Debenture


  • The term debenture may be defined as a certificate of loan issued by a company which creates an indebtedness of the company. The companies have to borrow the money for their extension or developments.
  • The companies’ loan requirement may not be met by a single money lender. The loan may have to be split into several units. The most usual form of borrowing loan by a company is issue of debenture. The public is invited to lend money for a fix period at a declared rate of interest to be paid on such money.
  • Debenture is a credit obtained by company.
  • Debenture certificate is the special document of proving the loan of company.
  • Debenture is one of the ways of capital formation of a company.
  • C.B. Gower has defined debenture as; debenture is a name applied to a certain types of document evidencing an indebtedness which is normally charged, but not necessarily, secured by a charge over property (Davis Paul L, Gower’s Principle of Modern Company Law 4th edition.)
  • “Debenture is a document given by a company as an evidence of debt to the holder arising out of loan and most commonly secured by a charge’’. Tophan, Topham’s Company Law 13th  P. 168
  • Debenture itself is not a loan but it is an evidence to secure the loan.
  • Section 2( s )of the Companies Act has defined debenture as ‘’ any bond issued by a company whether putting its assets as collateral or not’’.
  • The term relating to debenture “debenture trustee ‘’ has been defined in section 2 (t) as a body corporate undertaking the responsibility for the protection of interest of debenture holders at the time of issuance of debentures by a company.’’
  • Procedures of issuing debenture have been clearly mentioned in section 35 of the Companies Act of Nepal.
  • Debenture may be converted in to share ( section 35 (4))

Types of debenture

  • Redeemable debenture; There is a fixed time frame for redeemable debenture. After expiration of a certain time frame company will pay back the loan amount and the debenture will be redeemed.
  • Irredeemable or perpetual debenture; There is no already fixed time frame to pay the loan amount. This may be for a long period. The loan amount may be repaid only on any contingency event.
  • Registered Debenture; There are the debentures which are registered in the name of a particular person and are payable to him. The name of registered holder is placed on the debenture certificate and the company’s register of debentures.
  • Bearer Debenture; these are the debentures which are payable to the bearer (the holder of debenture).
  • Convertible and nonconvertible debenture; Convertible in to shares and nonconvertible in to shares.