An overview on process to issue debenture by PVT LTD company in India

1. Debentures – issue procedure
1. Procedure to issue Debenture by Private Company
a) Company needs to appoint Debenture trustees and create debenture trust.
b) Board of directors needs to pass resolution to issue debenture under section 292(1)(d) of
companies Act.
c) Company needs to make draft trust deed and same needs to be approved by Board of
directors.
d) Company needs to issue letter of offer to targeted buyers. The draft letter of offer requires
to be approved by the Board of Directors. The conditions relating to the payment for
subscription, the Security, the rate of interest on the Debentures and the period by which
the Debentures would be redeemed would have to be specified in offer letter.
e) On receipt of the application from the person(s) subscribing for the Debentures, the Board
needs to make the allotment of debenture certificates to subscribers of debenture.
f) Company needs to create debenture redemption reserve account and company needs to
transfer adequate amount from profits of every year till redemption of the debentures. Such
amount would be utilized by company for payment of debenture amount.
2. Period of Debenture:
Minimum and Maximum period for maturity of debenture has not been prescribed under
Companies Act.
3. Interest rate on debenture:
For debentures issued to Indian resident, minimum and maximum interest rate on debenture
has not been prescribed under Companies Act.
4. Stamp duty on debenture certificate:
Stamp duty as prescribed under stamp duty Act required to be paid by company on value of
debenture certificates.
5. Debenture trust: Debenture trust would hold property which is provided as security for
debenture.
6. Debenture trustee:
Company needs to appoint one or more debenture trustees before issuing the prospectus or
letter of offer and to obtain their consent which shall be mentioned in the offer document. The
Debenture Trustees shall not:

2. a) beneficially hold shares in a company.
b) be beneficially entitled to monies which are to be paid by the company to the debenture
trustees.
c) enter into any guarantee in respect of principal debt secured by the debentures or interest
thereon.
Responsibilities of debenture trustees:
a) To ensure that the assets of the company issuing debentures and each of the guarantors are
sufficient to discharge the principal amount at all times.
b) To satisfy that the prospectus or the letter of offer does not contain any matter which is
inconsistent with the terms of debentures or with the trust deed.
c) To ensure that the company does not commit any breach of covenants and provisions of the
trust deed.
d) To take such reasonable steps to remedy any breach of the covenants of the trust deed or
the terms of issue of the debentures.
e) To take steps to call a meeting of holders of debentures as and when such meeting is
required to be held.
7. Types of Debenture:
8. Equitable Mortgage in case of secured debenture:
The security would be created by way of Equitable Mortgage by way of deposit of title deeds of
the immovable property of the Company. The deposit is required to make with the Trustees.
The procedure relating to this is as follows:
 The Board should authorize either of the Directors / Officer of the Company to Deposit the
Title Deeds with the Trustees.
 The person so authorized to call on the Trustee and Deposit the same.
 The person so authorized should also convey the intention of the Company to create an
Equitable Mortgage to the Trustee and instruct him to hold the Title Deeds till the time the
debentures are redeemed in full.

3.  This consent is usually ORAL, and there would be no documentary proof for the same, for
having deposited it.
 Once the title deeds are deposited, the person so authorized should write to the Trustee so
as to confirm the Deposit of Title Deeds by way of a letter.
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