Issue of Debentures

Issue of Debentures

At a time of private limited company registration or public limited company registration, each company has to decide about its equity and debt structure. Under equity option, a company issues shares. Shares can be either equity share capital or preference share capital whereas, under debt, one of the option company has to issue debentures.

Further, when the company is in expansion mode and looks for funding, any business plan or project report has to clearly prescribe means of financing i.e. how much will be owned funds and how much is borrowed from banks and financial institutions. Here, again debt equity ratio comes into play.

Let us discuss, the provisions of companies act relating to issue of debentures

  1. Section 71 of Companies Act 2013 read with Rule 18 of Companies Share Capital and Debentures Rules, 2014 deals with issue of debentures
  1. A company may issue fully or partly convertible debentures.
  1. The company can issue secured and unsecured debentures.
  1. 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 utilized by the company except for the redemption of debentures.

As per rule 18 of Companies Share Capital and Debentures Rules, 2014, No Debenture Redemption Reserve is required in case of Compulsory Convertible Debentures. 

In the case of a partly convertible debenture, DRR is required in respect of convertible portion.

  1. Debenture Trustee: Company cannot issue a prospectus or make an offer or invitation to the public or to its members exceeding 500 for the subscription of its debentures, unless it has, before such issue or offer, appointed one or more debenture trustees
  1. As per rule 18 of Companies Share Capital and Debentures Rules, 2014, No Debenture Redemption Reserve is required in case of Compulsory Convertible Debentures
  • Pursuant to Companies (Acceptance of Deposits) Rules, 2014, “Deposit” includes any receipt of money by way of deposit or loan or in any other form by a company, but does not include:


(ix) any amount raised by the issue of bonds or debentures secured by a first charge or a charge ranking pariahs with the first charge on any assets referred in schedule III of the act (excluding intangible assets of the company) or bonds or debentures compulsorily convertible into shares of the company within 5 years.


The company shall not issue secured debentures unless it complies with the following conditions as specified in rules:

  1. Debentures are issued for redemption within max. up to 10 years
  2. The company shall appoint a debenture trustee
  3. Security for debenture shall be created on the movable/immovable property by way of charge or mortgage in favor of debenture trustee.





Call Meeting of Board Director:

  • Issue Notice of Board Meeting to all the directors of the company at least 7 days before the date of Board Meeting.


Hold the Board Meeting:

  • Approval of Debenture Trustee Agreement and appointment of a Debenture Trustee (In case of Secured Debentures only)
  • Approval of increase of borrowing powers, if required
  • To authorize for a creation of charge on the assets of the company.
  • Approve the Debenture Subscription Agreement
  • To fix day, date and time for the extraordinary general meeting of shareholder
  • Identify the person to whom you will issue debentures
  • Prepare a list of such persons.
  • Appointment of an expert for valuation 
  • Prepare Draft offer letter under PAS-4.
  • Pass Board Resolution for approval of offer letter.
  • Issue Notice of General Meeting. (As per Section- 101(1) issue notice of General Meeting at least 21 days before General meeting).


Hold Extra Ordinary general Meeting:

  • Present Offer Letter in PAS-4 before the members of the meeting.
  • Pass Special Resolution for Private Placement of Debentures.

Step -4

Circulate Letter of Offer in form PAS-4:

  • Offer letter shall be accompanied by an application form serially numbered and addressed specifically to the person to whom the offer is made.
  • Issue offer letter within 30 days of General Meeting/recording the name of such person.

Step -5

File Form with Registrar:

  • File MGT-14 with Registrar within 30 days of the passing of Special Resolution.


  • Notice of General Meeting along with Explanatory Statement.
  • Certified True copy of Special Resolution.
  • Minutes of General Meeting

Step -6

Open Separate Bank Account:

  • The payment to be made for a subscription to securities shall be made from the bank account of the person subscribing to such securities.
  • The company shall keep the record of the Bank Account from where such payment for subscription has been received.

Step -7

File Form with Registrar:

  • File GNL-2 with Registrar within 30 days of circulation of an offer letter.


  • PAS-4 (Offer Letter).
  • PAS-5 (Complete record of Private Placement).

Step -8

Call Board Meeting after receiving of application money.

  • Issue Notice of Board Meeting to all the directors of the company at least 7 days before the date of Board Meeting. [Section-173(3)]

Step -9

Hold the Board Meeting:

  • Present List of Allottees before the Meeting.
  • Pass Board Resolution for allotment (within 60 days of receiving of money).
  • Pass Resolution for an issue of Certificate in the same Meeting.
  • Authorize to two directors and a authorize person to sign a certificate.

Step -10

File form with ROC:

  • File PAS-3 with Registrar of Company.


  • List of Allottees.
  • Board Resolution for allotment


  • Filing of form CHG-9 or creation of charge on assets of the Company (For secured debentures)


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Author: Anil Agrawal
EZYBIZ India Consulting LLP, New Delhi. The firm is business and tax consultancy firm providing consultancy in Taxation, Regulatory, Transfer pricing, Valuation, Corporate funding and Business set up matters. He may be reached at 9899217778 or