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CS Executive · Company Law and Practice · Debt Instruments - Concepts

Kaveri Textiles Ltd. proposes to issue debentures that will carry an option to convert them partly into equity shares at the time of redemption. What approval does the Companies Act, 2013 require for this issue?

A special resolution passed at a general meeting is required. When debentures carry an option to convert into shares, wholly or partly, at redemption, the Companies Act requires members to approve the issue by special resolution, not by an ordinary or Board resolution.

  1. AAn ordinary resolution passed at a general meeting
  2. BA special resolution passed at a general meetingCorrect
  3. CA Board resolution passed by circulation
  4. DPrior approval of the Tribunal

Explanation

The proviso to section 71(1) says that issuing debentures with an option to convert them into shares, wholly or partly, must be approved by a special resolution passed at a general meeting. An ordinary resolution or Board resolution alone is insufficient, and no Tribunal approval is prescribed.

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