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

Rohan Steels Ltd issued debentures of Rs 1,000 each to the public, aggregating Rs 50 crore, without appointing a debenture trustee, as it believes the debenture holders are well protected by security. Under the Companies Act, 2013, what is the legal position?

The company has not complied. Where a company invites the public to subscribe to debentures through a prospectus, it must appoint a debenture trustee before the issue opens, whether or not the debentures are secured. The company's belief that security makes a trustee optional is wrong.

  1. AAppointing a trustee is optional where the debentures are secured
  2. BA trustee is required only for debentures above Rs 100 crore
  3. CA trustee is required only for unsecured debentures
  4. DA company offering debentures to the public with a prospectus must appoint a debenture trustee before issue, so the company has not compliedCorrect

Explanation

A company that issues a prospectus or offer inviting subscription for debentures must appoint one or more debenture trustees before the issue is opened, and the trust deed must be executed within the prescribed time. The requirement applies to public offers regardless of security or a Rs 100 crore threshold, so the stated belief is incorrect.

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