Issue of Debenture by Unlisted Company and Listed Company Under Companies Act, 2013 By CS Sana Sultan

Applicable Sections of Companies Act, 2013 and SEBI Regulations:

Section 42, 71, of the Companies Act, 2013 read with Rule 18 of the Companies (Share Capital and Debentures) Rules, 2014

SEBI (Issue and Listing of Debt Securities) Regulations, 2008, SEBI

Type of Debentures to be Issued:

The Company can issue following types of Debentures:

  • Convertible Debentures (either wholly or partly)
  • Non-Convertible Debentures

(The above type of debentures can be secured or unsecured)

Before Issue of Secured debenture Important Point to be considered:

If the Company decides to issue secured debenture the company has to comply with the condition prescribed in Rule 18 of the Companies (Share Capital & Debentures) Rules, 2014.

1. An issue of secured debentures may be made, provided the date of its redemption shall not exceed 10 years from the date of issue.

i) If a company engaged in the setting up of infrastructure projects may issue secured debentures for a period exceeding 10 years but not exceeding 30 years

2. Issue of Secured Debenture shall be secured by the creation of a Charge, on the property or assets of the Company or its subsidiaries or its holding company or its associate companies, having a value of which is sufficient for the redemption of Debentures and interest thereon.

3. Security of debenture by way of charge or mortgage shall be created in favour of the debenture trustee on any specific movable property of the company or its holding company or its subsidiary companies or its associate company or otherwise or any specific immovable property wherever situate or any interest therein.

4. Appoint debenture trustee before the issue of letter of offer for subscription of debenture with written consent and that shall appear in the letter of offer.

5. A person shall not be appointed as a debenture trustee as per Sub-Rules (2) (c) of Rule 18 of the Companies (Shares Capital and Debentures) Rules, 2014.

6. Create Debenture Redemption Reserve out of the profit of the company available for payment of dividend.

7. The issuer has not defaulted in the repayment of deposits/loan/ debenture/ preference shares or interest payable thereon or fail to pay the dividend if any in the last three financial years.

8. The issuer may decide the amount of minimum subscription which it seeks to raise by the issue of debenture. In the event of the non-receipt of the minimum subscription the all the application money to be refunded to the applicant within 30 days from the date of allotment

Process Flow for Issue of Debenture:

Call and hold Board meeting:

i) Within 7 days intimation to all the Directors and Listed Company intimate the designated Stock Exchange (SE) where it is listed.

ii) Outcome of the Board Meeting for of an issue of Debentures to be submitted to Stock exchange within 30 minutes of the conclusion of Board Meeting- by Listed Company

1. In the Board meeting to pass necessary resolutions.

2. Decide which types of the debenture will be issued.

3. If an issuer company is NBFC then no regulatory action is pending before RBI and must have a consistent track record of distributable profit for the last 3 years;

4. Approval of Offer letter for private placement in Form No. PAS – 4 and Application Forms (In case of private placement of debentures);

5. Approval of Form No. PAS – 5 (In case of private placement of debentures);

6. Approval of Debenture Trustee Agreement and appointment of a Debenture Trustee (In case of Secured Debentures only); (Trustee must be registered with SEBI in case if an issuer is a trustee)

7. The appointment of an expert in valuation (Appoint registered valuer;);

8. Approval of increase of borrowing powers, if required;

9. To authorize for the creation of charge on the assets of the company;

10. Approve the Debenture Subscription Agreement;

11. To fix day, date and time for the extraordinary general meeting of shareholders and appoint scrutinizer for their report on Postal Ballot and or E-voting.

Prepare the draft of

i) Debenture Subscription Agreement;
ii) Offer Letter for private placement in Form No. PAS – 4 and Application Forms;
iii) Records of a private placement offer in Form No. PAS – 5;
iv) Debenture Trustee Agreement;
v) Mortgage Agreement for the creation of charge on assets of the company.

Compliance with the listed company:

1. Issuer makes an application for listing of its debt securities to recognised stock exchange.

2. Issuer Company must have a net worth of Rs. 500 crores as per audited balance sheet of the preceding financial year and having the consistent track record of distributable profit of the last three years.

3. Obtain In-principle approval for listing of debt securities from SE where it is to be listed.

4. Obtain credit rating from at least one credit rating agency.

5. Make an agreement with Depository Registrar with the board for dematerialisation.

6. Appoint one lead Merchant Banker.

7. The issue may be underwritten by an underwriter registered with the Board.

8. Prepare draft Offer documents which should contain all material disclosure and should submit to the stock exchange.

9. The draft offer documents shall be made public by posting the same on the website of the stock exchange, merchant banker and issuer. Receive comments from the public within 7 days from the date of filing documents with SE.

10. Obtain due diligence certificate by a lead merchant banker in schedule II.

11. The final documents to be submitted to SE and host on the website of the issuer company, stock exchange, merchant banker in PDF / HTML form. And also make an advertisement in national daily with wide circulation, before the issue opening date.

  • Issue notices of extraordinary general meeting along with the explanatory statement.
  • Hold the extraordinary general meeting and pass a special resolution to issue debentures and increase borrowing powers of the company and to authorize the Board to create the charge on the assets of the company.
  • Special Resolution to be passed through Postal Ballot or E-voting by Listed Company as the case may be.
  • File the Scrutinizer Report to SE and host the same at the website of the Company.
  • File Form No. PAS – 4 and PAS – 5 in Form No. GNL – 2 with the Registrar of Companies.
  • File Offer Letter, the copy of Board resolutions, Special Resolution, Debenture Subscription Agreement, Debenture Trustee Agreement etc in Form No. MGT – 14 with the Registrar of Companies.(file within 30 days of passing Resolution)
  • File Form No. PAS – 3 (Return of allotment) with the Registrar of Companies after making allotment of debentures within 15 days of allotment.
  • File Form No CHG – 9 within 30 days of creation of charge on assets of the Company and SH-12 for Debenture Trust Deed within 3 months of closure of the issue.
  • Get Debentures Listed and Issue in the Stock Exchange.

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