Section 71 of the Companies Act, 2013
📘 Section 71 of the Companies Act, 2013 – Debentures
This section governs the issue, regulation, and redemption of debentures by companies.
🔹 Key Provisions of Section 71:
Issue of Debentures:
A company may issue debentures with or without the option to convert them into shares (either wholly or partly) at the time of redemption.
Such issue must be approved by a special resolution passed in a general meeting.
No Voting Rights:
Debentures cannot carry voting rights.
Secured Debentures:
Companies can issue secured debentures subject to compliance with conditions prescribed by the Central Government.
Debenture Redemption Reserve (DRR):
A company must create a Debenture Redemption Reserve (DRR) out of profits of the company available for payment of dividends.
DRR is used only for the purpose of redemption of debentures.
(Note: The requirement of DRR has been relaxed for certain classes of companies, like listed companies, as per later rules.)
Appointment of Debenture Trustee:
If a company offers debentures to more than 500 persons, it must appoint one or more debenture trustees before issuing the prospectus or offer letter.
Trustees must protect the interests of debenture holders and redress their grievances.
Debenture Trust Deed:
The company must execute a trust deed within 60 days of the allotment of debentures.
Default in Redemption:
If the company fails to redeem the debentures or pay interest when due:
Debenture holders or debenture trustee can apply to the Tribunal.
The Tribunal may direct the company to pay the due amount.
Punishment for Default:
Any willful default in complying with Tribunal orders can result in the company and its officers being punished under Section 447 (Fraud).
📝 In Summary:
Section 71 ensures that:
Debentures are issued transparently and responsibly,
Investors are protected via debenture trustees,
Defaults in payments are taken seriously.
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