As per Section 71 of the Companies Act, 2013, a company can issue debentures with an option to convert such debentures into shares, either wholly or partly at the time of redemption.

Provided that the issue of debentures with an option to convert such debentures into shares shall be approved by a special resolution passed by the shareholders in a duly convened general meeting of the company.

As per section 23 of Companies Act, 2013, the provisions of the companies act regarding issue of shares to the public by prospectus would also Mutatis Mutandis apply to the issue of debentures by prospectus

 

a Private Company can issue bonds/debenture under the Companies Act 2013. There are regulations with respect to maintain asset cover, credit score rating, debenture redemption reserve, hold liquid assets for current maturities, etc.

A Private Company can do private placement and also listing the same in BSE or NSE under the debt segment after complying with the SEBI (Listing Obligations and Disclosure Requirements) Regulations, 2015.

 

PROCEDURE FOR ISSUE OF DEBENTURE ON PRIVATE PLACEMENT BASIS

Step 1: – Calling a Board Meeting and pass resolutions for Approval of the following:

• to issue debentures and decide its type whether secured or unsecured and terms & conditions thereof
• Offer letter for private placement in Form No. PAS – 4 and Application Forms/Debenture Subscription agreement
• Approval of Form No. PAS – 5 (record of a private placement offer)
• Written consent of a Debenture Trustee and appointment thereof (In case of secured debenture)
• Approval of Debenture Trustee Agreement (In case of secured debenture)
• To authorize for creation of charge on the assets of the company (In case of secured debenture)
• To fix day, date and time for the extraordinary general meeting of shareholders in case of increase in the Borrowing power of the Board of Director by passing Special Resolution in terms of Section 180(1)(c).
• Authorizing the Board of Directors to open a separate bank account for the proposed issue as per section 42.

 

Step 2:-Issuing notices to the shareholders for Extra-Ordinary General Meeting of the Company and that must contain an explanatory statement bearing the particulars of offer, date of passing board resolution, kinds of securities offered and its price, basis or justification for the price, name and address of valuer who performed valuation, amount which the company intends to raise, material terms of raising such securities, proposed time schedule, purpose or objects of offer, contribution being made by the promotes or directors.

Step 3:-Pass a Special Resolution in the Shareholders meeting for Private Placement of Debenture and For Increasing borrowing limit for issuance of Debenture.

Step 4:- Filing of e-form MGT-14 along with offer letter, Valuation Report and CTC of Special Resolution along with the explanatory statement appended with the Notice of the EGM.

Step-5:- Send Offer Letters in form PAS-4 to identified persons within 30 days of recording the names of the identified persons and value of the share will be as per the valuation report of a Registered Valuer as provided under Section 247 of Companies Act, 2013.

Step-6:- Open Separate Bank Account and receive application money within the offer period as per the offer letter.

Step 7: Hold Board meeting after closure of the offer period and pass Resolution for following

• Allotment of Debenture to the entitled subscribers.
• Issue of Debenture Certificate
• Debenture Deed (SH-12)
• Creation of DRR
• Creation of charge on asset if required

 

Step 8:- File e-form PAS-3 “Return of Allotment” within 15 days from passing Board Resolution for allotment.

Step 9:- Issuance of share certificate as per section 56(4) to the allottees within 6 months of allotment.

Form PAS-5

(Section 42(7) and Rule 14(3) of Companies (Prospectus and Allotment of Securities) Rules, 2014)

Record of a private placement offer to be kept by the company

 

Form PAS-5

(Section 42(7) and Rule 14(3) of Companies (Prospectus and Allotment of Securities) Rules, 2014)

Record of a private placement offer to be kept by the company

 

Name of the Company:

 

Registered office of the Company:

 

CIN:

 

DETAILS OF PRIVATE PLACEMENT OFFER :

 

Date when approval of the relevant authority (board or the shareholders, as the case may be) obtained for the current Private Placement Offer Letter :

Amount of the offer:

Date of circulation of private placement offer letter:

Following details (in a tabulate statement) of the persons to whom private placement offer letter has been circulated :-

1. Name
2. Father’s name
3. Complete Address including Flat/House Number, Street, Locality, Pin Code
4. Phone number, if any
5. email ID, if any
6. Initial of the Officer of the company designated to keep the Record

Public offer and private placement

23. Public offer and private placement.— 

(1) A public company may issue securities— 

(a) to public through prospectus (herein referred to as "public offer") by complying with the provisions of this Part; or 

(b) through private placement by complying with the provisions of Part II of this Chapter; or 

(c) through a rights issue or a bonus issue in accordance with the provisions of this Act and in case of a listed company or a company which intends to get its securities listed also with the provisions of the Securities and Exchange Board of India Act, 1992 (15 of 1992) and the rules and regulations made thereunder. 

 

(2) A private company may issue securities— 

(a) by way of rights issue or bonus issue in accordance with the provisions of this Act; or 

(b) through private placement by complying with the provisions of Part II of this Chapter. 

Explanation.—For the purposes of this Chapter, "public offer" includes initial public offer or further public offer of securities to the public by a company, or an offer for sale of securities to the public by an existing shareholder, through issue of a prospectus.

 

42. Offer or invitation for subscription of securities on private placement.—

(1) Without prejudice to the provisions of section 26, a company may, subject to the provisions of this section, make private placement through issue of a private placement offer letter. 

 

(2) Subject to sub-section (1), the offer of securities or invitation to subscribe securities, shall be made to such number of persons not exceeding fifty or such higher number as may be prescribed, [excluding qualified institutional buyers and employees of the company being offered securities under a scheme of employees stock option as per provisions of clause (b) of sub-section (1) of section 62], in a financial year and on such conditions (including the form and manner of private placement) as may be prescribed. 

Explanation I.—If a company, listed or unlisted, makes an offer to allot or invites subscription, or allots, or enters into an agreement to allot, securities to more than the prescribed number of persons, whether the payment for the securities has been received or not or whether the company intends to list its securities or not on any recognised stock exchange in or outside India, the same shall be deemed to be an offer to the public and shall accordingly be governed by the provisions of Part I of this Chapter. 

Explanation II.—For the purposes of this section, the expression— 

 

(i) "qualified institutional buyer‘‘ means the qualified institutional buyer as defined in the Securities and Exchange Board of India (Issue of Capital and Disclosure Requirements) Regulations, 2009 as amended from time to time. 

(ii) "private placement" means any offer of securities or invitation to subscribe securities to a select group of persons by a company (other than by way of public offer) through issue of a private placement offer letter and which satisfies the conditions specified in this section. 

 

(3) No fresh offer or invitation under this section shall be made unless the allotments with respect to any offer or invitation made earlier have been completed or that offer or invitation has been withdrawn or abandoned by the company. 

 

(4) Any offer or invitation not in compliance with the provisions of this section shall be treated as a public offer and all provisions of this Act, and the Securities Contracts (Regulation) Act, 1956 (42 of 1956) and the Securities and Exchange Board of India Act, 1992 (15 of 1992) shall be required to be complied with. 

 

(5) All monies payable towards subscription of securities under this section shall be paid through cheque or demand draft or other banking channels but not by cash. 

 

(6) A company making an offer or invitation under this section shall allot its securities within sixty days from the date of receipt of the application money for such securities and if the company is not able to allot the securities within that period, it shall repay the application money to the subscribers within fifteen days from the date of completion of sixty days and if the company fails to repay the application money within the aforesaid period, it shall be liable to repay that money with interest at the rate of twelve per cent. per annum from the expiry of the sixtieth day:

Provided that monies received on application under this section shall be kept in a separate bank account in a scheduled bank and shall not be utilised for any purpose other than— 

(a) for adjustment against allotment of securities; or 

(b) for the repayment of monies where the company is unable to allot securities. 

 

(7) All offers covered under this section shall be made only to such persons whose names are recorded by the company prior to the invitation to subscribe, and that such persons shall receive the offer by name, and that a complete record of such offers shall be kept by the company in such manner as may be prescribed and complete information about such offer shall be filed with the Registrar within a period of thirty days of circulation of relevant private placement offer letter. 

 

(8) No company offering securities under this section shall release any public advertisements or utilise any media, marketing or distribution channels or agents to inform the public at large about such an offer. 

 

(9) Whenever a company makes any allotment of securities under this section, it shall file with the Registrar a return of allotment in such manner as may be prescribed, including the complete list of all security-holders, with their full names, addresses, number of securities allotted and such other relevant information as may be prescribed. 

 

(10) If a company makes an offer or accepts monies in contravention of this section, the company, its promoters and directors shall be liable for a penalty which may extend to the amount involved in the offer or invitation or two crore rupees, whichever is higher, and the company shall also refund all monies to subscribers within a period of thirty days of the order imposing the penalty.

 

56. Transfer and transmission of securities.—

 

(4) Every company shall, unless prohibited by any provision of law or any order of Court, Tribunal or other authority, deliver the certificates of all securities allotted, transferred or transmitted— 

(a) within a period of two months from the date of incorporation, in the case of subscribers to the memorandum; 

(b) within a period of two months from the date of allotment, in the case of any allotment of any of its shares; 

(c) within a period of one month from the date of receipt by the company of the instrument of transfer under sub-section

 (1) or, as the case may be, of the intimation of transmission under sub-section 

(2), in the case of a transfer or transmission of securities; 

(d) within a period of six months from the date of allotment in the case of any allotment of debenture: 

Provided that where the securities are dealt with in a depository, the company shall intimate the details of allotment of securities to depository immediately on allotment of such securities.

 

71. Debentures.—

(1) A company may issue debentures with an option to convert such debentures into shares, either wholly or partly at the time of redemption: 

Provided that the issue of debentures with an option to convert such debentures into shares, wholly or partly, shall be approved by a special resolution passed at a general meeting. 

 

(2) No company shall issue any debentures carrying any voting rights. 

 

(3) Secured debentures may be issued by a company subject to such terms and conditions as may be prescribed. 

 

(4) Where debentures are issued by a company under this section, the 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 utilised by the company except for the redemption of debentures. 

 

(5) No company shall issue a prospectus or make an offer or invitation to the public or to its members exceeding five hundred for the subscription of its debentures, unless the company has, before such issue or offer, appointed one or more debenture trustees and the conditions governing the appointment of such trustees shall be such as may be prescribed. 

 

(6) A debenture trustee shall take steps to protect the interests of the debenture-holders and redress their grievances in accordance with such rules as may be prescribed. 

 

(7) Any provision contained in a trust deed for securing the issue of debentures, or in any contract with the debenture-holders secured by a trust deed, shall be void in so far as it would have the effect of exempting a trustee thereof from, or indemnifying him against, any liability for breach of trust, where he fails to show the degree of care and due diligence required of him as a trustee, having regard to the provisions of the trust deed conferring on him any power, authority or discretion: 

Provided that the liability of the debenture trustee shall be subject to such exemptions as may be agreed upon by a majority of debenture-holders holding not less than three-fourths in value of the total debentures at a meeting held for the purpose. 

 

(8) A company shall pay interest and redeem the debentures in accordance with the terms and conditions of their issue. 

 

(9) Where at any time the debenture trustee comes to a conclusion that the assets of the company are insufficient or are likely to become insufficient to discharge the principal amount as and when it becomes due, the debenture trustee may file a petition before the Tribunal and the Tribunal may, after hearing the company and any other person interested in the matter, by order, impose such restrictions on the incurring of any further liabilities by the company as the Tribunal may consider necessary in the interests of the debenture-holders. 

 

(10) Where a company fails to redeem the debentures on the date of their maturity or fails to pay interest on the debentures when it is due, the Tribunal may, on the application of any or all of the debenture-holders, or debenture trustee and, after hearing the parties concerned, direct, by order, the company to redeem the debentures forthwith on payment of principal and interest due thereon. 

 

(11) If any default is made in complying with the order of the Tribunal under this section, every officer of the company who is in default shall be punishable with imprisonment for a term which may extend to three years or with fine which shall not be less than two lakh rupees but which may extend to five lakh rupees, or with both. 

 

(12) A contract with the company to take up and pay for any debentures of the company may be enforced by a decree for specific performance. 

 

(13) The Central Government may prescribe the procedure, for securing the issue of debentures, the form of debenture trust deed, the procedure for the debenture-holders to inspect the trust deed and to obtain copies thereof, quantum of debenture redemption reserve required to be created and such other matters.

 

180. Restriction on powers of Board.— 

(1) The Board of Directors of a company shall exercise the following powers only with the consent of the company by a special resolution, namely:—

(c) to borrow money, where the money to be borrowed, together with the money already borrowed by the company will exceed aggregate of its paid-up share capital and free reserves, apart from temporary loans obtained from the company‘s bankers in the ordinary course of business: 

Provided that the acceptance by a banking company, in the ordinary course of its business, of deposits of money from the public, repayable on demand or otherwise, and withdrawable by cheque, draft, order or otherwise, shall not be deemed to be a borrowing of monies by the banking company within the meaning of this clause. 

Explanation.—For the purposes of this clause, the expression ?temporary loans? means loans repayable on demand or within six months from the date of the loan such as short-term, cash credit arrangements, the discounting of bills and the issue of other short-term loans of a seasonal character, but does not include loans raised for the purpose of financial expenditure of a capital nature;

 

247. Valuation by registered valuers.— 

(1) Where a valuation is required to be made in respect of any property, stocks, shares, debentures, securities or goodwill or any other assets (herein referred to as the assets) or net worth of a company or its liabilities under the provision of this Act, it shall be valued by a person having such qualifications and experience and registered as a valuer in such manner, on such terms and conditions as may be prescribed and appointed by the audit committee or in its absence by the Board of Directors of that company. 

 

(2) The valuer appointed under sub-section (1) shall,— 

(a) make an impartial, true and fair valuation of any assets which may be required to be valued; 

(b) exercise due diligence while performing the functions as valuer; 

(c) make the valuation in accordance with such rules as may be prescribed; and 

(d) not undertake valuation of any assets in which he has a direct or indirect interest or becomes so interested at any time during or after the valuation of assets. 

 

(3) If a valuer contravenes the provisions of this section or the rules made thereunder, the valuer shall be punishable with fine which shall not be less than twenty-five thousand rupees but which may extend to one lakh rupees: 

Provided that if the valuer has contravened such provisions with the intention to defraud the company or its members, he shall be punishable with imprisonment for a term which may extend to one year and with fine which shall not be less than one lakh rupees but which may extend to five lakh rupees. 

 

(4) Where a valuer has been convicted under sub-section (3), he shall be liable to— 

(i) refund the remuneration received by him to the company; and 

(ii) pay for damages to the company or to any other person for loss arising out of incorrect or misleading statements of particulars made in his report