(12.10.6) Debentures

The definition of 'debenture' as contained in s.2(12) does not explain the term. It reads, "Debenture includes debenture stock, bonds and any other securities of a company whether constituting a charge on the company's assets or not". The nature of debenture is thus not clear by this definition.

The term' debenture' simply means a document acknowledging a loan made to the company and providing for the payment of interest on the sum borrowed until the debenture is redeemed, i.e., the repayment of the principal sum. It may or may not be under seal and so does not necessarily imply that any charge is given on the company's assets, though such a charge usually exists.

Features of a debenture. The features of a debenture are as follows: 1. It is issued by the company and is in the form of a certificate of indebtedness. 2. It usually specifies the date of redemption. It also provides for the repayment of principal and interest at specified date or dates. 3. It generally creates a charge on the undertaking or undertakings of the company.

Usually the words 'pari passu' appear in the terms and conditions of debentures' This means all the debentures of a particular class will receive the money proportionately in case the company is unable to discharge the whole obligation. In the absence of this clause the debenture holders would rank in accordance with the rank of the issue and if issued on the same date then in the order of time when they were issued (which is known by the serial number of the debenture).