Justify the following statement.

Question 14 Marks

A company can issue only certain types of debentures.

Answer

The debenture holders are the creditors of the company. They offered borrowed capital to the company but cannot participate in the management of the company.
Therefore, in order to protect the interest of debenture holders, SEBI, through its guidelines allowing companies to issue certain types of debentures in India.
Therefore, the companies operating in India can issue secured debentures, convertible debentures, redeemable debentures to the applicant.
It protects the interest of creditors in the company.
Thus, it is rightly said that a company can issue only certain types of debentures.

Question 24 Marks

Debenture trustees are appointed by a company issuing debentures.

Answer

Debenture trustees are appointed when the company issues a prospectus or invites more than 500 people.
They are appointed to protect the interest and redress the grievances of debenture holders.
Debenture trustees act as custodians of assets and create a charge on assets of the company on behalf of debenture holders.
In case, the company failed to redemption of a debenture or its interest, then debenture trustees by the order of NCLT can realize the assets and settle the dues.
Thus, it is rightly said that debenture trustees are appointed by the company for issuing debenture.

Question 34 Marks

A company has to create a charge on its asset for issuing secured debenture.

Answer

A debenture is a debt instrument, which helps the company to raise long-term loans.
A secured debenture is a debenture against which a charge has been created.
In case, if the company has failed to make redemption of debenture or interest, in that case by the order of NCLT, the charged asset can be realized by the company and dues can be settled.
Thus, it is rightly said that a company has to create a charge on its asset for issuing secured debenture.

Question 44 Marks

Members, as well as debenture holders, can inspect the debenture trust deed.

Answer

The company enters into the contract with the debenture trustees which is called as ‘Debenture Trust Deed”.
It is a legal instrument conveying the assets of a company of the trustees.
The deed includes the rights of debenture holders and the duties and powers of debenture trustees.
It contains terms and conditions agreed between the company and debenture trustee.
Thus, it is rightly said that members, as well as debenture holders, can inspect the debenture trust deed.

Question 54 Marks

Debenture Redemption Reserve Account is used for the redemption of debentures.

Answer

Debenture Redemption Reserve is created from the profits earned by the company.
The company has to maintain at least 25% of the value for the outstanding debentures in the DRR account.
Similarly, every year on or before 31st March, the company has to invest or deposit a sum of not less than 15% in the DRR account for the maturing debentures in the next year.
Thus, it is rightly said that Debenture Redemption Reserve Account is used for the redemption of debentures.

Question 64 Marks

Debenture holders do not enjoy any voting rights.

Answer

The company borrows a large amount of money by issuing debentures.
Debentures are considered to be the long-term loan that is repaid after a long period.
Debenture holders are the creditors of the company.
The company has to pay interest to the debenture holders even if the company makes a loss in the current year.
Thus, it is rightly said that debenture holders do not enjoy any voting rights.

Question 74 Marks

The company can list its debentures on Stock Exchange.

Answer

A company can issue secured as well as unsecured debentures.
Debentures are issued to the general public.
The company can issue debentures to its members through public offers or offer through private placement.
The company gets its debentures rate from one or more credit rating agencies which attract the general public or members of the company.
Thus, it is rightly said that a company can list its debentures on Stock Exchange.

Secretarial Practice Justify the following statement.