# Debenture – Definition and Features

## 1. Statutory Definition [Section 2(30)]

Debenture includes:

Debenture stock,
Bonds, or
Any other instrument of a company evidencing a debt,

whether or not it constitutes a charge on the assets of the company.

## 2. Statutory Exclusions

The following are NOT debentures:

Excluded Instrument	Reference
Instruments referred to in Chapter III-D of the Reserve Bank of India Act, 1934	RBI Act
Such other instruments as may be prescribed by the Central Government in consultation with RBI	CG-prescribed

## 3. Key Features of a Debenture

#	Feature	Explanation
a	Unit of loan	A debenture is the smallest unit of a sizeable loan raised by the company.
b	Evidence	Applicants receive certificates representing the money lent.
c	Execution	Issued under common seal (if any), OR under signatures of two directors, or one director + company secretary (if appointed).
d	Interest	Company pays periodic interest until full redemption.
e	Rate	Generally pre-fixed at issue.
f	No voting rights	Section 71(2) – no debenture can carry voting rights.
g	Movable property	Section 44 – transferable as per the Articles.
h	Secured / Unsecured	If secured, a charge is created in favour of the debenture trustee.
i	Redemption	Lump-sum at maturity OR in instalments (yearly, bi-yearly etc.).
j	Convertibility	May be convertible (fully/partly) into equity at maturity at the holder's option.
k	Time-limit for certificate	Section 56(4)(d) – within 6 months from allotment, unless restrained by law/court/tribunal.

## 4. Why Issue Debentures?

Convenient way to raise large sums.
Debenture-holders do not influence ownership/management unless their interest is jeopardised by certain decisions.

## 5. Classification Map

```

DEBENTURES

----------------------------

| | |

Security Convertibility Redeemability

| | |

Secured / Convertible / Redeemable /

Unsecured Non-convertible Irredeemable

```

Convertible may be:

Mandatorily / Optionally
Fully / Partly

Worked example

### Example 1

Q. A company issues an instrument labelled 'Bond' carrying interest at 9% p.a. but without any charge on its assets. Is it a debenture under the Companies Act, 2013?

A. Yes. Section 2(30) expressly includes 'bonds' and 'any other instrument evidencing a debt', whether or not it constitutes a charge on assets. The absence of security does not take it out of the definition.

### Example 2

Q. ABC Ltd. issues debentures that carry voting rights at general meetings. Is this valid?

A. No. Section 71(2) prohibits issue of debentures carrying any voting rights. Such an issue would be illegal and void.

⚠️ Common exam mistakes

Believing a debenture must carry a charge on assets. Both secured AND unsecured (naked) debentures are debentures.
Confusing debentures with shares for voting purposes. Debentures NEVER carry voting rights [Section 71(2)].
Forgetting the time-limit: certificates must be delivered within 6 months of allotment under Section 56(4)(d).
Treating RBI Chapter III-D instruments as debentures. They are statutorily excluded from Section 2(30).

Bare-Act text Section 2(30) · The Companies Act, 2013 · click to expand

Section 2(30) – '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: Provided that – (a) the instruments referred to in Chapter III-D of the Reserve Bank of India Act, 1934; and (b) such other instrument, as may be prescribed by the Central Government in consultation with the Reserve Bank of India, issued by a company, shall not be treated as debenture.

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Debenture – Definition and Features [Section 2(30) & Section 71]

Worked example

⚠️ Common exam mistakes