Debentures – An Analysis

INTRODUCTION

Debentures are one of the most popular and common forms of instruments by which a company can raise funds. In spite of that, there is a lot of confusion and many myths surrounding them. The interesting part is that several laws deal with debentures and this has added to the complexity. Dealing with all of them in detail, as well as the tax issues concerning debentures would be a mammoth exercise but let us understand some of the key regulatory aspects pertaining to debentures.

MEANING UNDER THE COMPANIES ACT

The Companies Act, 2013 (“the Act”) defines debentures in an inclusive manner as including debenture stock, bonds, or any other instrument of a company evidencing a debt, whether or not constituting a charge on the assets. Thus, the Act places bonds and debentures on the same footing. The word debt is not defined under the Act. A simple but clear definition of the word is found in Webb vs. Stenton [1883] 11 Q.B.D. 518, wherein it was defined as “……a debt is a sum of money which is now payable or will become payable in the future by reason of a present obligation, debitum in praesenti, solvendum in futuro.”. The Supreme Court in Kesoram Industries & Cotton Mills Ltd. vs. CIT, [1966] 59 ITR 767 (SC) has defined