Section 71- Debenture- Bare Act Language
Section 71- Debenture (as on date 21.05.2016)
(1) A company may issue
debentures with an option to convert such debentures into shares, either wholly
or partly at the time of redemption:
Provided that 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.
(2) No company shall issue
any debentures carrying any voting rights.
(3) Secured debentures may
be issued by a company subject to such terms and conditions as may be prescribed.
(4) Where debentures are
issued by a company under this section, the company shall create a debenture
redemption reserve account out of the profits of the company available for
payment of dividend and the amount credited to such account shall not be
utilised by the company except for the redemption of debentures.
(5) No company shall issue
a prospectus or make an offer or invitation to the public or to its members
exceeding five hundred for the subscription of its debentures, unless the
company has, before such issue or offer, appointed one or more debenture
trustees and the conditions governing the appointment of such trustees shall be
such as may be prescribed.
(6) A debenture trustee
shall take steps to protect the interests of the debenture-holders and redress
their grievances in accordance with such rules as may be prescribed.
(7) Any provision contained
in a trust deed for securing the issue of debentures, or in any contract with
the debenture-holders secured by a trust deed, shall be void in so far as it
would have the effect of exempting a trustee thereof from, or indemnifying him
against, any liability for breach of trust, where he fails to show the degree
of care and due diligence required of him as a trustee, having regard to the
provisions of the trust deed conferring on him any power, authority or
discretion:
Provided that the liability of the debenture trustee shall be subject to
such exemptions as may be agreed upon by a majority of debenture-holders
holding not less than three-fourths in value of the total debentures at a
meeting held for the purpose.
(8) A company shall pay
interest and redeem the debentures in accordance with the terms and conditions
of their issue.
(9) Where at any time the
debenture trustee comes to a conclusion that the assets of the company are
insufficient or are likely to become insufficient to discharge the principal
amount as and when it becomes due, the debenture trustee may file a petition
before the Tribunal and the Tribunal may, after hearing the company and any
other person interested in the matter, by order, impose such restrictions on
the incurring of any further liabilities by the company as the Tribunal may consider
necessary in the interests of the debenture-holders.
(10) Where a company fails
to redeem the debentures on the date of their maturity or fails to pay interest
on the debentures when it is due, the Tribunal may, on the application of any
or all of the debenture-holders, or debenture trustee and, after hearing the
parties concerned, direct, by order, the company to redeem the debentures
forthwith on payment of principal and interest due thereon.
(11) If any default is made
in complying with the order of the Tribunal under this section, every officer
of the company who is in default shall be punishable with imprisonment for a
term which may extend to three years or with fine which shall not be less than
two lakh rupees but which may extend to five lakh rupees, or with both.(Not
effective)
(12) 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.
(13) The Central Government
may prescribe the procedure, for securing the issue of debentures, the form of
debenture trust deed, the procedure for the debenture-holders to inspect the
trust deed and to obtain copies thereof, quantum of debenture redemption
reserve required to be created and such other matters.
Rule 18-Companies (Share Capital and Debentures) Rules, 2014.
18. Debentures.-
(1) The company
shall not issue secured debentures, unless it complies with the following
conditions, namely:-
(a) An issue of
secured debentures may be made, provided the date of its redemption shall not
exceed ten years from the date of issue.
[1]Provided that a company engaged in the setting up of
infrastructure projects may issue secured debentures for a period exceeding ten
years but not exceeding thirty years;
[2]Provided that
the following classes of companies may issue secured debentures for a
period exceeding ten years but not exceeding thirty years,
(i) Companies engaged in setting up of infrastructure projects;
(i) Companies engaged in setting up of infrastructure projects;
(ii) ‘Infrastructure
Finance Companies’ as defined in clause (viia) of sub-direction (1) of
direction 2 of Non-Banking Financial (Non-deposit accepting or
holding) Companies Prudential Norms (Reserve Bank) Directions, 2007;
[3](iii)
‘Infrastructure Debt Fund Non-Banking Financial companies’ as defined
in clause of (b) of direction
3 of Infrastructure Debt Fund Non-Banking Financial Companies (Reserve
Bank) Directions, 2011.
(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 lbr a period exceeding ten years.,
(b) such an issue of
debentures shall be secured by the creation of a charge, on the properties or
assets of the company, having a value which is sufficient for the due repayment
of the amount of debentures and interest thereon;
(c) the company
shall appoint a debenture trustee before the issue of prospectus or letter of
offer for subscription of its debentures and not later than sixty days after
the allotment of the debentures, execute a debenture trust deed to protect the
interest of the debenture holders ; and
(d) the security for
the debentures by way of a charge or mortgage shall be created in favour of the
debenture trustee on-
[4](i) any specific
movable property of the company ; or
(ii) any specific immovable property wherever situate, or any interest therein:
Provided that in case of a non-banking financial company, the charge or mortgage under sub-clause (i) may be created on any movable property.
(ii) any specific immovable property wherever situate, or any interest therein:
Provided that in case of a non-banking financial company, the charge or mortgage under sub-clause (i) may be created on any movable property.
Provided
further that in case of any issue of debentures by a
Government company which is fully secured by the guarantee given by the
Central Government or one or more State Government or by both, the
requirement for creation of charge under this sub-rule shall not apply.
Provided
also that in case of any loan taken by a subsidiary company from any
bank or financial institution the charge or mortgage under this
sub-rule may also be created on the properties or assets of the holding
company;
(2) The company
shall appoint debenture trustees under sub-section (5) of section 71, after
complying with the following conditions, namely:-
(a) 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;
(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-
(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
(d) the Board 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:
Provided that
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.
(3) It shall be the
duty of every debenture trustee to-
(a) satisfy himself
that the letter of offer does not contain any matter which is inconsistent with
the terms of the issue of debentures or with the trust deed;
(b) satisfy himself
that the covenants in the trust deed are not prejudicial to the interest of the
debenture holders;
(c) call for
periodical status or performance reports from the company;
(d) communicate
promptly to the debenture holders defaults, if any, with regard to payment of
interest or redemption of debentures and action taken by the trustee therefor;
(e) appoint a
nominee director on the Board of the company in the event of-
(i) two consecutive defaults
in payment of interest to the debenture holders; or
(ii) default in
creation of security for debentures; or
(iii) 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) inform the
debenture holders immediately of any breach of the terms of issue of debentures
or covenants of the trust deed;
(h) ensure the
implementation of the conditions regarding creation of security for 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.
(4) The meeting of
all the debenture holders shall be convened by the debenture trustee on-
(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.
(6) The provisions
of sub-rules (2) to (5) of rule 18 shall not be applicable to the public offer
of debentures.
(7) The company
shall create a Debenture Redemption Reserve for the purpose of redemption of
debentures, in accordance with the conditions given below-
(a) the Debenture
Redemption Reserve shall be created out of the profits of the company available
for payment of dividend;
(b) the company
shall create Debenture Redemption Reserve (DRR) in accordance with following
conditions:-
(i) No DRR is
required for debentures issued by All India Financial Institutions (AIFIs)
regulated by Reserve Bank of India and Banking Companies for both public as
well as privately placed debentures. For other Financial Institutions (FIs)
within the meaning of clause (72) of section 2 of the Companies Act, 2013, DRR
will be as applicable to NBFCs registered with RBI.
(ii) For NBFCs
registered with the RBI under Section 45-IA of the RBI (Amendment) Act,
1997, and for [6]Housing
Finance Companies registered with the National Housing Bank ‘the adequacy’
of DRR will be 25% of the value of debentures issued through public issue as
per present SEBI (Issue and Listing of Debt Securities) Regulations, 2008, and
no DRR is required in the case of privately placed debentures.
(iii) For other
companies including manufacturing and infrastructure companies, the adequacy of
DRR will be 25% of the value of debentures issued through public issue as per
present SEBI (Issue and Listing of Debt Securities), Regulations 2008 and also
25% DRR is required in the case of privately placed debentures by listed
companies. For unlisted companies issuing debentures on private placement
basis, the DRR will be 25% of the value of debentures.
(c) every company
required to create Debenture Redemption Reserve shall on or before the 30th day
of April in each year, invest or deposit, as the case may be, a sum which shall
not be less than fifteen percent, of the amount of its debentures maturing
during the year ending on the 31st day of March of the next year, in any one
or more of the following methods, namely:-
(i) in deposits with
any scheduled bank, free from any charge or lien;
(ii) in unencumbered
securities of the Central Government or of any State Government;
(iii) in
unencumbered securities mentioned in sub-clauses (a) to (d) and (ee) of section
20 of the Indian Trusts Act, 1882;
(iv) in unencumbered
bonds issued by any other company which is notified under sub-clause (f) of
section 20 of the Indian Trusts Act, 1882;
(v) the amount
invested or deposited as above shall not be used for any purpose other than for
redemption of debentures maturing during the year referred above:
Provided that
the amount remaining invested or deposited, as the case may be, shall not at
any time fall below fifteen per cent of the amount of the debentures
maturing during the year ending on the 31st day of March of that year;
(d) in case of partly convertible debentures, Debenture Redemption Reserve shall be created in respect of non-convertible portion of debenture issue in accordance with this sub-rule.
(d) in case of partly convertible debentures, Debenture Redemption Reserve shall be created in respect of non-convertible portion of debenture issue in accordance with this sub-rule.
(e) the amount
credited to the Debenture Redemption Reserve shall not be utilised by the
company except for the purpose of redemption of debentures.
(8) (a) A trust deed
for securing any issue of debentures shall be open for inspection to any member
or debenture holder of the company, in the same manner, to the same extent and
on the payment of the same fees, as if it were the register of members of the
company; and
(b) A copy of the
trust deed shall be forwarded to any member or debenture holder of the company,
at his request, within seven days of the making thereof, on payment of fee.
(9) Nothing
contained in this rule shall apply to any amount received by a company
against issue of commercial paper or any other similar instrument
issued in accordance with the guidelines or regulations or notification
issued by the Reserve Bank of India.
(10) In case of any
offer of foreign currency convertible bonds or foreign currency bonds
issued in accordance with the Foreign Currency Convertible Bonds
and Ordinary Shares (Through Depository Receipt Mechanism) Scheme, 1993
or regulations or directions issued by the Reserve Bank of India, the
provisions of this rule shall not apply unless otherwise provided in such
Scheme or regulations or directions
[1]Proviso is
substituted by notification G.S.R. 413 (E) dated 18 June, 2014. To view
the notification,
[2]Proviso is
substituted by notification G.S.R. 413 (E) dated 18 June, 2014. To view
the notification,
[3]Added by
Companies (Share Capital & Debenture) Rules, 2014
[5]substituted by
Notification No. G.S.R. 210 (E) dated 18 March 2015.To view the notification
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