Debenture ‑ Whether fixed deposit constitutes “debenture” within the meaning of clause (12) - Companies Law - No. 8/2/58‑PR,

Letter : No. 8/2/58 ‑ PR, dated 10 ‑ 12 ‑ 1958. Subjects:- Debenture ‑ Whether fixed deposit constitutes debenture within the meaning of clause (12) It was brought to the notice of this department that a company in South India issued an advertisement in English Daily inviting fixed deposits from the public to carry out its expansion and development plans and that the Registrar of Companies concerned advised the company that inasmuch as such an advertisement partook the nature of a prospectus within the meaning of section 2(36), the provisions of sections 56(3) and 60 should have been duly complied with. The company, however, contended that such fixed deposits would not constitute debentures. The point was, therefore, referred to this Department for examination and advice. The question whether such fixed deposit receipts constitute a debenture or not within the meaning of section 2(12) has accordingly been examined in consultation with the Ministry of Law. This Department is advised that in view of the inclusive nature of the definition in section 2(12), the position is not entirely free from doubt. It is understood that borrowing against fixed deposit receipts is a recognised method of raising company finance in some parts of the country and it is felt that it would not be desirable to do anything to disrupt this practice, until instances of widespread abuse of the procedure by companies are brought to the notice of this Department. It has, therefore, been decided that for the present, though a fixed deposit receipt may be regarded as a security, it should not be regarded as debenture within the meaning of section 2(12).