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

Sunrise Textiles Ltd proposes to issue debentures to investors and its finance manager suggests giving each debenture-holder one vote at general meetings of the company to make the issue attractive. Under the Companies Act, 2013, what is the position?

The proposal is not permitted. Section 71(2) of the Companies Act, 2013 says no company shall issue debentures carrying any voting rights, and this applies whether the debentures are secured or unsecured and regardless of what the articles or a special resolution say.

  1. APermitted if the articles so provide
  2. BPermitted if approved by a special resolution
  3. CNot permitted, as no company shall 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, a special resolution nor security changes this. The distractors wrongly assume a company can override the bar.

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