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Stamp Duty on Debentures

17 June 2010

Unsecured Debentures worth Rs. 15 crores issued at a 4 times premium ( Total 75 Crores ). The registered office of the company is in Uttarakhand.

What shall be the amount of Stamp DUty to be paid?

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19 Replies

Hitesh Kothari (Chartered Accountant M.No. - 134239) (326 Points)
Replied 17 June 2010

Dear Shruti,

Since Uttarakhand state has adopted Indian Stamp Act and as per Indian Stamp act :

Bonds, debentures or other securities issued on loans under Act XI of 1879 - (1) Notwithstanding anything in this Act, any local authority raising a loan under the provisions of the 3Local Authorities Loan Act, 1879, or of any other law for the time being in force, by the issue of bonds, debentures or other securities, shall, in respect of such loan, be chargeable with duty of 4[one per centum] on the total amount of the bonds, debentures or other securities issued by it, and such bonds, debentures or other securities need not be stamped, and shall not be chargeable with any further duty on renewal, consolidation, sub-division or otherwise.

1Substituted for the words “East Punjab” by the Adaptation of Laws Order, 1950. The words “East Punjab” had been substituted for the words “the Punjab” by the India (Adaptation of Existing Indian Laws) Order, 1947.

2Sub-sections (1), (2) and (3) repealed by Act 11 of 1963, section 92 (w.e.f. 1st August, 1963).

3See now Act 9 of 1914. Unrepealed Central Acts; Volume VI.

4Substituted for the words “eight annas per centum” by the Indian Stamp (Amendment) Act, 1910 (6 of 1910), section 2.

So accordingly the stamp duty payable will be 8 anna per 100. i could not derive exact meaning of this phrase.

Regards

Hitesh Kothari

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Shruti Chawla (CS) (258 Points)
Replied 17 June 2010

Stamp Act is only talking about the debentures which are backed by a trust deed.....But what about unsecured ones?

Hitesh Kothari (Chartered Accountant M.No. - 134239) (326 Points)
Replied 17 June 2010

Dear Shruti,

As per provision of companies Act a Pvt ltd company must issue debenturres as secured one.

for detail procedure enclosing herewith the file.

Regards

Hitesh

Attached File : 36 debenture pvt ltd co .pdf downloaded: 1446 times

Shruti Chawla (CS) (258 Points)
Replied 17 June 2010

I understand that unsecured debentures fall under deposits. But we are issuing debentures to a Company so the allotmentsfalls under the exception as per the deposit rules.

Hitesh Kothari (Chartered Accountant M.No. - 134239) (326 Points)
Replied 18 June 2010

Hi Shruti,

this might help you :

A private company is prohibited from inviting public to subscribe to its shares or debentures. However, nothing prohibits the company from issuing debentures on private placement basis, if the Articles of the company empowers the Board to borrow by issuing debentures and creation of security. All other provisions of the Act as applicable to a public company will apply except that it may not be required to appoint Debenture Trustee. The company may execute a deed of charge on its assets and register it with the ROC and this is permissible under section 117B of the Act. The requirement of having to create Debenture Redemption Reserve (DRR) will have to be followed as section 117C is a special provision applicable to all companies. This is however subject to relaxations provided in respect to certain categories of companies by the DCA vide its circular No9\2002 dated 18-4-2002.

Companies may also issue unsecured\subordinated debt instruments\obligations. However, such instruments have to be subscribed by qualified institutional investors or others who have given positive consent for subscribing to such unsecured\subordinated debt instruments. In the case of companies issuing debt instruments like debentures having maturity of less than 18 months, there is a facility of creating a charge on the assets of the company, instead of having to create mortgage and appoint Debenture Trustee for its assets. However, where no charge is created as aforesaid, the issuer company is required to ensure compliance with the provisions of companies (Acceptance of Deposits) Rules as such unsecured debentures\bonds are treated as "deposits".

Sections 117 to 123 o f the Act, 1956 provide for special provisions regarding debentures. These provisions are also applicable to both public companies and private limited companies. The provisions of the articles of the company should also be kept in view. The manufacturing and Infrastructure companies can avail of lower percentage of DRR as the DCA circular does not make any distinction between listed and unlisted companies in its circulars referred to above .and the relaxation is also applicable for privately placed debentures by private companies.

Thanks & Regards

Hitesh

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(Guest)

Hitesh’s answer is wrong…

Debenture can be both secured and unsecured…

Company can issue the unsecured debenture also….

Moreover, Stamp duty in the case of Debenture is not the subject Matter of state, But It is the subject matter of Union.

Regardless of the act prevailing in the State, Indian Stamp Act will apply for debenture Issue. For, Unsecured debenture also, stamp duty has to be paid.

Stamp duty on the debenture is to be decided as per the Indian Stamp Act…

---------------------------------------------------------------

Ankur Shah (Practicing Company Secretary)

Ahmedabad, Gujarat - 380015

Mobile: +91-90330 03922, 94276 33901

E-Mail: ankur @ csankur.com

Website: www.csankur.com

Blog: www.csankur.blogspot.com

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Shruti Chawla (CS) (258 Points)
Replied 19 June 2010

Thanx a lot for the answer.... I have been able to find the following conclusion -

the rate of stamp duty for debentures is provided in Article 27 of First Schedule of the Stamp Act, which provides as follows:

27. Debenture (Whether a mortgage debenture or not), being a marketable security transferable

(a) by endorsement or by a separate instrument of transfer

(b) by delivery

0.05% per year of the face value of the debenture, subject to the maximum of 0.25% or rupees twenty-five lakhs whichever is lower.

Please note if the debentures so issued are not “marketable security” under the Stamp Act then the aforementioned duty shall not be applicable. For the debentures not to be considered as marketable security, the terms of issue of debentures must provide for restriction on transferability of such debentures.

Further, the stamp duty on debentures is a central subject and would not vary with the registered office or place of holding of the board meeting.

Hitesh Kothari (Chartered Accountant M.No. - 134239) (326 Points)
Replied 21 June 2010

Dear Ankur,

In my second reply I have mentioned that Debentures can also be unsecured one.

In some of state its own act applies like in Maharashtra Bombay Stamp Act.

Further thanks for sharing your knowledge.

Thanks & Regards

Hitesh

(Guest)

0.05% per year of the face value of the debenture, subject to the maximum of 0.25% or rupees twenty-five lakhs whichever is lower.

This is correct rate

CA Kishore Tallam (Sr Manager - Corporate Account) (2716 Points)
Replied 23 August 2010

I could not find the source from where you got rates of stamp duty for debentures.

If you can please send me the source, that would be helpful to me.

Thanks

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sunil prakash jain (Sr.manager) (101 Points)
Replied 27 September 2010

What is the stamp duty when debenture are not marketable

Sunil

joseph justin (accountant) (26 Points)
Replied 12 December 2010

Does the rate of stamp duty on debentures 0.05% per year of face value of debenture means that stamp duty in respect of a debenture having a maturity period of 5 years will have to pay 0.25% of the face value of debenture?.

joseph justin (accountant) (26 Points)
Replied 16 December 2010

Marketable security has been defined in the Indian Stamp Act/Kerala Stamp Act as 'securities capable of being sold through stock market'. Can anyone clarify whether stamp duty is applicable on issue of debentures on private placement basis by a private unlisted company and which are not listed in a stock exchange?. Are companies allowed to issue debentures which are not marketable. Is there any SEBI direction which insist compulsory listing of debentures issued by private/public listed/unlisted companies?