12th SP Chapter 4 Exercise (Issue of Debentures) – Maharashtra Board – Free Solution

12th SP Chapter 4 Exercise

Chapter 4
Issue of Debentures

Q.1 A) Select the correct answer from the options given below and rewrite the statements.

1) A company cannot issue _____ with voting rights.
a) Equity shares
b) Debentures
c) Securities

2) A company can issue _____ convertible debentures.
a) Only partly
b) Only fully
c) Partly or fully

3) Money from _____ Account is used for redemption of debentures
a) Capital
b) Debenture Redemption Reserve
c) Profit or loss

4) _____ protects the interest of debenture holders.
a) Debenture Trustees
b) Debenture holders
c) Redemption Reserve

5) Secured debentures must be redeemed within _____ from the date of its issue
a) 10 days
b) 10 years
c) 15 years

6) A company issuing _____ debenture must create a charge on the assets of the company.
a) Secured
b) Unsecured
c) Redeemable

7) Debenture certificate must be issued within _____ of allotment of debentures.
a) 3 months
b) 6 months
c) 60 days

8) The details of allotment of Debentures must be entered in _____.
a) Register of debenture
b) Register of members
c) Register of creditors

9) A company which issues prospectus or invites more than 500 persons to buy its debenture has to appoint _____.
a) Register of companies
b) Debenture holders
c) Debenture trustees

10) The contract between company and Debenture trustees of companies is called as _____
a) Debenture trust deed
b) Letter of offer
c) Prospectus

11) Procedure for allotment of Debenture should be completed within _____ from the date of receipt of applications.
a) 6 months
b) 3 months
c) 60 days

Q.1 B) Match the pairs.

Group A	Group B
a) Debenture Trustees	1) Power to issue debentures
b) Debenture holders	2) Protects interest of shareholders
c) Charge on assets	3) Secured debentures
d) Board of Directors	4) NCLT
e) Debenture certificate	5) No voting rights
	6) Unsecured debentures
	7) Protects interest of debenture holders
	8) Voting rights
	9) Proof of ownership of shares
	10) Issued within 6 months of allotment of debentures

Answers.
a. 7) Protects interest of debenture holders
b. 5) No voting rights
c. 3) Secured debentures
d. 1) Power to issue debentures
e. 10) Issued within 6 months of allotment of debentures

Q.1 C) Write a word or a term or a phrase which can substitute each of the following statements.

1) Type of resolution needed to issue convertible debentures.
Ans: Special Resolution

2) Account to be created for redemption of debentures.
Ans: Debenture Redemption Reserve

3) Institution appointed by company to protect the interest of debenture holders.
Ans: Debenture Trustees

4) Period within which secured debentures should be redeemed.
Ans: 10 years

5) Type of debentures on which company has to create a charge on its assets.
Ans: Secured Debentures

6) The document which contains terms and conditions agreed upon by the company and the Debenture trustees.
Ans: Debenture Trust Deed

7) Time period within which the procedure for allotment of debenture is to be completed from the date of receipt of applications.
Ans: 60 days

8) Period within which debenture certificate must be issued by a company.
Ans: 6 Months from allotment of debentures

9) Institution which redresses grievances of debenture holders.
Ans: Debenture Trutees

10) Authority which has power to issue debentures.
Ans: Board of Directors

Q.1 D) State whether the following statements are true or false.

1) Debenture holders have no voting rights..
Ans: True

2) Company cannot issue non-convertible debentures.
Ans: False

3) Special Resolution is needed to issue convertible debentures.
Ans: True

4) Debentures holders are paid interest.
Ans: True

5) Debenture Trustees can not approach NCLT to redress grievances of debenture holders.
Ans: False

6) All secured debentures should be redeemed within 20 years from date of its issue.
Ans: False

7) Company has to create a charge on its assets when it issues secured debentures.
Ans: True

8) Debenture trustees are appointed to protect the interest of shareholders.
Ans: False

9) Debenture certificate is issued within 6 six months of allotment of debentures.
Ans: True

10) After allotment of Debentures their names are entered in the register of members.
Ans: False

Q.1 E) Find the odd one.

1) Debenture holders, Interest, Dividend.

2) Debenture Trustees, Court, NCLT.

3) Secured Debentures, Convertible debentures, Irredeemable debentures.

4) Debenture trustees, Trust Deed, Shareholders.

Q.1 F) Complete the sentences.

1) A legal instrument conveying the assets of a company to the Debenture trustees is called Debenture Trust Deed.

2) To protect the interest of Debenture holders, a company appoints Debenture Trustee.

3) On receipt of application and money, the procedure for allotment of debentures should be completed within 60 days.

4) Authority to create charge on company’s assets is with the Board of Directors.

5) Secured debentures should be redeemed within 10 years from date of its issue.

6) To stop a company from incurring further liabilities, the Debenture trustee can approach NCLT.

7) A company which issues prospectus or invites more than 500 persons to subscribe for its debentures, has to appoint Debenture Trustee.

8) Return on investment on debenture is called Interest.

9) For public issue of debentures of Rs 100 crores, minimum subscription should be 75% of the issue.

10) For public issue or rights issue of convertible debentures, as per SEBI, a company must obtain Credit rating.

Q.1 G) Select the correct option from the bracket.

Group A	Group B
a) Debenture Trustees	1) Trust deed
b) Secured debentures	2) Charge on assets
c) Register of Debenture	3) Names of debenture holders
d) Issued within 6 months of allotment	4) Debenture certificate
e) No voting rights	5) Debenture holders

Q.1 H) Answer in one sentence.

1) Who are debenture holders?
Answer: Debenture holders are creditors of the company.

2) What do debenture holders receive as return on investment?
Answer: Debenture holders receive interest as return on investment

3) Whom does the company appoint to protect the interest of debenture holders?
Answer: The company appoints debenture trustee to protect the interest of debenture holders

4) Within what period should secured debentures be redeemed?
Answer: Secured debentures should be redeemed within 10 years from the date of its issue.

5) Name the document which is an agreement between the debenture trustee and company.
Answer: An agreement between the debenture trustee and company is called as Trust Deed.

6) Who has the authority to create charge on assets of a company?
Answer: The Board of Directors has the authority to create charge on assets of a company.

7) Name the meeting in which approval for increasing the borrowing powers of Board of Diectors is passed.
Answer: The meeting in which approval for increasing the borrowing powers of Board of Diectors is passed is known as Extra-Ordinary General Meeting.

8) Within what period should the debenture certificate be issued?
Answer: A debenture certificate should be issued within 6 months from the date of its allotment.

9) What is the minimum subscription that a company must collect for an issue of debentures of Rs 100 crores?
Answer: Minimum subscription must be at least 75% that a company must collect for an issue of debentures of Rs 100 crores.

10) When should a company appoint a credit rating agency?
Answer: A company should appoint a credit rating agency before it issues debentures.

Balbharti Textbook Solutions for other subjects
Solution of all Chapters of SP
1 – 2 – 3 – 4 – 5 – 6 – 7 – 8 – 9 – 10 – 11 – 12

Q.1 I) Correct the underlined word/s and rewrite the following sentences.

1) The details of debenture holders are entered in Register of Members.
Answer: Register of Debenture holders

2) Secured debentures must be redeemed within 15 years from the date of its issue.
Answer: 10 Years

3) A company issuing irredeemable debentures must create a charge on assets of the company.
Answer: Secured

4) Return on investment on debentures is dividend.
Answer: Interest

5) Debenture Trustees redress the grievances of shareholders.
Answer: Debenture holders

6) Debenture certificates are issued within 3 months of allotment of debentures.
Answer: 6 months

7) Procedure for allotment of debentures should be completed within 90 days from date of receipt of applications.
Answer: 60 days

8) To rate its debentures a company appoints underwriters.
Answer: credit rating agency

Q.1 J) Arrange in proper order

1)
a. Obtain Credit Rating.
b. Entry in register of debenture
c. Receive application with money
Answer: (a) Obtain Credit Rating (c) Receive application with money (b) Entry in register of debenture

2)
a. Issue debenture certificate
b. Issue prospectus
c. Open bank Account
Answer: (b) Issue prospectus (c) Open bank Account (a) Issue debenture certificate

3)
a. Hold Board Meeting for allotment
b. Issue debenture certificate
c. Receive application with money
Answer: (c) Receive application with money (a) Hold Board Meeting for allotment (b) Issue debenture certificate

Q.2 Explain the following terms/concepts.

1) Debenture certificate:
Answer: A debenture certificate is a certificate given to the debenture holders. It certifies that the holder is the creditor of the company to the limit of the number of debentures.
The company has to issue a Debenture certificate to the debenture holders within 6 months of allotment of Debentures. A debenture certificate is prepared by the secretary, signed by at least two directors and issue under common seal.

2) Debenture trustee:
Answer: A company that issues prospectuses or invites more than 500 persons to buy its debentures has to appoint one or more Debenture Trustees. Companies issuing secured debentures also must appoint Debentures Trustees.
Debentures Trustees are institutions that protect the interest of the debenture holders.
Debenture Trustees are appointed before prospectus or letter of offer/offer letter is issued or within 60 days after the allotment of debenture.

3) Charge on assets:
Answer: The company has to create a charge on the assets of the company or its subsidiary company or holding company.
The value of charge should be adequate to cover the entire value of debentures issued and interest to be paid on it.
If a Government company issues secured debentures which has Central or State Government’s guarantee, then it need not create any charge on its assets.

4) Debenture trust deed:
Answer: Company enters into a contract with one or more Debenture Trustees. The terms and conditions of the agreement is written in the Debenture Trust Deed. It is a legal instrument conveying the assets of a company to the Trustees.
The Deed also defines the rights of debenture holders and the duties and powers of Debenture Trustees.

Q.3 Study the following case / situation and express your opinion.

(1) Rose limited company proposes to issue debenture to the public to raise funds. After discussions, the Board of directors has decided to issue secured, Redeemable non-convertible debentures with a tenure of Ten years. Please advise the board on the following matters :

a) Should the company appoint Debenture trustee?
Answer: Yes, the company should appoint debenture trustee as it is mendatory to appoint trustee as and when company decides to issue secured debentures.

b) Should the company create a charge on its assets?
Answer: All secured debentures are to be secured by creating charge over assets and therefore company should create charge over assets.

c) Can the tenure of debentures be less than ten years?
Answer: Yes, the tenure of debentures can be less than ten years.

(2) Violet Ltd. company plans to raise Rs 10 crores by issuing debentures. The Board of Directors have some queries. Please advise them on the following:

a) Can the company issue unsecured debentures?
Answer: No, Only private ltd company can issue unsecured debentures and not a public limited company.

b) Can they issue irredeemable debentures?
Answer: No, A company cannot issue irredeemable debentures as such debentures are not giving undertaking to repay.

c) As the company is offering debentures to its members, can such debentures have normal voting rights?
Answer: Debenture holders are the creditors of the company, therefore they do not have normal voting rights.

(3) DDS financial plans to raise Rs 10 crores by issuing secured, Non-convertible debentures. However, as per the Articles of Association, the board of directors have authority only to raise upto 5 crores. They are also considering whether to go for private placement or make public offer. Please advise them on the following:

a) What can be the maximum tenure of the debentures to be issued?
Answer: The debentures can be issued for maximum tenure of 10 years.

b) Is the proposed issue within the borrowing powers of the board?
Answer: No, The proposed issue is not within the borrowing powers of the board, because articles of association permits only upto Rs 5 Crore.

c) Within what period should company issue Debenture certificate?
Answer: They must issue a share certificate within 6 months of allotment of debentures.

Q.4 Answer in brief.

1. State any four provisions of Companies Act 2013 for issue of debentures.

Answer: The following are some of the provisions of the Act which a company has to comply while issuing debentures:

1) No voting rights:

A company cannot issue debentures with voting rights. Debenture holders are creditors of the company and so they do not have any voting rights except in matters affecting them.

2) Types of Debentures:

A company can issue secured or unsecured debentures and fully or partly convertible debentures or non-convertible debentures. To issue convertible debentures, a Special Resolution has to be passed in the General Meeting. All debentures are redeemable in nature.

3) Payment of interest and redemption:

A company shall redeem the debentures and pay interest as per the terms and conditions of their issue.

4) Debenture Certificate:

Company has to issue Debenture certificate to the debenture holders within 6 months of allotment of Debentures.

5) Create Debenture Redemption Reserve:

The company has to create a Debenture Redemption Reserve account out of profits of the company available for payment of dividend. This money can be used only for redemption of debentures. As per companies (Share Capital and Debentures) Amendment Rules 2019, MCA has removed Debenture Redemption Reserve requirement for Listed companies, NBFCs, and Housing Finance Companies.

6) Appoint of Debenture Trustees:

If the company issues prospectus or invites more than 500 people, (either to Public or its Member) company has to appoint one or more Debenture Trustees. Debenture trustees protect the interest of the debenture holders. Company has to appoint trustees by entering into a contract with them called as Debenture Trust Deed.

7) Debentures Trustees can approach NCLT:

Debenture Trustees have to redress the grievances of debenture holders. If the company defaults in repaying the principal amount, on maturity or defaults in paying interest thereon, the Debenture Trustees can approach the National Company Law Tribunal for redressal. NCLT can direct a defaulting company to repay the principal amount or interest.

8) Impose restrictions:

When the Debenture Trustee is of the opinion that the assets of the company are insufficient or likely to become insufficient to redeem the principal amount of debentures, it may approach the NCLT.

9) Punishment for contravention of provisions of the Companies Act:

If the company fails to comply with any provisions of the Act, then the company and its officers shall be liable to pay a fine or imprisonment or both as prescribed in the Act.

2. What is debenture trust deed?

Answer:
a) Company enters into a contract with one or more Debenture Trustees.
b) The terms and conditions of the agreement is written in the Debenture Trust Deed.
c) It is a legal instrument conveying the assets of a company to the Trustees.
d) The Deed also defines the rights of debenture holders and the duties and powers of Debenture Trustees.
e) Company has to execute the Deed within 3 months of closure of the issue.
f) Members as well as debenture holders can inspect the deed and also get a copy of it by paying a certain fee.

3. Who are debenture trustees?

Answer:
a) Debentures Trustees are institutions that protect the interest of the debenture holders.

b) A company that issues prospectuses or invites more than 500 persons to buy its debentures has to appoint one or more Debenture Trustees.

c) Companies issuing secured debentures also must appoint Debentures Trustees.

d) The company creates a charge on its movable or immovable assets or assets of its subsidiary company or holding company.

e) Charge is created in favour of the Debenture Trustees. The Trustees become the custodian of the assets on which charge has been created.

f) Debenture Trustees is appointed before prospectus or letter of offer/offer letter is issued or within 60 days after the allotment of debenture.

g) The Trustees must give written consent to act as Debenture Trustees. The prospectus or letter of offer/offer letter must mention the names of Debenture Trustees.

Balbharti Textbook Solutions for other subjects
Solution of all Chapters of SP
1 – 2 – 3 – 4 – 5 – 6 – 7 – 8 – 9 – 10 – 11 – 12

Q.5 Justify the following statements.

1. A company has to create charge on its assets for issuing secured debentures.
Answer:
a) A company has to create charge on its assets for issuing secured debentures that can be justified by following points.
b) Company has to create a charge on the assets of the company or its subsidiary company or holding company.
c) The value of charge should be adequate to cover the entire value of debentures issued and interest to be paid on it.
d) If a Government company issues secured debentures which has Central or State Government’s guarantee,
then it need not create any charge on its assets.

2. Debenture trustees is appointed by a company issuing debentures.
Answer:
a) Debentures Trustees are institutions that protect the interest of the debenture holders.
b) The company creates a charge on its movable or immovable assets or assets of its subsidiary company
or holding company.
c) Charge is created in favour of the Debenture Trustees. The Trustees become the custodian of the assets on which charge has been created.
d) A company that issues prospectuses or invites more than 500 persons to buy its debentures
has to appoint one or more Debenture Trustees.
Thus, it is rightly justified that, Debenture trustees is appointed by a company issuing debentures

3. A company can issue only certain types of debentures.
Answer:
a) Companies can issue secured or unsecured debentures, Non-convertible Debentures or convertible debentures either fully or partially convertible or redeemable debentures
b) Debentures can be listed on stock exchanges.
c) The board of directors have the authority to issue debenture. All debentures are redeemable i.e, have to be repaid.
d) Company can issue debentures to its members, public or make private placement.
e) Thus it is rightly justified that, A company can issue only certain types of debentures.

Q.6 Answer the following questions.

1) Briefly explain the provisions of Companies Act, 2013 for issue of debentures.
Answer: For answer refer to Q.No 4 (1) .

2. Explain briefly the procedure for issue of debentures.

Answer: The following is the procedure to be followed by a company issuing debentures

1) Pass resolution in Board Meeting:

In the Board Meeting following resolution will have to be passed :
i) amount and type of debentures to be issued and the terms and conditions for issue.
ii) approve prospectus or offer letter or letter of offer.
iii) approve appointment of Debenture Trustees and get their written consent.
iv) authorize Board to create charge on assets of the company.
v) call Extra-ordinary General Meeting if the Board’s borrowing powers need to be increased.
vi) authorizes Board to open a separate bank account for receiving money from applicants.

2) Hold Extra-ordinary General Meeting (EGM):

If the borrowing powers of the Board are to be increased, EGM must be held to get the shareholders’ approval through a Special Resolution.

3) Filing with Registrar of Companies:

Secretary has to file the Special resolution and copy of Prospectus, offer letter / Letter of offer with Registrar of Companies within 30 days of Board Meeting.

4) Obtain Credit Rating:

The company gets its debentures rated by one or more Credit Rating Agencies. The ratings must be mentioned in the prospectus/offer letter/Letter of offer.

5) Enter into underwriting agreement:

The company enters into an underwriting agreement for underwriting its debenture issue.

6) Issue prospectus/letter of offer/offer letter:

The company issues prospectus if it is inviting the public to buy its debentures. Offer Letter is issued if a company makes private placement and Letter of offer for Rights Issue.

7) Open Separate Bank Account:

The company opens a separate bank account in a scheduled Bank to receive the money from the applicants.

8) Receiving application money:

Subscribers will submit their application along with the required amount to the specified bank within the time period mentioned in the prospectus or letter of offer / Offer Letter.

9) Hold Board Meeting:

After the issue closes, a Board Meeting is held to decide and approve allotment of debentures. The board also approves creation of charges on the company’s assets.

10) Issue of Debenture certificate:

The allotment procedure has to be completed within 60 days from the receipt of application money. Company has to issue Debenture certificate within 6 months of allotment of debentures.

11) Make entries in Register of Debenture holders:

The Secretary must make entries in the Register of Debenture holders within 7 days after the Board approves allotment. However, if debentures are issued in demat form, company does not maintain the Register of Debenture holders.

Balbharti Textbook Solutions for other subjects
Solution of all Chapters of SP
1 – 2 – 3 – 4 – 5 – 6 – 7 – 8 – 9 – 10 – 11 – 12

12th Commerce SP Textbook Solution

Chapter Name	Solution Link
1) Introduction to Corporate Finance	Click Here
2) Sources of Corporate Finance	Click Here
3) Issue of Shares	Click Here
4) Issue of Debentures	Click Here
5) Deposits	Click Here
6) Correspondence with Members	Click Here
7) Correspondence with Debentureholders	Click Here
8) Correspondence with Depositors	Click Here
9) Depository System	Click Here
10) Dividend Interest	Click Here
11) Financial Market	Click Here
12) Stock Exchange	Click Here

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