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

Meridian Steels Ltd. issued debentures and offered holders a right to vote at general meetings of the company on all resolutions along with equity shareholders. Which statement is correct under the Companies Act, 2013?

Such an issue is prohibited. The Companies Act provides that no company shall issue debentures carrying any voting rights, and this applies regardless of whether the debentures are secured, approved by special resolution, or consented to by the debenture trustee.

  1. APermitted if the debentures are secured
  2. BPermitted if a special resolution approves it
  3. CPermitted only if the debenture trustee consents
  4. DProhibited, as no company may issue debentures carrying voting rightsCorrect

Explanation

Section 71(2) states that no company shall issue any debentures carrying any voting rights. This is absolute: security, special resolution or trustee consent does not remove the bar.

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