CS Professional · Strategic Management and Corporate Finance

Raising of Funds from Debt and Procedural Aspects

This chapter covers how a company raises money through debt and the legal steps involved: who can authorise borrowing, how debentures are issued, how charges are created, and how deposits are accepted. To solve questions, identify the instrument, apply the provision, test the facts against its conditions, then conclude with compliance steps.

What this chapter covers

This chapter deals with debt as a source of funds. You study the instruments, such as debentures, term loans and deposits. You then study the procedure a company must follow to raise them. The focus is on who has the power to borrow, what approvals are needed, and what filings follow.

The chapter has a legal side and a finance side. The legal side is the Companies Act, 2013, the articles of association, SEBI rules for listed non-convertible securities, and rules on charges and deposits. The finance side is choosing between debt sources and handling stressed debt.

It connects to the rest of Paper 5. Corporate Finance asks how to fund a business and what it costs. This chapter tells you how that funding is raised lawfully. It also links to Paper 6 on restructuring and insolvency, and to Paper 3 on compliance, because every borrowing leads to filings and records.

Corporate Finance carries 60 marks in a written, case-based paper, and this chapter is a source of procedure-heavy questions. Examiners give facts about a company and ask whether an action is valid. You earn marks by quoting the right rule, applying it to the facts and giving a clear conclusion. Section-based rules on Board powers, deposits and articles are precise, so learning them exactly gives you easy marks that many students lose through vague answers.

Raising of Funds from Debt and Procedural Aspects: topics in the order to study them

1Debt Instruments and Sources of Debt FinanceStart here to learn the vocabulary of debentures, loans and deposits that every later topic uses.
2Articles of Association and Authority to BorrowNext, learn who can borrow: Board powers under section 179 and limits set by the articles and general meeting.
3Issue of Debentures: Procedure and ComplianceOnce you know the authority, study the step-by-step process of issuing debentures privately or otherwise.
4Public Issue and Listing of Non-Convertible SecuritiesThis adds the SEBI layer on top of the Companies Act for public issue and listed debt.
5Creation and Registration of ChargesSecured debt needs a charge, so study how it is created and registered after you know how debt is issued.
6Deposits and Loans: Acceptance and Inter-Corporate DealingsDeposits under sections 73 and 76 have many conditions, so study them once the core debt topics are clear.
7Restructuring Debt and Remedies of LendersFinish with what happens when repayment fails, which ties together security, deposits and lender rights.

How to prepare Raising of Funds from Debt and Procedural Aspects

Treat this chapter as a procedure chapter. Build each topic as a short chain: power, condition, filing, consequence.

Read the Companies Act provisions in plain words first. For each, note the authority, the conditions and the exceptions.
Make a one-page table for section 179(3): list the powers the Board must exercise by resolution at a meeting, and note that clauses (d) to (f) can be delegated.
Learn deposits as a checklist. For section 73(2), note the resolution, the circular to members, the filing with the Registrar and the deposit repayment reserve account.
Link each instrument to its approval and filing. For debentures and charges, write who approves, which form or record applies, and the time limit.
Practise case-style answers in four lines: provision, facts, analysis, conclusion. Do this for at least one fact pattern per topic.
Draft sample resolutions and notices by hand, since drafting points are rewarded in written papers.
Revise by reciting the conditions of each rule from memory, then check them against the text.

Common mistakes in Raising of Funds from Debt and Procedural Aspects

Saying the Board can do anything it likes under section 179.
Fix: Always add that the Board is subject to the Act, memorandum, articles and any act reserved for the general meeting.
Listing Board powers but forgetting they need a resolution passed at a meeting.
Fix: Write 'by resolutions passed at meetings of the Board' and note that circulation is not enough for these powers.
Mixing up deposits from members under section 73 and from the public under section 76.
Fix: Remember that section 73 covers members, while section 76 allows eligible public companies to accept from persons other than members, with a rating.
Giving the deposit repayment reserve rule from memory with wrong figures or dates.
Fix: State it as at least 20% of deposits maturing in the following financial year, deposited on or before 30 April, in a separate account in a scheduled bank.
Writing theory without applying it to the facts given.
Fix: Use four steps: provision, facts, analysis, conclusion. Name the company and the numbers in your analysis.
Treating SEBI and Companies Act requirements for debentures as the same.
Fix: Keep two columns while studying: Companies Act requirements for all companies, and SEBI requirements for public issue or listed securities.

Last-day revision: Raising of Funds from Debt and Procedural Aspects

Board powers under section 179 are subject to the Act, the memorandum, the articles and the company's general meeting regulations.
The Board cannot do what the Act or articles require the company in general meeting to do.
Under section 179(3), borrowing, investing and giving loans, guarantees or security need Board resolutions passed at meetings.
The Board may delegate the powers in clauses (d) to (f) of section 179(3) by a resolution passed at a meeting.
The general meeting can impose restrictions and conditions on the Board's powers (section 179(4)).
A regulation made in general meeting does not invalidate a prior valid Board act.
Section 73 bars inviting, accepting or renewing deposits from the public except as the Chapter provides; banks and NBFCs are excluded.
Under section 73(2), deposits from members need a general meeting resolution and a circular filed with the Registrar.
The deposit repayment reserve account must hold at least 20% of deposits maturing in the next financial year, deposited by 30 April.
The deposit repayment reserve account can be used only to repay deposits.
A depositor can apply to the Tribunal if a company fails to repay a deposit or interest.
Section 76 lets certain public companies accept deposits from non-members, with a credit rating each year and a charge within thirty days for secured deposits.

Raising of Funds from Debt and Procedural Aspects practice questions

Raising of Funds from Debt and Procedural Aspects in other exams

The same ground in other exams, if you are preparing for more than one or want another angle on it.

Raising of Funds from Debt and Procedural Aspects: frequently asked questions

What is the best way to start the Raising of Funds from Debt chapter?

Start with the types of debt instruments, then move to who has the authority to borrow. Once you know the instruments and the power, the procedure for debentures, charges and deposits is easier to follow.

Is section 179 important for this chapter?

Yes. It sets out the Board's powers, including borrowing and issuing securities, and the proviso that allows delegation of some powers. Questions often ask whether the Board or the members must approve an action.

Can a company accept deposits from the public?

Section 73 bars it except as the Chapter allows. Section 76 lets a public company with the prescribed net worth or turnover accept deposits from non-members, subject to a credit rating and the rules.

How should I answer case-based questions on this chapter?

State the relevant provision, apply it to the facts, reach a conclusion and add the compliance steps. Keep each step short and tied to the facts in the question.