Jitendra Kapil Dev Chaturvedi
( Author )
14 November 2013
There is confliction between (i) Section 42 read with rule (draft rule ) 3 - Private Placement Of Securities (Securities Includes Debentures also ) , (ii) Section 71 read with rule (draft rule) 4 : Issuance Of Debentures, (iii) 179 (3) (c) :-inter alia includes Power Of Board To Issue Debentures, (iv) Section 62 : Further Issue of Shares
(i) Section 42 read with rule 3 says that for issuance of securities (inter alia includes debentures ), company shall obtain approval of members by passing a Special Resolution and to comply with the other specified condition as specified in the said Section 42 and the rule there of.
(ii ) Section 71 read with rule 4 says that for issuance of Optionally Convertible Debentures, the company shall pass a Special Resolution at the General Meeting and to comply with the other conditions as specified in the said Section 71 and the respective rule. Not cleared that if the Debentures are Non Convertible than what should be done, whether to pass Board Resolution or Special Resolution.
(iii)Section 179 (3) (c) give the power to the board to issue Debentures (not specified whether the debentures should be optionally convertible or non convertible) by Passing A Board Resolution at Board Meeting.
If the company want to issue the Non Convertible Debentures to the selected group of persons (e.g. Banks /Financial Institutions / other selected persons), now what should be done by the Company?
Whether to follow Section 42 , :- Pass Special Resolution and to follow other conditions as specified in Section 42 read rule 3 or To follow Section 179 (3) (c) :- Pass just a Board Resolution.
Further to note that :
Note: Definition of *Securities : Section 2(81) of the Companies Act, 2013
“Securities” means the Securities as defined in clause (h) of section 2 of the Securities Contracts (Regulation) Act, 1956 *
Clause 2(h) “of SCRA * : Securities include :
(i) shares, scrips, stocks, bonds, debentures, debenture stock or other marketable
securities of a like nature in or of any incorporated company or other body
(ib) units or any other instrument issued by any collective investment scheme to
the investors in such schemes;]
[(ic) security receipt as defined in clause, (zg) of section 2 of the Securitisation and
Reconstruction of Financial Assets and Enforcement of Security Interest Act,
Further as per the explanation to Section 2(81) of the Companies Act, 2013, Commercial Papers are also seems to be a Security under the said definition, now whether issuance of Commercial Papers, require Board Approval under section 179 (3) of the Companies Act, 2013 or to Pass Special Resolution and to follow other prescribed conditions as prescribed under section 42 read with rule 3.
does it mean that ? :-
Company intending to issue of debentures will
first to get approval of the share holders by passing a special resolution, under section 42 of the Companies Act, 2013, stating that Company to issue debentures in numbar of tranches.
and thereafter prior to issuance of each tranch,of debentures approval of the board of directors be obtained under section 179 (3)(c).