# Debenture, Charge, ESOPs, GDR & Prospectus — Instruments and Documents

## 1. Debenture [Sec 2(30)]

Inclusive definition. Covers:

Debenture stock
Bonds
Any other instrument of a company evidencing a debt
Whether or not constituting a charge on the company's assets.

> Wider than the everyday meaning — even an unsecured bond is a 'debenture'. Detailed provisions appear in Sec 71.

## 2. Charge [Sec 2(16)]

> An interest or lien created on the property or assets of a company, or any of its undertakings, or both, as security — and includes a mortgage.

Two flavours:

Fixed charge — on identified assets (e.g., a specific building).
Floating charge — on a class of assets fluctuating in nature (e.g., stock-in-trade).

## 3. Employees Stock Option (ESOP) [Sec 2(37)]

An option given to directors / officers / employees of:

the company,
its holding company, or
its subsidiary company(ies),

…which gives them the benefit or right to purchase / subscribe for shares of the company at a future date at a pre-determined price.

> Key ingredients: granted to D/O/E, future date, pre-determined price.

## 4. Global Depository Receipt (GDR) [Sec 2(44)]

Any instrument in the form of a depository receipt, by whatever name called:

Created by a foreign depository outside India; AND
Authorised by a company making an issue of such depository receipts.

> GDRs let an Indian company tap foreign capital markets — the underlying shares stay in India, but tradable receipts are issued abroad.

## 5. Prospectus [Sec 2(70)]

> Any document described or issued as a prospectus — including:

Red Herring Prospectus (RHP)
Shelf Prospectus
Any notice, circular, advertisement or other document inviting offers from the public for the subscription or purchase of any securities of a body corporate.

### Two essential ingredients

1. Invitation to the public; AND

2. To subscribe / purchase securities of a body corporate.

> A document sent to a closed group of identified investors (private placement) generally is not a prospectus, but a document expressly described as 'prospectus' is one.

Worked example

### Example 1

Q: ABC Ltd issues 8% unsecured bonds with no charge on assets. Is the bond a 'debenture' under Sec 2(30)?

A: Yes. The inclusive definition covers any instrument evidencing a debt — secured or unsecured.

### Example 2

Q: Mr. R is an employee of S Ltd, a subsidiary of P Ltd. P Ltd grants Mr. R an option to buy P's shares at ₹100 after 3 years. Is this an ESOP under Sec 2(37)?

A: Yes. Options granted to employees of subsidiary/holding are covered.

### Example 3

Q: A company issues a 'Red Herring Prospectus' before the final IPO offer. Is it a prospectus?

A: Yes. Sec 2(70) expressly includes RHP within the meaning of prospectus.

⚠️ Common exam mistakes

Saying a debenture must be secured — the definition covers both secured and unsecured.
Restricting ESOPs to employees of the issuer company alone — holding & subsidiary employees are also covered.
Treating GDR and ADR as defined separately — only GDR is defined here.
Excluding RHP / Shelf Prospectus from 'prospectus' — both are within Sec 2(70).

Bare-Act text Section 2(16), 2(30), 2(37), 2(44), 2(70) · Companies Act, 2013 · click to expand

Sec 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. Sec 2(16): 'Charge' means an interest or lien created on the property or assets of a company or any of its undertakings or both as security and includes a mortgage. Sec 2(37): 'Employees' stock option' means the option given to the directors, officers or employees of a company or of its holding company or subsidiary company or companies, if any, which gives such directors, officers or employees, the benefit or right to purchase, or to subscribe for, the shares of the company at a future date at a pre-determined price. Sec 2(44): 'Global Depository Receipt' means any instrument in the form of a depository receipt, by whatever name called, created by a foreign depository outside India and authorised by a company making an issue of such depository receipts. Sec 2(70): 'Prospectus' means any document described or issued as a prospectus and includes a red herring prospectus referred to in section 32 or shelf prospectus referred to in section 31 or any notice, circular, advertisement or other document inviting offers from the public for the subscription or purchase of any securities of a body corporate.

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Securities: Debenture, Charge, ESOPs, GDR & Prospectus

Worked example

⚠️ Common exam mistakes