Companies Act Section 2(30) Debenture

Debenture Section 2(30)

A "Debenture" is a long-term debt instrument issued by a company, promising to pay interest and repay the principal on maturity.

Key Features of Debentures:

1. Debt Instrument: 

Debentures are instruments of indebtedness issued by companies to raise funds from investors. 

They represent a promise by the company to repay the borrowed amount along with interest at a specified future date.

2. Types of Debentures:

Secured Debentures: Backed by specific assets of the company as collateral, providing security to debenture holders in case of default.

Unsecured (or Naked) Debentures: Issued without any specific asset backing, relying solely on the creditworthiness of the company.

3. Interest Payments: 

Debentures typically carry a fixed or floating rate of interest, which is paid periodically (usually semi-annually or annually) to the debenture holders until maturity.

4. Maturity and Redemption: 

Debentures have a specified maturity period, upon which the company repays the principal amount to the debenture holders. 

Redemption can be done in full or through periodic payments (e.g., installment debentures).

5. Transferability: 

Debentures are usually transferable by endorsement and delivery, allowing investors to buy and sell them in the secondary market.

Rights of Debenture Holders:

1. Interest Payment: 

Debenture holders have the right to receive regular interest payments as per the terms of the debenture issue.

2. Repayment of Principal: 

Upon maturity, debenture holders are entitled to receive repayment of the principal amount invested.

3. Security: 

Secured debenture holders have the right to enforce their security interest in case of default by the company.

4. Voting Rights: 

Unlike shareholders, debenture holders typically do not have voting rights in the company unless specifically provided for in the debenture terms or company's articles of association.

Legal Framework and Compliance:

Companies Act, 2013: 

The issuance, terms, conditions, and redemption of debentures are governed by the provisions of the Companies Act, 2013. 

This includes requirements related to the creation of debenture trust deeds, registration of charges, and disclosure norms.

SEBI Regulations: 

In cases where debentures are listed on stock exchanges, companies must comply with regulations issued by the Securities and Exchange Board of India (SEBI), which governs disclosure requirements, investor protection, and trading in debt instruments.