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

Meridian Textiles Ltd proposes to issue debentures to its investors that carry a right to vote at general meetings of the company, in the same way as equity shares. Under the Companies Act, 2013, what is the position?

A company cannot issue debentures carrying voting rights. Section 71(2) flatly prohibits it, and no authority from the articles, a special resolution or the provision of security can validate such an issue. Debenture-holders are creditors, not members, so they do not vote.

  1. APermitted if the articles authorise it
  2. BPermitted if approved by a special resolution
  3. CNot permitted, as no company may issue debentures carrying any voting rightsCorrect
  4. DPermitted only for secured debentures

Explanation

Section 71(2) states that no company shall issue any debentures carrying any voting rights. Neither the articles nor a special resolution nor security can override this. The special resolution requirement relates only to debentures with an option of conversion into shares.

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