Question

Study the following case/situation and express your opinion.

DDS Financial plans to raise ₹10 crores by issuing Secured, Non-convertible debentures. However, as per the Articles of Association, the Board of Directors has the authority only to raise up to 5 crores. They are also considering whether to go for a private placement or make a public offer. Please advise them on the following:

1. What can be the maximum tenure of the debentures to be issued?
2. Is the proposed issue within the borrowing powers of the Board?
3. Within what period should the company issue a Debenture certificate?

Answer 1

1. The maximum tenure of the debentures to be issued is of 10 years. Only certain companies permitted by the Ministry of Corporate Affairs, Central Government, or RBI can issue debentures beyond a period of 10 years but not exceeding 30 years.
2. No. The proposed issue is not within the borrowing powers of the board. The board can use its borrowing power up to the limit permitted by the Articles of Associations permits only up to ₹ 5 crores. In case, the Board wants to increase its borrowing power, it has to get approval from shareholders by passing a special resolution in a general meeting.
3. A debenture certificate is a document issued by a company as evidence of debts to the holder. As per the Companies Act, 2013, the company has to issue a debenture certificate within 6 months of the allotment of debentures.