06 June 2010
The limits as prescribed under Section 293(1)(d) would decide the borrowing limits of the company. Since details on reservs are not given in the query, it is not possible to respond with numbers. If debentures in excess are to be issued, then members resolution enhancing the limit has to be passed.
02 August 2024
To understand the extent to which a company can issue debentures and the procedure involved, let’s break it down with an example based on the details you provided:
### **1. Understanding the Limits**
**a. Authorized Capital:** - This is the maximum amount of capital that a company is allowed to raise through the issuance of shares or debentures. In your case, the authorized capital is ₹10 crores.
**b. Issued Capital:** - This is the part of the authorized capital that has actually been issued to shareholders or debenture holders. In your case, the issued capital is ₹2 crores.
**c. Issuance of Debentures:** - Debentures are a form of debt. Issuing debentures doesn’t directly impact the share capital but does affect the total capital structure of the company. The amount of debentures a company can issue is generally governed by the company’s authorized capital and its existing borrowings.
### **Example:**
Suppose your company has an authorized capital of ₹10 crores and an issued capital of ₹2 crores.
**Debenture Issuance Considerations:**
1. **Authorized Capital:** - Your company can issue debentures up to the amount that does not exceed its authorized capital. The authorized capital represents the total limit of funds the company can raise, including both equity and debt.
2. **Existing Debt and Financial Health:** - Although the authorized capital sets a theoretical limit, practical limits are also influenced by the company’s existing debt levels and financial health. Lenders and investors will assess the company’s ability to service new debt.
3. **Board Resolution and Approval:** - The issuance of debentures must be approved by the company’s Board of Directors.
4. **Debenture Issuance Limit:** - There is no direct restriction based on the issued capital alone, but the company’s ability to issue debentures will be influenced by the total capital requirements and existing liabilities.
### **Procedure for Issuance of Debentures:**
1. **Board Approval:** - Convene a Board Meeting and pass a resolution approving the issuance of debentures. The resolution should specify the amount, terms, and conditions of the debentures.
2. **Draft Documentation:** - Prepare the necessary documents, including: - **Debenture Trust Deed:** An agreement between the company and a trustee representing the interests of the debenture holders. - **Offer Letter:** To be sent to potential investors, detailing the terms of the debenture issue. - **Debenture Certificate:** The certificate to be issued to investors.
3. **Compliance with Regulations:** - If the debentures are to be listed on a stock exchange, comply with SEBI regulations. This includes preparing a prospectus or offer document.
4. **Filing with Registrar of Companies (RoC):** - File relevant forms with the RoC, including: - **Form MGT-14:** For filing the Board resolution. - **Form PAS-4:** For the private placement offer letter (if applicable). - **Form PAS-5:** For the return of allotment (if applicable).
5. **Obtain Credit Rating (if applicable):** - Obtain a credit rating from a recognized credit rating agency if the debentures are to be listed or if required by the regulations.
6. **Allotment of Debentures:** - Allot the debentures to investors as per the terms approved.
7. **Issue Debenture Certificates:** - Issue debenture certificates to the investors.
8. **Maintain Compliance:** - Ensure timely payment of interest and redemption of debentures as per the terms. Maintain records and ensure compliance with ongoing regulatory requirements.
### **Conclusion**
Based on your provided data: - The company can issue debentures up to the extent of its authorized capital, which is ₹10 crores in your case. The issued capital of ₹2 crores does not directly restrict the issuance of debentures but is part of the overall capital structure. - The actual amount of debentures that can be issued will depend on factors like the company’s financial health, existing liabilities, and the terms of the debentures.
For a specific amount of debentures, the company needs to follow the legal procedure, including obtaining board approval, drafting necessary documents, filing with RoC, and ensuring compliance with relevant regulations.
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