FINANCIAL STRUCTURE AND MEMBERSHIP – III - DEBT CAPITAL

FINANCIAL STRUCTURE AND MEMBERSHIP – III - DEBT CAPITAL

Section 293(1) (d) prohibits the Board of Directors of Public Company from borrowing a sum which exceeds the aggregate of paid – up share capital of the Company and its free reserves unless they have received the prior sanction of the company in general meeting.

Types of Borrowings

Long Term Borrowings – period ranging from five years or more

Short Term Borrowings – period upto one year

Medium Term Borrowing – Period two to five years.

Debentures- Section 2(12)

A document given by a company under its seal as an evidence of a debt to the holder usually arising out of loan and most commonly but not necessarily secured by charge.

• Redeemable Debentures
• Perpetual Debentures
• Registered and Bearer Debentures
• Secured and unsecured Debentures
• Convertible Debentures

Not carry any voting rights at any general meeting – Section 117

Public Financial Institutions – Section 4A(1)

ICICI, IFCI, IDBI, LIC, UTI, IDFC

Charge On uncalled Capital – Section 98 and 99

A company cannot mortgage or charge any part of its “reserve capital” i.e., such portion of its uncalled capital as is in capable of being called up except in the event of winding up of the company.

Debenture Stock 

A Company instead of issuing debentures, each in respect of separate and distinct debt, may raise one aggregate loan fund or composite stock known as ‘Debenture Stock’

Debenture Trust Deed – Section 117A

To secure Debenture Stock.

Appointment of Debenture Trustees and duties of Debentures Trustees – Section 117B

No company shall issue a prospectus or a letter of offer to the public for subscription of its debentures, unless the company has appointed one or more debenture trustees for such debentures and the company has on the face of prospectus stated the debenture trustees or trustees have given their consent to be so appointed.

Liability of Company to Create Security and Debenture Redemption Reserve – Section 117C

Company issues debentures after the commencement of Companies Amendment Act, 2000 create a debenture redemption reserve from out of its profits every year until such debentures are redeemed.

Register of Debenture holder – Section 152 

Requires every Company to keep the register of debenture holders giving the details like Name, address, occupation of each Debentureholder and the date on which the debentures were held and how much.

Re- issue of Redeemed Debentures – Section 121

Remedies Open to Debenture holder- Section 117C (4) and (5)

Where a company fails to redeem the debentures on the date of maturity, the Debentureholder may make an application to Tribunal who in turn after hearing the parties concerned direct the company to redeem the debentures forthwith by the payment of principal and interest due thereon.