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CA Intermediate · Corporate and Other Laws · Share Capital and Debentures

Orient Steel Ltd issues secured, non-convertible debentures of Rs 10 crore to the public. A debenture holder asks about the legal requirements. Which of the following is correct under the Companies Act, 2013 and the Rules?

The company must appoint a debenture trustee before issuing the prospectus or letter of offer and must secure the debentures with a charge on its assets sufficient to cover principal and interest. Debentures cannot carry voting rights, and trustee appointment is not optional.

  1. AThe company is not required to appoint a debenture trustee for a public issue of debentures
  2. BThe company must appoint a debenture trustee before issue of the prospectus or letter of offer, and must create a security that is sufficient to discharge the principal and interestCorrect
  3. CThe company must create a debenture redemption reserve of 100 percent of the debentures in all cases, irrespective of whether it is listed
  4. DThe company can issue debentures carrying voting rights to debenture holders if it wishes to attract investors

Explanation

For an issue of debentures with a maturity over 18 months, the company must appoint a debenture trustee before the prospectus or letter of offer is issued, and must create a charge on its assets sufficient to discharge the principal and interest. Debentures cannot carry voting rights, so option D is wrong. The 100 percent DRR is not a universal requirement, so option C is wrong.

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