Legal provisions
Section 42, Section 71 and Section 179 of the Companies Act, 2013 read with relevant rules under the Companies (Share Capital and Debentures) Rules, 2014 and Companies (Prospectus and Allotment of Securities) Rules, 2014. Section 71 provides that debentures shall not carry voting rights.
Step-wise Process
Check AOA and borrowing powers
Verify whether the Articles of Association authorise issue of debentures and whether borrowing limit under Section 180, if applicable, is sufficient.
Decide terms of debentures
Finalise amount, face value, rate of interest, tenure, redemption terms, mode of payment, and whether debentures will be listed/unlisted, convertible/non-convertible.
Convene Board Meeting
Pass Board Resolution for:
- approval of issue of unsecured debentures;
- approval of private placement offer;
- approval of draft PAS-4;
- opening of separate bank account;
- calling of general meeting, if required.
Pass Shareholders' Resolution
Pass Special Resolution under Section 42 for private placement. If debentures are convertible into shares, Special Resolution under Section 71 is also required. Section 71 permits convertible debentures only with shareholders’ approval.
File MGT-14
File Form MGT-14 with ROC for the Special Resolution and relevant Board Resolution, as applicable.
Prepare Private Placement Offer Letter
Prepare and issue PAS-4 to identified persons only. Maintain record of private placement in PAS-5 .
Receive application money
Subscription money must be received only through banking channels from the bank account of the person subscribing. Keep a separate bank account for the issue proceeds.
Allot debentures
Hold Board Meeting for allotment of unsecured debentures within the prescribed timeline and pass allotment resolution.
File PAS-3
File return of allotment in Form PAS-3 with ROC within 15 days from the date of allotment.
Issue Debenture Certificates
Issue debenture certificates to the debenture holders within the prescribed time and make necessary entries in the Register of Debenture Holders.
Create DRR / Deposit, if applicable
Check applicability of Debenture Redemption Reserve and deposit/investment requirement under Rule 18. For unlisted companies issuing debentures on private placement basis, DRR requirement generally applies unless exempted.
Ongoing compliance
Pay interest as per agreed terms, deduct TDS if applicable, maintain register, comply with redemption terms, and pass necessary entries in books of account.
Important Note: Since the debentures are unsecured, no charge creation in CHG-9 is required. Also, debenture trustee and debenture trust deed are generally relevant in case of secured debentures, not ordinary unsecured debentures issued by a private company on private placement basis.
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