ISSUE OF DEBENTURES BY A PRIVATE LIMITED COMPANY.
STEPS INVOLVED IN ISSUE OF DEBENTURE
1. POSITION IN LAW:
(a) Under the Companies (Acceptance of Deposit) Rules, 1975 “any amount
raised by issue of debentures (including convertible debentures) secured by the
mortgage of any immovable property of the company and that the market value
of the immovable property secured is higher than the amount of debentures
issued” is not considered to be a DEPOSIT.
(b) Under Section 3(1)(d) of the Act, a Private Company is prohibited from
accepting Deposit from persons other than its Directors, Members and their
relatives.
(c) Hence, the Private Company must issue Debentures only as a Secured
Debenture.
2. APPROVALS:
The following approvals are required to be obtained by the Company:
Approval Level Nature of approval
Board For issue of Debentures under Section
292(1)(b).
Board Creation / Declaration of Trust
Board Appointment of Debenture Trustees
(Section 117B)
Board Approval of Draft Trust Deed
Board Approval of the Form of Debenture
Certificate.
Letter from Trustees Consent from the Debenture Trustees
to act as Trustees.
No approvals are required to be obtained under Section 293(1)(a) and (d) since,
the Section does not apply to Private Limited Companies, unless it is a
Subsidiary of a Public Company.
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