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

Sundaram Textiles Ltd proposes to issue debentures to raise funds and its Managing Director suggests giving debenture-holders a right to vote at general meetings so as to make the issue attractive. Under the Companies Act, 2013, what is the legal position?

The company cannot issue debentures carrying voting rights. Section 71(2) of the Companies Act, 2013 provides that no company shall issue any debentures carrying any voting rights, and this prohibition cannot be overridden by the articles, a special resolution or by securing the debentures.

  1. AThe company may do so if the articles permit it
  2. BThe company may do so if a special resolution is passed
  3. CThe company may do so only for secured debentures
  4. DThe company cannot issue debentures carrying any voting rightsCorrect

Explanation

Section 71(2) states that no company shall issue any debentures carrying any voting rights. This is an absolute bar, so neither the articles nor a special resolution nor security can cure it. The articles and special resolution options wrongly assume the bar can be waived.

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