Investment FD (1652)
Investment FD (1652)
Investment FD (1652)
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SUBMITTED BY:
Soumya Sinha
Roll- 1652
B.B.A. LL.B.
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SUBMITTED TO:
Mr. Ashok Kumar Sharma
Faculty of LAW RELATING TO INVESTMENT, SECURITIES, CORPORATE
FINANCE & COMPETITION
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October, 2020
Chanakya National Law University, Nyaya Nagar,
Mithapur, Patna- 800001
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Table of Content
2 Acknowledgement 4
3 Research Methodology 5
5 Introduction 6 – 10
9 Bibliography 22
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Declaration by the Candidate
I hereby declare that the work reported in the B.B.A. LL.B. (Hons.)
Project Report entitled “PROCEDURE FOR ISSUE OF DEBT
SECURITIES UNDER SEBI” for the ninth semester, submitted at
Chanakya National Law University, Patna, is an authentic record of
my work carried out under the supervision of Mr. Ashok Kumar
Sharma. I have not submitted this work elsewhere for any other degree
or diploma. I am fully responsible for the contents of my Project
Report.
__________________________
(Signature of the Candidate)
SOUMYA SINHA
,
Roll - 1652
Chanakya National Law University, Patna
3
Acknowledgement
4
Research Methodology
For this study, doctrinal research method was utilised. Various e-articles,
reports, magazines and books from library were used extensively in
framing all the data and figures in appropriate form, essential for this
study.
INTRODUCTION
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The word ‘debenture’ has been derived from a Latin word ‘debere’ which means to borrow.
Debentures have been defined under section 2(30) of the Companies Act, 2013 ("2013 Act").
Debenture is a document evidencing a debt or acknowledging it and any document which fulfills
either of these conditions is a debenture.
Debenture includes debenture stock, bonds and any other securities of a company whether
constituting a charge on the assets of a company or not as defined in the Companies Act. This is an
inclusive definition and amounts to borrowing of monies from the holders of debentures on such
terms and conditions subject to which the debentures have been issued. Basically it is a document or
certificate signed by the authorized officers of a company acknowledging money lent and
guaranteeing repayment with interest and creating security on the assets of the company for due
performance of its obligation.
Debenture is a written instrument acknowledging a debt to the Company. It contains a contract for
repayment of principal after a specified period or at intervals or at the option of the company and for
payment of interest at a fixed rate payable usually either half-yearly or yearly on fixed dates.
Types of Debenture:
1. Security
(a) Secured Debentures
Secured debentures refer to those debentures where a charge is created on the assets of the company
for the purpose of payment in case of default. A charge ranking Pari Passu with the first charge on
any assets referred to in Schedule III of the Act excluding intangible assets of the company.
The secured debenture holders have greater protection. Holders of secured debentures remain
convinced about the payment of interest and payment of principal in the event of redemption.
(b) Unsecured Debentures
These debentures are also known as naked debentures. These debentures are not secured by way of
charge on the company’s assets. Interest rate payable on unsecured debentures is generally higher
than that which is payable on secured debentures.
2. Tenure
a. Redeemable Debentures
Redeemable debentures are those which are payable on the expiry of the specific period (Maximum
period 10 years from the date of issue) either in lump sum or in Installments during the life time of
the company. Debentures can be redeemed either at par or at premium.
b. Irredeemable Debentures
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Irredeemable debentures are also known as Perpetual Debentures because the company does not give
any undertaking for the repayment of money borrowed by issuing such debentures. These debentures
are repayable on the winding-up of a company or on the expiry of a long period. Debentures may be
for fixed terms or payable on demand. Debentures may be for fixed term of years or repayable on
notice. They can legally be framed as payable to bearer.
3. Mode of Redemption
These debentures are issued by a company on the basis of option provided to them for conversion of
debenture in the equity shares of the company after a certain period. It may be classified in the
following categories: —
(a) Convertible Debenture
These debentures are converted into equity shares of the company on the
expiry of a specified period.
(b) Non-Convertible Debenture
Non-convertible debentures do not have any option to convert the same into equity shares and are
redeemed at the expiry of specified period(s).
(c) Partly Convertible Debenture
Partly convertible debentures are divided into two portions, viz., convertible and non-convertible
portion. The convertible portion is converted into equity shares of the company at the expiry of
specified period. The non-convertible portion is redeemed at the expiry of the specified period in
terms of the issue.
4. Basis of negotiability
Debentures issued by a company may be negotiable or non-negotiable. There are following two types
of debentures:—
a. Bearer Debentures
These debentures are payable to bearer of the debentures and transferable by mere delivery. These
debentures are also known as unregistered debentures.
b. Registered Debentures
These debentures are not transferable by mere delivery of debenture certificates and shall be
transferred as per the provisions of the Companies Act 2013, by executing transfer deeds and the
transfer registered by the company. Registered debentures are not negotiable instruments. A
registered holder of a debenture means a person whose name appears both in the debenture certificate
and in the register of debenture holders. Principal and interest amount, when due in respect of these
debentures are payable to the registered holders thereof only.
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WHO CAN ISSUE DEBT SECURITIES?
1. Private Banks
2. Public Banks
(1) The Companies Act, 2013 & the Companies (Share Capital and Debentures) Rules, 2014
Section 71 of the Companies Act, 2013 provides the condition for issue of debentures. A debenture is a
legal document that represents a secure means by which a creditor can lend money to the debtor. A
company may issue debentures with an option to convert such debentures into shares, either wholly or
partly at the time of redemption. The issue of debentures with an option to convert such debentures into
shares, wholly or partly, shall be approved by a special resolution passed at a general meeting. This
means debenture may be non – convertible debenture or convertible debenture. Convertible debenture
may either be Fully Convertible Debenture (FCD) or Partly Convertible Debenture.
The companies is required to comply section 71 (Debentures) read with rule 18 of the Companies (Share
Capital and Debentures) Rules 2014.
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Debt securities which are convertible, either partially or fully or optionally into listed or unlisted
equity shall be guided by the disclosure norms applicable to equity or other instruments offered on
conversion in terms of SEBI (Issue of Capital and Disclosure Requirements) Regulations, 2009.
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should be able to absorb loss either through: (i) conversion to common shares at an objective pre-
specified trigger point or (ii) a write-down mechanism that allocates losses to the instruments at a
pre-specified trigger point.
Whereas RBI vide circular dated September 01, 2014 on the “Implementation of Basel III Capital
Regulations in India – Amendments” has inter-alia allowed banks to issue Additional Tier 1 (AT1)
instruments to retail investors. Further, RBI vide its Master Circular on Basel III Capital Regulations
dated July 1, 2015 has also specified additional disclosure requirements for PNCPS and PDIs.
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A debenture means a document, which creates or acknowledges a debt. 1
Issue of Debentures
A company may issue debentures with an option to convert such debentures into shares, either
wholly or partly at the time of redemption. However, the issue of debentures with an option to
convert such debentures into shares, wholly or partly, shall be approved by a special resolution
passed at a general meeting.
The company shall not issue any debentures carrying any voting rights.
As per Rule 18 of the Companies (Share Capital and Debentures) Rules, 2014, the following are
the procedure for issue of secured debentures:-
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(iv) Companies permitted by a Ministry or Department of the Central Government or 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.
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(b) Before the appointment of Debenture Trustee or trustees, a written consent shall be obtained from
such debenture trustee or trustees proposed to be appointed and a statement to that effect shall appear
in the letter of offer issued for inviting the subscription of the debentures;
(c) A person shall not be appointed as a debenture trustee, if he-
1. beneficially holds shares in the company;
2. 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;
3. is beneficially entitled to moneys which are to be paid by the company otherwise than as
remuneration payable to the debenture trustee;
4. is indebted to the company, or its subsidiary or its holding or associate company or a subsidiary of
such holding company;
5. has furnished any guarantee in respect of the principal debts secured by the debentures or interest
thereon;
6. 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;
7. is relative of any promoter or any person who is in the employment of the company as a director or
key managerial personnel.
(d) The Board of directors may fill any casual vacancy in the office of the trustee but while any such
vacancy continues, the remaining trustee or trustees, if any, may act. However, where such vacancy
is caused by the resignation of the debenture trustee, the vacancy shall only be filled with the written
consent of the majority of the debenture holders.
(e) Any debenture trustee may be removed from office before the expiry of his term only if it is
approved by the holders of not less than three fourth in value of the debentures outstanding, at their
meeting.
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(e) appoint a nominee director on the Board of the company in the event of-
• two consecutive defaults in payment of interest to the debenture holders; or
• default in creation of security for debentures; or
• default in redemption of debentures.
(f) ensure that the company does not commit any breach of the terms of issue of debentures or
covenants of the trust deed and take such reasonable steps as may be necessary to remedy any such
breach;
(g) informthedebentureholdersimmediatelyofanybreachofthetermsofissue of debentures or covenants
of the trust deed;
(h) ensuretheimplementationoftheconditionsregardingcreationofsecurityfor the debentures, if any,
and debenture redemption reserve;
(i) ensure that the assets of the company issuing debentures and of the guarantors, if any, are
sufficient to discharge the interest and principal amount at all times and that such assets are free from
any other encumbrances except those which are specifically agreed to by the debenture holders;
(j) do such acts as are necessary in the event the security becomes enforceable;
(k) call for reports on the utilization of funds raised by the issue of debentures;
(l) take steps to convene a meeting of the holders of debentures as and when such meeting is required
to be held;
(m) ensure that the debentures have been converted or redeemed in accordance with the terms of the
issue of debentures;
(n) perform such acts as are necessary for the protection of the interest of the debenture holders and
do all other acts as are necessary in order to resolve the grievances of the debenture holders.
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(a) requisition in writing signed by debenture holders holding at least one-tenth in value of the
debentures for the time being outstanding;
(b) the happening of any event, which constitutes a breach, default or which in the opinion of the
debenture trustees affects the interest of the debenture holders.
• To increase borrowing limit of the Company subject to approval of the Shareholder in General
Meeting;
• Issue the Notice of General Meeting along with explanatory statement. (According to SS-2);
(5) Hold Extra Ordinary General Meeting and pass special resolution for issue of debentures and to
increase the borrowing limit of the Company to issue Debentures. Offer letter shall be accompanied
by an application form serially numbered and addressed specifically to the person to whom the offer
is made. Offer Letter sent either in writing or electronic mode. Issue offer letter within 30 days of
General Meeting/recording the name of such person.
(6) Offer letter should mention the name of the Debenture Trustee, if appointed.
(7) File MGT-14 with Registrar within 30 days of passing of Special Resolution. Attachments:
Notice of General Meeting along with Explanatory Statement, Certified True copy of Special
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Resolution and Minutes of General Meeting (No need to file this MGT-14 in case of Private
Limited Company)
(8) Open a Separate Bank Account for debentures and File GNL-2 with Registrar within 30 days of
(9) Hold the Board Meeting and Present List of Allottees before the Meeting. Pass Board Resolution
(10) Issue of Debentures Certificate in same Meeting and authorize two directors and a person to
(11) Enter into Debenture Trust deed (SH-12), if required. File CHG-9 and File PAS-3 with
Registrar of Company.
(12) The entries in the registers maintained under section 88 in form MGT-2 shall be made within
7(Seven) days after the Board of Directors approves the allotment of debentures.
(13) The Debenture Certificate shall be issue within 6 (Month) months from the date of allotment of
Debentures.
(14) Stamp Duty settlement as per provisions & rates of Stamp Act of the State (only applicable
on Marketable Debenture).
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ISSUE OF LISTING OF DEBT SECURITIES BY PUBLIC
COMPANY
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When a public company wishes to issue and list its debt securities on stock exchanges, then it
has to comply with Securities and Exchange Board of India (Issue and Listing of Debt
Securities) Regulations, 2008 in addition to Companies Act, 2013. SEBI notified these
regulations on 19th June 2008 in order to facilitate development of a vibrant primary market
for debt securities in India.
The regulations are specifies a simplified regulatory framework for issuance and listing of debt
securities issued by public company, public sector undertaking or statutory corporations. The
Regulations will not apply to issue and listing of, securitized debt instruments and security
receipts for which separate regulatory regime is in place.
Further, for listing of Debt Securities is required to comply with SEBI LODR Regulations, 2015.
However, it may be noted that SEBI (ICDR) regulations, 2009 is also applicable to issue and
listing of debt securities.
Chapter V of SEBI (LODR) Regulations, 2015 provides for the obligations of Listed Entity which
has listed its ‘Non-convertible Debt Securities’ and/or ‘Non- Convertible Redeemable Preference
Shares’ on a recognised stock exchange in accordance with SEBI (Issue and Listing of Debt
Securities) Regulations, 2008 or SEBI (Issue and Listing of Non-Convertible Redeemable Preference
Shares) Regulations, 2013 respectively.
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corporate or not, but excludes bonds issued by Government or such other bodies as may be specified
by SEBI, security receipts and securitized debt instruments.
Compliances under SEBI (Listing Obligations and Disclosure Requirements) Regulations, 2015:
Obligation of Listed Entity which has listed its non-convertible debt securities-
The Provisions of Chapter V of SEBI (LODR) Regulations, 2015 shall apply only to a listed entity
which has listed its ‘Non-convertible Debt Securities’ on a recognised stock exchange in accordance
with SEBI (Issue and Listing of Debt Securities) Regulations, 2008 or Securities and Exchange
Board of India (Issue and Listing of Non-Convertible Redeemable Preference Shares) Regulations,
2013 respectively.
However, the above intimation may be given prior to the meeting of board of directors wherein the
proposal to raise funds through new non-convertible debt securities or non-convertible redeemable
preference shares shall be considered.
• The listed entity shall intimate to the stock exchange(s), at least two working days in advance,
excluding the date of the intimation and date of the meeting, regarding the meeting of its board of
directors, at which the recommendation or declaration of issue of non-convertible debt securities or
any other matter affecting the rights or interests of holders of non-convertible debt securities or non-
convertible redeemable preference shares is proposed to be considered.
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Explanation-The expression ‘promptly inform’, shall imply that the stock exchange must be informed
as soon as practically possible and without any delay and that the information shall be given first to
the stock exchange(s) before providing the same to any third party.
• Without prejudice to the generality of sub-regulation(1), the listed entity who has issued or is
issuing non-convertible debt securities and/or non-convertible redeemable preference shares shall
make disclosures as specified in Part B of Schedule III.
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CONCLUSION
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Debt Markets are the market for issuance, trading and settlement of various types and features
of fixed income securities.
Today, the Indian Debt Market is in India comprising broadly of two segments, viz.,
Government Securities Market and Corporate Debt Market on the threshold of momentous
change and transition to an efficient, transparent and vibrant market with significant retail
participation. A vibrant debt market enables investors to shuffle and re-shuffle their portfolio
depending upon the expected changes. A well-functioning debt market becomes significant for
all the market participants.
In order to facilitate development of a vibrant primary market for Debt Securities, Securities
and Exchange Board of India (SEBI) notified the Regulations for Issue and Listing of Debt
Securities on 19th June 2008, to provide for simplified regulatory framework for issuance and
listing of non-convertible debt securities (excluding bonds issued by Governments) issued by
any company, public sector undertaking or statutory corporations. The Regulations do not
apply to issue and listing of, securitized debt instruments and security receipts for which
separate regulatory regime is in place.
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BIBLIOGRAPHY
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Articles referred:
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