Debentures may be issued as secured or unsecured. The Companies Act and the Companies (Share Capital and Debentures) Rules, 2014 lay down specific conditions for secured debentures and the maximum tenure for which debentures may be issued.
## Conditions for Issue of Secured Debentures (Rule 18)
A company may issue secured debentures provided:
1. The issue is secured by a charge on movable or immovable assets (only tangible assets) of the company, OR on the assets of its subsidiary / holding company / associate company.
2. The charge is created in favour of the Debenture Trustee (DT).
3. The security provided must have a value sufficient to cover the principal amount and interest thereon.
Key point: Intangible assets cannot be used as security for debentures.
## Tenure of Debentures
General Rule: A company shall not issue secured debentures with a redemption period exceeding 10 years from the date of issue.
Exception: Tenure may extend up to 30 years in the case of:
Type of Company
Maximum Tenure
Companies engaged in setting up of Infrastructure Projects
30 years
Infrastructure Finance Companies
30 years
Infrastructure Debt Fund NBFCs
30 years
Such other companies as may be permitted by CG, RBI or NHB
30 years
Mnemonic Example: Companies like Lodha Developers (infra/real estate developers) may issue debentures with tenure up to 30 years.
Worked example
### Example 1
Example 1 — Maximum Tenure
Gamma Construction Ltd. (engaged in building highway infrastructure under PPP) proposes to issue secured debentures repayable after 25 years.
Answer: Valid. Companies engaged in infrastructure projects may issue secured debentures with tenure exceeding 10 years up to a maximum of 30 years. 25 years is within the permitted range.
### Example 2
Example 2 — Security on Intangibles
Tech Ltd., a software company, wishes to issue secured debentures using its trademark and goodwill as security.
Answer: Not permitted. The charge must be on tangible movable or immovable assets. Intangible assets such as goodwill or trademark do not satisfy Rule 18.
### Example 3
Example 3 — Insufficient Security
A company plans to issue secured debentures of ₹100 crores backed by assets valued at ₹70 crores.
Answer: Not permitted. Rule 18 requires the value of security to be sufficient to cover both principal and interest. Security of ₹70 crores is inadequate for a ₹100 crore issue plus interest.
⚠️ Common exam mistakes
Using intangible assets as security — only tangible assets qualify.
Allowing tenure beyond 10 years for ordinary (non-infrastructure) companies.
Forgetting that the charge must be created in favour of the Debenture Trustee, not directly in favour of the debenture holders.
Assuming the security need only cover the principal — it must cover principal AND interest.
Bare-Act text Rule 18 · Companies (Share Capital and Debentures) Rules, 2014 · click to expand
Rule 18 of the Companies (Share Capital and Debentures) Rules, 2014: (1) The company shall not issue secured debentures, unless it complies with the following conditions, namely:— (a) An issue of secured debentures may be made, provided the date of its redemption shall not exceed ten years from the date of issue. Provided that the following classes of companies may issue secured debentures for a period exceeding ten years but not exceeding thirty years: (i) Companies engaged in setting up of infrastructure projects; (ii) Infrastructure Finance Companies; (iii) Infrastructure Debt Fund Non-Banking Financial Companies; (iv) Companies permitted by a Ministry or Department of the Central Government or by RBI or by the National Housing Bank or by any other statutory authority to issue debentures for a period exceeding ten years; (b) such an issue of debentures shall be secured by the creation of a charge on the properties or assets of the company or its subsidiaries or its holding company or its associates companies, having a value which is sufficient for the due repayment of the amount of debentures and interest thereon; (d) the security for the debentures by way of a charge or mortgage shall be created in favour of the debenture trustee on— (i) any specific movable property of the company or its holding company or subsidiaries or associate companies or otherwise; (ii) any specific immovable property wherever situate, or any interest therein.