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Classes Of Debentures

   Posted On :  14.05.2018 09:24 pm

Debentures may be classified according to the following characteristics, viz.,

Classes Of Debentures
 
Debentures may be classified according to the following characteristics, viz.,
 
            Negotiability,
 
            Security,
 
            Permanence,
 
            Convertibility, and
 
            Priority.
 
1. Classification based on negotiability:
(1) Bearer debentures and (2) Registered debentures.

2. Classification based on security:
(1) Secured debentures and (2) Unsecured or naked debentures.

3. Classification based on permanence:
(1) Redeemable debentures and (2) Irredeemable or perpetual debentures

4. Classification based on convertibility:
(1) Convertible debentures and (2) Non-convertible debentures.

5. Classification based on priority:
(1) First debentures and (2) Second debentures.

Debentures with voting rights not to be issued (Sec. 117): A company cannot issue any debentures carrying voting rights.
 
Issue of debentures at a discount: Debentures can be issued at a discount, unless the Articles provide otherwise.
 
Debentures and debenture stock: The difference between debentures and debenture stock is the same as the difference between shares and stock.
 
Debenture trust deed: [New Sec. 117-A as inserted by the Companies (Amendment) Act, 2000], A trust deed for securing any issue of debentures shall be in specified form and shall be executed within the prescribed period.
 
Appointment of debenture trustees and duties of debenture trustees [Sec. 117-B]: A person shall not be appointed as a debenture trustee, if he – (a)Beneficially holds shares in the company (b) is beneficially entitled to moneys which are to be paid by the company to the debenture trustee (c) has entered into any guarantee in respect of principal debts secured by the debentures or interest thereon.
 
Liability of company to create security and debenture redemption reserve [New Sec. 117-C as inserted by the Companies (Amendment) Act, 2000]: Creation of debenture redemption reserve: Where a company issues debentures after the commencement of this Act, it shall create a debenture redemption reserve for the redemption of such debentures, to which adequate amounts shall be credited, from out of its profits every year until such debentures are redeemed.
 
Liability of trustees for debenture-holders (Sec.119): A trustee is liable for any breach of trust where he fails to show the degree of care and diligence required of him as trustee, having regard to the provisions of the trust deed conferring on him any powers, authorities or discretions.
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