“Debenture” includes debenture stock, bonds or any other instrument of a company evidencing a debt, whether constituting a charge on the assets of the company or not. A commercial definition of the debenture is an acknowledgement of a debt in writing, given under the seal of the company, containing a contract for the repayment of the principal sum at a specified date and for the payment of interest (usually half yearly) at a fixed rate until the principal sum is repaid. It may or may not give a charge on the assets of the company as a security for the loan. A debenture like a share is also a movable property transferable in the manner provided in the Articles of the company.
Requirement
The long-term requirements of capital are raised by any company primarily through issue of shares and debentures. While the shareholders are essentially the owners of the enterprise, those who buy debentures are creditors for long-term funds and do not enjoy voting rights. In brief all securities other than shares issued by a company will come under the term debentures.
According to the guidelines issued by the Controller of Capital Issues, the objects of the issue can be among other things:
1. Setting up of new projects;
2. Expansion or diversification of existing projects;
3. Normal capital expenditure for modernization;
4. To augment long-term resources of the company for working capital requirements;
5. Merger /Amalgamation of companies in pursuance of schemes approved by banks, financial institutions and/or any legal authority;
