Name of the Student: Siddhesh Agarwal

PRN of the Student: 190104081001

Course Name: LLM-Business Law
Subject Name and Code: Corporate Finance PLB 303
Name of the topic: DEBT FINANCE DEBENTURES, NATURE, ISSUE
AND CLASS, DEPOSITS AND ACCEPTANCE, CREATION OF
CHARGES
Year:2020-2021
 DEBT
 Debt is an amount of money borrowed by one party from another.

 Debt instruments indicating that company has borrowed certain sum of money and promise to repay it in future under clearly

defined terms.
 Debt consists of term loan, debentures, commercial papers, over draft, public deposits, corporate deposits, discounting.
SOURCE OF DEBT FINANCING

• Trade Credit
• Bank Credit

Working capital • Commercial Paper

• Factoring

• Debentures

Long term • Term Loan

• Securitisation
 Continued…….

 TRADE CREDIT

Trade credit is the credit extended by suppliers of goods and services in the normal course of business.

  BANK CREDIT
Bank Credit Cash Credit/ Overdraft Loans Purchase/ Discount bills Letter of credit W.C . Term Loan

 COMMERCIAL PAPERS

Commercial Paper is form of financing consisting of short term in secured promissory notes issued by a firm with high credit
rating. 90-180 days.

 FACTORING

Factoring can be defined as an agreement in which receivables arising out of sale of goods/ services are sold by a firm (client) to
the factor (a financial intermediary) as a result of which the title of goods/ services passes on the factor.

CERTIFICATES OF DEPOSITS
Certificates of deposit is a marketable receipt of funds deposited in banks for a fixed period at a specified rate of interest.
 DEBENTURES

A debenture is thus like a certificate of loan or a loan bond evidencing the fact that the company is liable to pay a specified amount

with interest and although the money raised by the debentures becomes a part of the company's capital structure, it does not become
share capital.

 A debentures is a long-term debt instrument or security.

 It is also known as BOND.

 Bond issued by government do not have any risk of default.

 A company in India can issue secured or unsecured debentures.

 In case of debentures, the rate of debentures are fixed and known to investors.

 
 TYPES OF DEBENTURES

 Non Convertible Debentures (NCD):

These instruments retain the debt character and can not be converted into equity shares.

 Partly Convertible Debentures (PCD):

A part of these instruments are converted into Equity shares in the future at notice of the issuer. The issuer decides the ratio for

conversion. This is normally decided at the time of subscription.

 Fully convertible Debentures (FCD):

These are fully convertible into Equity shares at the issuers notice. The ratio of conversion is decided by the issuer. Upon

conversion the investors enjoy the same status as ordinary shareholders of the company.

 Optionally Convertible Debentures (OCD):

The investor has the option to either convert these debentures into shares at price decided by the issuer/agreed upon at the time of

issue.
On basis of Security, debentures are classified into.

 Secured Debentures: These instruments are secured by a charge on the fixed assets of the issuer company. So if the issuer fails

on payment of either the principal or interest amount, his assets can be sold to repay the liability to the investors.

 Unsecured Debentures: These instrument are unsecured in the sense that if the issuer defaults on payment of the interest or

principal amount, the investor has to be along with other unsecured creditors of the company.
 ISSUE OF DEBENTURES

By issuing debentures means issue of a certificate by the company under its seal which is an acknowledgment of debt taken by the company.


The procedure of issue of debentures by a company is similar to that of the issue of shares. A Prospectus is issued, applications are invited,


and letters of allotment are issued. On rejection of applications, application money is refunded. In case of partial allotment, excess

application money may be adjusted towards subsequent calls.

Issue of Debenture takes various forms which are as under :

Debentures issued for cash

Debentures issued for consideration other than cash

Debentures issued as collateral security.

Further, debentures may be issued

at par,

at premium, and

at discount
  Debentures issued for cash at par

Application money is received Bank A/c Dr To Debentures Application A/c (Application money received for


Debentures)

Transfer of debentures application money to debentures account on their allotment Debentures Application A/c Dr To


Debentures A/c (Appl. money transferred to debenture a/c on allotment)

Money due on allotment Debentures Allotment A/c Dr To Debentures A/c (Allotment money made due) 13


Money due on allotment is received Bank A/c Dr To Debentures Allotment A/c (Receipt of Debenture allotment money)

First and final call is made Debentures First and Final call A/c Dr To Debentures A/c (First and Final call money made

due on ............... debentures)

Debentures First and Final call money is received Bank A/c Dr To Debentures First and Final call A/c (Receipt of


Amount due on call) Note : Two calls i.e. first call and second call may be made Journal entries will be made on the

lines made for first and final call.

 Continued..

Issue Of Debentures At Premium

 Debentures are said to be issued at premium when these are issued at a value which is more than their nominal value.

 For example, a debenture of Rs 100 is issued at Rs 110. This excess amount of Rs 10 is the amount of premium. The premium

on the issue of debentures is a capital receipt and is credited to Securities Premium Reserve A/c and shown in the Equity and
Liabilities part of the Balance Sheet as Reserves and Surplus under Shareholders’ Funds

Issue of Debentures at Discount

 When debentures are issued at less than their nominal value they are said to be issued at discount. For example, debenture of
Rs 100 each is issued at Rs 90 per debenture. It is important to note that the Companies Act has not put any restriction on the
maximum limit of discount. However, there should be provision for issue of such debentures in the Articles of Association of
the Company.