Issue of Debentures under Companies Act, 2013

 

General Compliance for Private Placement of Debenture

Section 42(2), (3) and (5) and Rule 14(2) of the Prospectus Rules

No fresh offer or invitation should be made unless the allotments with respect to any previous offer or invitation have been completed or that offer or invitation has been withdrawn or abandoned by the Company.

A company may make multiple issues in a financial year, subject to overall limit of 200 persons (excluding qualified institutional buyers and employees subscribing and ESOPs) for all such issues, in a financial year.

Section 42(7)

The Company must not release any public advertisements or utilise any media, marketing or distribution channels or agents for informing the public at large about the NCD Issue.

Section 42(2) and 179(3)(c)

Pass a board resolution authorising the issue of the NCDs. The board resolution should specify the class of investors who will be subscribing to the NCDs.

Section 42, and Rule 14(1) and 14(2), Prospectus Rules

Pass a special resolution of the shareholders approving the offer of debentures for subscription by way of private placement, as required under the Prospectus Rules.

Section 179, 180, 186, 188, CA 2013

Pass a special resolution of the shareholders approving the creation of security and providing guarantee.

Pass a board resolution for:

(a) Approving creation of security and providing guarantee; and

(b) Approving related party transactions

Sections 42(4) and 42(6) and Rule 14(5), Prospectus Rules

Investors make payment. All monies payable towards subscription of debentures shall be paid through cheque or demand draft or other banking channels but not by cash. The company shall not utilize the money until allotment is completed and the return of allotment has been filed with the relevant Registrar of Companies. Further, monies received on application under this section shall be kept in a separate bank account in a scheduled bank and shall not be utilised for any purpose other than—

(a) for adjustment against allotment of securities; or

(b) for the repayment of monies where the company is unable to allot securities.

Section 42(6)

Allot the NCDs by passing a board resolution and pay the relevant stamp duty amount on the debentures to the depository

Rule 14(4), Prospectus Rules

The Company should maintain a complete record of private placement offers in Form PAS-5 and the Placement Memorandum with itself.

Section 42(8) and (9) and Rule 12 and Rule 14(6), Prospectus Rules

The Company should file return of allotment in Form PAS-3, along with the fee as specified in the Fees Rules within 15 days of allotment of NCDs     

 

Pursuant to Section 71 of Companies Act, 2013

1.       debentures issued shall not carrying any voting rights

2.       Debenture redemption reserve account shall be created out of the profit of company

3.       Appointment of Debenture Trustee is mandatory if invitation is made to more than 500 Persons.

4.       Debenture Trust deed shall not contain any provision exempting a trustee thereof from, or indemnifying him against, any liability for breach of trust.

5.       Exemption can be provided to Debenture Trustee if approved by Majority of Debenture holder not less than 3/4^th in Value in Meeting held for the purpose.

6.       Payment of Interest and Redemption of debenture shall be in terms and condition of their issue.

7.       If Debenture Trustee conclude that assets of company are insufficient or become insufficient to discharge the principal when become due, then he may file petition before tribunal for imposing restriction on incurring of any further liabilities by the company.

8.       If company fails to pay interest or Principal amount when become due, then debenture holder or debenture trustee may file petition to tribunal. Tribunal may, after hearing both parties, order to redeem the debenture.

9.       A contract with the company to take up and pay for any debentures of the company may be enforced by a decree for specific performance.

 

CONDITION FOR ISSUING SECURED DEBENTURE

Redemption of Debenture

1.       In general date of redemption shall not exceed 10 Years from the date of issue.

2.       Date redemption can exceed ten years but not exceeding thirty years in following companies:

i.      Companies engaged in setting up of infrastructure projects

ii.      Infrastructure Finance Companies

iii.      Infrastructure Debt Fund Non-Banking Financial Companies

iv.      Companies permitted by a Ministry or Department of the Central Government oi by Reserve Bank of India or by the National Housing Bank or by any other statutory authority to issue debentures for a period exceeding ten years

Security of Debenture:

1.       Issue of Debenture shall be secured by creation of Charge on properties or assets of the company or its subsidiaries or its holding company or its associates companies, having a value which is sufficient for the due repayment of the amount of debentures and interest thereon.

2.       Security shall be created:

   v.       in favor of Debenture Trustee by way of charge     

 vi.      On any specific movable property of the company or its holding company or subsidiaries or associate companies or otherwise and in case of a non-banking financial company, the charge or mortgage under may be created on any movable property

vii.      On any specific immovable property wherever situate, or any interest therein.

viii.      in case of any loan taken by a subsidiary company from any bank or financial institution the charge or mortgage may also be created on the properties or assets of the holding company

Appointment of Debenture Trustee

1.       Appointment shall be appointed before issue of Prospectus or Letter of offer.

2.       Within 60 Days from the date of allotment of Debenture Trust deed shall be executed.

3.       As per rule 5, a trust deed shall be executed in form SH-12 within 3 Months of closure of offer or issue.

 

Condition for Appointment of Debenture Trustee:

1.       the names of the debenture trustees shall be stated in letter of offer inviting subscription for debentures and also in all the subsequent notices or other communications sent to the debenture holders

2.       before the appointment of debenture trustee or trustees, a written consent shall be obtained from such debenture trustee and a statement shall be made in Letter of offer.

3.       Disqualification of Debenture Trustee

i.      beneficially holds shares in the company;

ii.       is a promoter, director or key managerial personnel or any other officer or an employee of the company or its holding, subsidiary or associate company;

iii.      is beneficially entitled to moneys which are to be paid by the company otherwise than as remuneration payable to the debenture trustee;

iv.      is indebted to the company, or its subsidiary or its holding or associate company or a subsidiary of such holding company;

v.      has furnished any guarantee in respect of the principal debts secured by the debentures or interest thereon;

vi.      has any pecuniary relationship with the company amounting to two per cent. or more of its gross turnover or total income or fifty lakh rupees or such higher amount as may be prescribed, whichever is lower, during the two immediately preceding financial years or during the current financial year;

vii.      is relative of any promoter or any person who is in the employment of the company as a director or key managerial personnel

4.       any casual vacancy of Trustee/Trustees may be filled by Board

5.       Casual Vacancy by resignation of Trustee shall be filled with the consent of majority of Debenture Holder.

6.       Debenture trustee can be removed in the meeting of debenture holder with approval of debenture holder holding 3/4^th in Value

Disclaimer: The content of this blog is for informational and educational purposes only and does not constitute legal advice or opinion.