heri
nst
rumentofacompanyev
idenci
nga
debt
,whet
herconst
it
uti
ngachar
geont
heasset
soft
hecompanyornot
.

Thepowert
oissuedebent
urescanbeexer
cisedonbehal
foft
heCompanyasa
meet
ingoft
heBoar
dundert
hepr
ovi
sionsofSect
ion179(
3)oft
heCompani
esAct
,
2013.Fur
therSect
ion71oft
heCompani
esAct
,2013deal
swi
tht
hepr
ovi
sionsr
elat
ing
t
othei
ssuanceofdebent
uresal
ongwi
tht
hepenal
ti
esf
ornoncompl
i
anceoft
he
10
same.

10
PrashantKumar
,‘
Debent
ureundercompani
esAct
, ,
2013’ht
tps:
//www.
li
nkedi
n.com/
lastv
isi
tedon06-
06-2017.

Page|
24
KeyDi
ff
erences:

Thekeydi
ff
erencesbet
weenshar
ehol
deranddebent
urehol
derar
easf
oll
ows:

1.Shar
ehol
deri
sapar
townerandmemberoft
hecompany
,debent
urehol
deri
s
mer
elyacr
edi
tor
.
2.Shar
ehol
derhasv
oti
ngr
ight
sanddebent
urehol
dercannotat
tendt
hegener
al
meet
ingorpar
ti
cipat
eint
hev
ote.
3.Di
vi
dendsar
epai
dtoshar
ehol
der
sonl
ywhent
her
ear
esur
pluspr
ofi
tspost
di
str
ibut
ion t
o pr
efer
ence shar
ehol
der
s. Whi
l
eint
erestpay
mentand l
oan
r
epay
mentschedul
emustbef
oll
owedi
rr
espect
iveofcompany
’spr
ofi
ts.
4.Shar
ehol
der
scannotbepai
doutofcapi
tal
,exceptf
orpr
efer
enceshar
ehol
der
s
butt
heywoul
dbesecondi
nli
nef
orr
epay
ment
,whi
l
stdebent
urehol
der
sint
erest
andpr
inci
plecoul
dbepai
doutoft
hecompany
’scapi
tal
.
5.Debent
ures ar
e secur
ed and t
hus car
rya f
ixed orf
loat
ing char
ges on t
he
company
’sasset
s.I
fther
eisl
i
qui
dat
ion,t
hedebent
urehol
derorcr
edi
torget
s
t
hepr
ior
it
yov
ert
heshar
ehol
der
.Shar
esar
enotsecur
ed.
6.Debent
ures ar
e al
so mar
ket
abl
e secur
it
ies and easi
l
ytr
ansf
err
abl
e,whi
l
st
t
ransf
erandt
ransmi
tt
ingshar
esi
sdi
ff
icul
tpr
ocess,whi
chr
equi
resappr
oval
f
rom t
hedi
rect
ors.
7.Shar
escannotbei
ssuedatdi
scount
edpr
icesunl
essaspr
escr
ibedunders79,
whi
l
edebent
urescoul
dbei
ssuedatadi
scount
edpr
icei
nthemar
ket
.
8.Conv
ert
ibl
edebent
urescoul
d beconv
ert
ed i
nto shar
esatst
ated t
imes,but
11
shar
escannotbeconv
ert
edt
odebent
ures.
9.Thef
undament
alpoi
nt,shar
ehol
der
scont
rolt
hecompanyaf
fai
rs,i
.e,t
hrough
boar
dofdi
rect
ors,butdebent
urehol
der
scannotappoi
ntdi
rect
orsorhav
ethei
r
sayi
ntheaf
fai
rsoft
hecompany
.

11
Anki
takhandagl
e,‘
theconceptofDebent
ures’
,www.
legal
ser
vicei
ndi
a.i
n//
lastv
isi
tedon05-
06-
2017.

Page|
25
 10.
Shar
ehol
dercanbr
ingader
ivat
ivecl
aim agai
nstt
hedi
rect
ors,
debent
urehol
der
s
cannotdo t
his,buti
tcan v
etot
he r
esol
uti
on oft
he di
rect
orsi
n case of
appoi
ntmentofadmi
nist
rat
or.

Conf
li
ctofi
nter
estpossi
bil
it
ies.

Duet
otheal
mostnon-
exi
stentl
egalpr
otect
ionorr
emedi
esf
ort
hepr
otect
ionoft
he
debent
ure hol
der
sthe possi
bil
i
ty exi
stand i
sinf
actt
he or
deroft
he day t
hat
shar
ehol
der
shav
etheabi
l
ityt
oexpr
opr
iat
eweal
thf
rom debent
ureshol
der
s.Unl
ess
t
her
ear
epr
opersaf
eguar
dsout
sidet
het
rustdeed,t
her
ewi
l
lbenor
emedyf
ort
he
expr
opr
iat
ionoft
hedebent
ureshol
der
sbenef
it
.

1. Conser
vat
ionofVal
ue:
The i
nter
dependence ofv
alues t
hatpr
ovi
des shar
ehol
der
s wi
th oppor
tuni
ti
es f
or
expr
opr
iat
ionar
egener
all
yexpl
ainedbyt
het
heor
yofconser
vat
ionofv
alueoft
hef
ir
m,
whent
hecompanywi
thoutr
egar
dfort
hei
nter
estoft
hedebent
urehol
derpay
sfor
i
ntenseexcessi
vedi
vi
dends,t
hev
alueoft
hef
ir
m maydepr
eci
ate,si
nce,i
tispossi
ble
f
ort
hecompanyt
ore-
inv
estt
hepr
ofi
tsi
ntot
hef
ir
mforv
alueappr
eci
ati
onoft
he
companyandt
hisassi
sti
nconser
vat
ionofasset
s,andensur
est
hatt
hecompany
12
r
emai
nsst
rongenought
oaccommodat
ethei
nter
est
soft
hedebent
urehol
der
s.

2. I
ncent
ives:

Shar
ehol
der
shav
epot
ent
ialf
orunl
i
mit
edgai
nwi
tht
her
iskofl
ossonl
yli
mit
edt
othe
amounti
nvest
ed,whi
l
ethe debent
ure hol
der
s al
so beart
he r
isk ofl
osi
ng t
hei
r
i
nvest
menti
ncaseofl
i
qui
dat
ionandt
heydonotenj
oyanypossi
bil
i
tyofv
aluer
iset
o
t
hei
rinv
est
mentbey
ondt
hecont
ract
ual
l
yagr
eedt
erms.Shar
ehol
der
sal
soenj
oycont
rol
12
Anami
kaGupt
a‘TheNat
ureofDebent
ure’
,www.
li
nkdi
n.i
n//l
astv
isi
tedon06-
06-
2017.

Page|
26
ov
ercor
por
ate pol
i
cy.Shar
ehol
der
s ar
ether
efor
e abl
etof
ashi
on st
rat
egi
es t
hat
i
ncr
easet
hepossi
bil
i
tyofr
eal
i
zingaddi
ti
onalv
alueont
hei
rresi
dualcl
aims.I
ncont
ract
,
t
hedebent
urehol
der
swhov
aluet
hesecur
it
yoft
hei
rfi
xedcl
aim ar
enoti
naposi
ti
ont
o
di
rectorcont
rolt
heaf
fai
rsoft
hecompany
.Thesi
ngul
aradv
ant
ageofcont
rolof
manager
ialdeci
sionsbyt
heshar
ehol
der
s,wi
thoutanyl
egaldut
yofcar
efort
her
ight
s
oft
hedebent
urehol
der
sgi
vest
hem t
hesupr
emeoppor
tuni
tyt
o“f
eat
hert
hei
rownnest
”
anddepr
iveot
hershar
ehol
der
sanybenef
itwhat
soev
er.

3. Ri
ghtt
oSue:

47
Debent
uresmaybesecur
edorunsecur
edobl
i
gat
ions. Bot
hlegi
slat
iveef
for
tsand
48
cont
ract ar
einv
olv
edi
nor
dert
opr
otectt
hei
nter
estoft
hedebent
urehol
der
.Whet
her
st
atut
ori
l
ypr
ovi
dedori
nthet
ermsoft
heagr
eementbet
weent
hepar
ti
es,t
heper
ti
nent
quest
ioni
show cant
hedebent
urehol
derenf
orcet
hoser
ight
saf
teral
lwher
ether
eis
r
ightt
her
eshoul
dber
emedy
.

Page|
27
Concl
usi
on:

I
tissuggest
edt
hatt
her
eisaneedf
orst
atut
oryi
nter
vent
iont
osuppl
ementt
heex
ist
ing
r
ulesbecauset
heposi
ti
onoft
hedebent
urehol
derseemst
obev
erypr
ecar
ious.He
i
nvest
shi
smoneyi
nacompanywi
thav
eryhi
ghexpect
ati
onofr
etur
ns,
thel
egal
cont
rol
andmoni
tor
ingoft
hei
nvest
menti
snotwi
thi
nhi
spower
sbutv
est
edi
nanot
herbody
appoi
ntedbyt
hecompanyi
tsel
f.Thel
egi
slat
ivepr
otect
ionaf
for
dedt
hedebent
ure
hol
der
sisf
arf
rom adequat
e.Theuseofot
hercommonl
awpr
otect
ivedev
icesl
i
ket
he
conceptoff
iduci
arydut
yhasbeenf
oundt
obeunav
ail
abl
etot
hist
ypeofi
nvest
ors.We
maysaf
elyconcl
udet
hatt
her
eisur
gentneedf
orl
egi
slat
ivei
nter
vent
iont
oamendt
he
l
aw byi
ntr
oduci
ngpr
otect
ivemechani
sm f
ort
hepr
otect
ionofdebent
urehol
der
sin
Ni
ger
ia.

I
naddi
ti
ont
othef
oregoi
ng,i
tisr
ecommendedt
hatourl
awsr
elat
ingt
othef
inanci
al
mar
ketshoul
d be enhanced and st
rengt
hened i
n or
dert
o encour
age t
radi
ng i
n
debent
ure secur
it
ies.Butmor
eimpor
tanti
s gov
ernmenti
nter
vent
ion ata macr
o-
economi
clev
elt
o bol
steri
nvest
orconf
idencei
ntr
adi
ng i
n secur
it
ies.Addi
ti
onal
l
y
i
nvest
orsshoul
dbeeducat
edont
headv
ant
agesofhav
ingdebent
urest
ock.Thi
swi
l
l
f
ost
erwi
derpar
ti
ci
pat
ion i
nthecapi
talmar
ketand encour
aget
hepar
ti
cipant
sto
pur
chasedebent
uresont
hemar
ket
.Thi
sint
urnwi
l
lenhancet
heat
tr
act
ivenessof
debent
uresassecur
it
yint
eresti
nasecur
edcr
edi
ttr
ansact
ion.

Al
thought
heshar
ehol
der
sanddebent
urehol
der
sbot
hpr
ovi
deequi
tyt
othecompany
f
ori
tsent
repr
eneur
ialact
ivi
ti
es,t
hei
rri
ght
sar
edi
sti
nctf
rom eachot
herwher
eonei
s
par
townerandmemberwhi
l
etheot
heri
samer
ecr
edi
tor
.

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28
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bli
ogr
aphy

 www.
l
egal
ser
vicei
ndi
a.i
n

 www.
l
inkdi
n.i
n//

 www.
academi
a.edu.
in

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29