As per section 71 (Debentures) read with rule 18 of the Companies (Share Capital and Debentures) Rules 2014 provides the condition for issue of debentures. A debenture is a legal document that represents a secure means by which a creditor can lend money to the debtor.
As per section 2 (30) of the Companies Act, 2013 defines the term Debentures as 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.
As Debentures are in the form of debt, unlike shares they don't carry voting rights.
Major points regarding the private placement of securities
1. Debentures cannot be issued with voting rights.
2. A company cannot issue debentures to more than 500 people without appointing a debenture trustee, whose duty would be to protect the interest of Debenture Holders and redress their grievances.
3. Every Company required to create DRR (Debenture Redemption Reserve) shall on or before the 30th day of April Deposit or invest as the case may be, a sum which shall not be less than 15% of the amount of its debentures maturing during the year ending on 31st day of March of the next year.
4. If there is any default in repayment of the amount in the event of maturity or default in payment of the interest thereon then the Tribunal will be approached by the Debenture Trustee to take appropriate measures.
5. If there is any default with the provisions of this section then the Company and the Officers shall be liable to fine or imprisonment or both.
6. The Company shall make an issue of Secured Debentures provided the date of its redemption shall not exceed 10 years from the date of its issue. Provided that an Infrastructure finance companies, Companies engaged in Infrastructure projects, Infrastructure Debt Fund Non-Banking Financial Companies and Companies permitted by Ministry or Department of Central Government or by RBI can issue Debenture beyond a period of 10 years but up to 30 years.
7. The company shall appoint Debenture Trustee and before the issue of prospectus and not later than 60 days from allotment execute a Debenture Trustee Deed to protect the interest of debenture holders.
8. The Charge shall be created in favour of the Debenture trustee on the assets of the company.
9. The Debenture Trust Deed shall be in Form SH-12 or as near thereto as possible.
Procedure for Company intending to issue Non-Convertible Debenture
1. Identify the person to whom you will issue Debentures. Prepare the list of such persons to whom offer to subscribe debenture will give. Prepare Draft offer letter under PAS-4.
2. Issue Notice of Board Meeting to all the directors of Company at least 7 days before the date of Board Meeting. Attach Agenda, Notes to Agenda and draft resolution of Board Meeting along with Notice. Approach the Debenture trustee and obtain the consent of the Debenture Trustee.
3. Pass Board Resolution for following purposes:-
- Approval of offer letter.
- To increase the borrowing limit of the Company subject to the approval of the Shareholder in General Meeting.
- Issue the Notice of General Meeting along with the explanatory statement.
- Authorize a Company Secretary or director of Company to issue a notice of General Meeting.
- Take note of the valuation report.
- Open Separate Bank Account for allotment of debentures.
- Appointment of debenture trustee, if required.
4. Hold Extra-Ordinary General Meeting and pass a special resolution for issue of debentures and to increase the borrowing limit of the Company to Issue Debentures.
5. Offer letter shall be accompanied by an application form serially numbered and addressed specifically to the person to whom the offer is made. Offer Letter sent either in writing or electronic mode. Issue offer letter within 30 days of General Meeting/recording the name of such person. Offer letter should mention the name of the Debenture Trustee if appointed.
6. File MGT-14 with Registrar within 30 days of passing of Special Resolution. Attachments: Notice of General Meeting along with Explanatory Statement, Certified True Copy of Special Resolution and Minutes of General Meeting (No need to file this MGT-14 in case of Private Limited Company).
7. Open a Separate Bank Account for debentures and Filing PAS 4 & PAS 5 as an attachment with GNL 2 with the registrar within 30 days of circulation of the offer letter.
8. Convene and hold a Board meeting to consider and approve the following items: –
- After the closure of offer, the Board shall make the allotment of Debentures within 60 days from the date of receipt of funds. [Section 42(6)]
- Approval of draft agreement for Charge creation & authorizing the director for signing the same.
- Filing of CHG-9 within 30 days from the date of creation of charge.
- Approval of the draft of Debenture Trust Deed [SH–12]. Only in case of secured debentures
9. Issue of Debentures Certificate in the same Meeting and authorize two directors and a person to sign Debentures certificate.
10. Enter into Debenture Trust deed (SH-12), if required.
11. Filing Return on Allotment in PAS-3 within 30 days of allotment.
12. The entries in the registers maintained under section 88 in form MGT-2 shall be made within 7(Seven) days after the Board of Directors approves the allotment of debentures.
13. The Debenture Certificate shall be issued within 6 (Month) months from the date of allotment of Debentures
14. Stamp Duty settlement as per provisions & rates of Stamp Act of the State (only applicable on Marketable Debenture).
Note:
- Required to appoint debenture trustee in case company giving the offer to subscribe debentures to more than 500 persons.
- This resolution will be passed only in the condition when the current borrowing along with old borrowing exceeding 100% of paid-up share capital and free reserve.
- The Company have a time of 3 months from the date of closure of offer for executing debenture trust deed.
Issue of debt securities under SEBI (Issue and Listing of Debt Securities) Regulations, 2008
When a public company wishes to issue and list its debt securities on stock exchanges, then it has to comply with Securities and Exchange Board of India (Issue and Listing of Debt Securities) Regulations, 2008 in addition to Companies Act, 2013. SEBI notified these regulations on 19th June 2008 to facilitate the development of a vibrant primary market for debt securities in India.
Further, for a listing of Debt Securities is required to comply with SEBI LODR Regulations, 2015. However, it may be noted that SEBI (ICDR) regulations, 2009 is also applicable to issue and listing of debt securities.
Procedure for Issue of debt securities under SEBI (Issue and Listing of Debt Securities) Regulations, 2008
- Apply for one or more stock exchange for the listing of debt securities and obtain in-principle approval
- Obtain Credit Rating including the unaccepted ratings obtained from more than one credit rating agencies shall be disclosed in the offer document
- Enter into an agreement with a depository for dematerialization of the debt securities under the Depositories Act, 1996 and regulations made thereunder
- Appoint one or more Merchant banker and lead merchant bankers and create debenture redemption account under the Companies Act, 2013
- Draft & Final offer document shall be displayed on websites of the stock exchange and shall be available for download in PDF/HTML formats
- Make an advertisement in one English national daily newspaper and one Hindi national daily newspaper with wide circulation on or before the issue opening date
- The Issuer shall decide the price and amount of Minimum subscription of debt securities in consultation with the lead merchant banker and disclose the same in the offer document.
- In case of Non-receipt of minimum subscription, all application monies received in the public issue shall be refunded forthwith to the applicants. In the event, the application monies are refunded beyond 8 days, then such amounts shall be refunded together with interest at such rate which shall not be less than 15% per annum
Compliance Calendar under SEBI (LODR), 2015 regarding the listing of Non-Convertible Debt Securities
| Sr. No. | Regulation No. of SEBI (LODR) Regulations, 2015 | SEBI (LODR) Regulation, 2015 | Time |
| 1 | Reg. 50(1) Prior intimation for payment of interest/Redemption amount | Company has to make prior intimation for payment of interest/Redemption amount on debentures to Stock Exchange | At least 11 days before the date on which the Interest/Redemption amount is payable |
| 2 | Reg. 50(2) & (3) Prior Intimation to Stock Exchange in case of fresh NCDs. | Company shall give prior intimation to the stock exchange, whenever the Company intends to raise fresh Non-Convertible Debentures. The intimation will be given before the Board Meeting to be held for the above purpose. | At least 2 working days in advance, (while calculating 2 days date of intimation and date of BM shall be excluded) |
| 3. | Reg. 51(1) & (2) Price Sensitive Information to Stock Exchange | Company has made to make prompt intimation to Stock Exchange in case of any price-sensitive information or any action that can affect payment of Interest of Debentures. Company has to comply with requirements as specified part B of schedule III | Here prompt means, as soon as practically possible (Event-Based) |
| 4 | Reg. 52(1) Half yearly un-audited or audited Financial Results | Company has to submit half-yearly un-audited or audited Financial Results along with a statement indicating material deviation. | within 45 days from the end of half-year |
| 5 | Reg. 52(3) Format of Annual Audit Report | Company has to submit financial result along with the annual audit report to the stock exchange: Either in Form A or Form B | |
| 6 | Reg. 52(7) Statement of Material Deviations | In case there is a material deviation in the use of proceeds of the issue of non-convertible debentures from the objects stated in the offer document then, Company shall include a statement indicating material deviation along with half-yearly results | to be included in half-yearly results |
| 7 | Reg. 52(8) Publication of financial result | Company shall on the conclusion of Board Meeting: Publish financial result along with material deviation statement (if any) in one English national daily. | within 2 calendar days of the conclusion of BM |
| 8 | Reg. 53 Annual report | The Annual report shall contain: (a) Disclosure as per Companies act, 2013. (b) Audited Financial Statements (c) Cash Flow statement (d) Auditors and Directors Report (e) The name of the debenture trustees with full contact details (f) Related Party Disclosures as per para A of Schedule V | |
| 9 | Reg. 54(1)100 % Asset Cover | The Listed Company shall maintain a 100 % asset cover sufficient to discharge the principal amount at all times | Compliance requirement |
| 10 | Reg. 54(2) Intimation of security created against secured listed NCD. | Company has to submit with Stock Exchange quarterly, half-yearly, annually a financial statement for security created against secured listed non-convertible debt securities. | Quarterly, half-yearly, annually |
| 11 | Reg. 55 Credit Rating | Every year the Company shall get the rating reviewed from any of CRA registered with SEBI. | Yearly |
| 12 | [Reg. 55(1)(a)] Annual Report submit with Debenture Trustee | Company has to submit with debenture trustee– A copy of the annual report along with auditor's certificate in respect of utilization of funds raised | Event-based |
| 13 | Reg.55(1)(b) Resolution/Notices for fresh NCD/Revision in rating submit with Debenture Trustee | Company has to submit with debenture trustee – A copy of all notices, resolution etc. in respect (a) any new issue of NCDs (b) Intimation regarding revision in rating (c) Intimation regarding default in payment of interest or redemption or both (d) Intimation regarding failure to create a charge on assets | Event-based |
| 14 | Reg. 55(1)(d) Certificate of timely payment of the interest or principal or both | Once the payment of interest or principal or both become due, then the Company has to make payment of the same and Submit a Certificate of timely payment of the interest or principal or both to the stock exchange. | within 2 days of becoming due |
| 15 | Reg. 57(2) Undertaking to the stock exchange for compliance of documents to Deb. Trustee | Company has to furnish an undertaking to the stock exchange(s) on an annual basis stating that all documents and intimations required to be submitted to Debenture Trustees have been complied with. | Yearly based |
| 16 | Reg. 58(1) Annual Reports | Company shall send annually annual reports by : (a) mail (b) hard copy(if requested) | Event-based |
| 17 | Reg. 58(2)&(3) Notice of all meetings to NCD | Company has to send Notice of all meetings along with proxy form to NCDs | Event-based |
| 18 | Reg. 59 Prior approval from Stock Exchange for making material modification in the NCDs. | Material modification in the structure of NCDs should be made with prior approval from Stock Exchange | Event-based |
| 19 | Reg. 60 Prior intimations to Stock Exchange of the record date for payment of Interest | Company has to make notice to Stock Exchange intimating record date for payment of Interest. | 7 days(excluding the date of intimation and record date) advance before the record date |
| 20 | Reg. 61 Not to declare Dividend | The company cannot declare dividend if it has made default in payment of interest. However unclaimed dividend should get transferred to IEPF. | Event-based |
| 21 | Reg. 61(4) Transfer of Securities | In case of transfer of securities, the company has to comply with the requirements under schedule VII | Event-based |
| 22 | Reg. 62(1) Website Disclosure | The Company shall maintain a website containing: (a) Details of its business (b) Financial Information (c) Contact Information of designated professionals who are responsible for assisting and handling investors grievances (d) Email address for grievances readdressal (e) name and contact details of debenture trustee (f) Information, report, notices, call, letters, circulars, proceedings etc. concerning NCDs. (g) all information and reports (h) Information concerning (i) default by the company to payment of interest (ii) failure to create a charge on the assets (iii) revision of rating assigned to NCDs. | As soon as possible(if yet to be maintained) |
| 23 | Reg. 62(2) Press Release | The Company shall issue a press release for the above events | Event-based |
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