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

Sagar Foods Ltd, a public company, plans to issue secured debentures. Under the Companies Act, 2013 and the Companies (Share Capital and Debentures) Rules, 2014, which statement about debentures is correct?

A company cannot issue debentures carrying voting rights, even if its articles try to allow it. Section 71 prohibits this. Debentures may be made convertible into shares with a special resolution, and debenture trustees are needed for public issues, so the statement on voting rights is the correct one.

  1. AA company cannot issue debentures carrying voting rightsCorrect
  2. BA company may issue debentures with a right to voting at general meetings if the articles permit
  3. CDebentures can never be convertible into equity shares
  4. DA debenture trust deed is required only for private companies

Explanation

Section 71 provides that no company shall issue debentures carrying any voting rights. Debentures may be issued with an option to convert into shares, wholly or partly, if approved by a special resolution. A debenture trust deed is relevant for a company offering debentures to the public or beyond the prescribed number of holders, not just private companies. So the articles cannot give voting rights to debenture holders.

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