DEBENTURES

Sec 2(12) of the Companies Act defines "Debenture includes debenture stock, bonds and any other securities of a company whether constituting a charge on the assets of the company". Debenture is an evidencing document i.e., long-term promissory note.
Unique Features of the Debentures
Debentures are issued on indebtedness
It is an instrument which indicates the time/date schedule of repayment of principal
or interest
The Charge is created on the assets of the company ; to protect the interest of
lenders. If any default arises - the due amount of either principal or interest will be
claimed through direct or debenture trustees action for the realization assets in
order to secure the debt
Debentures are classified on the following basis:
On the basis of security
On the basis of holding
On the basis of redemption
On the basis of convertibility
On the basis of Security: Under this type the debentures are further classified into two categories viz secured and unsecured debentures:
Secured/Naked Debentures: There is no charge on the assets of the company which means that there is no claim on the company at the moment of default. These debentures are normally issued by the company through their well built good will during the past.
Secured or Mortgage Debenture: The type of the debentures bearing the security through the creation of charge either whole or part of the assets of the company are known as secured or mortgage debentures. These types of debentures warrant registration and finally immediately after the registration process the title deeds should be deposited under the custody of the lender.
On the basis of holding: These types of debentures are further divided into two categories
viz Bearer and Registered Debentures.
Fully Convertible Debentures
This type of debentures are fully converted into Equity shares with premium or without
premium. The Conversion is normally takes after expiry of the period. The conversion is
optional purely left with the discretion of the debentureholders which normally ranges in
between 18 and 36 months. The interest periodical is payable till the process of conversion
is over.
Non Convertible Debentures: This type of debentures never carry any option of
conversion to avail the equity shares of the company immediately after conversion. In
other words, these debentures are denial of option of conversion.
Partly Convertible Debentures: Under this category, there are Two parts involved, one
part is meant for conversion; second part is non convertible portion:

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