Kinds of Debentures

• Bearer debentures
• Registered debentures
• Perpetual or irredeemable debentures
• Redeemable debentures
• unsecured debentures
• Convertible debentures-fully convertible, non-convertible, partly convertible.

• Bearer Debentures: They are negotiable instruments transferable by delivery. Ensures good title to any person who acquires the debenture in good faith & for consideration, notwithstanding any defect in the title of the person from whom he acquires it. Interest is paid by means of attached coupons & on maturity the principal sum is paid to the bearers.
• Registered Debentures: Debentures that are payable to registered holders i.e, persons whose names appear in the register of debenture holders. Such debentures are transferable in the same way as shares or in accordance with conditions endorsed on their back. Debenture consists of two parts-covenants by the Co to pay the principal & interest, the term of the loan.
• Perpetual/irredeemable: debenture which contains no clause as to payment or which contains a clause that it shall not be paid back.  Though allowed u/s 120 of the CA1956, no corresponding provision has been made under the Act of 2013.  So now no irredeemable debentures can be issued by the Co.
• Redeemable Debentures: Debentures that can be redeemed as per the terms of the issue. S 71 & Rule 18 of the Co(share capital & debentures) Rules 2014, regulate the issue of such debentures. The issue of such debentures can be made provided the date of its redemption shall not exceed 10 years from the date of issue. However, the certain class of Co(Infrastructure Finance Co’s-) may issue secured debentures for a term exceeding 10 years but not exceeding 30 yrs.
• Unsecured Debentures: Debentures issued without any charge on the assets of the company. They are mere acknowledgments of a debt due from the Co, creating no rights beyond those of ordinary unsecured creditors. Unsecured debentures are treated as deposits & should conform to requirements applicable to public deposits accepted by a Co.

• Convertible 
• An option is given to debenture holders to convert them into equity or preference shares at stated rates of exchange after a certain period. u/s 71 a special resolution has to be passed by the Co. Such debentures once converted into shares cannot be reconverted into debentures. According to convertibility debentures are further classified into-fully convertible, nonconvertible & partly convertible debentures.

• Fully convertible
• those debentures that are converted into equity shares of the Co on the expiry of the specified period. Where conversion is made at or after 18 months from the date of allotment but before 36 months, the conversion is optional on the part of debenture holders in terms of SEBI guidelines. Non-convertible-those debentures that do not confer any option on the holder to convert debentures into equity shares & are redeemed at the expiry of a specified period. Partly convertible debentures-consists of two parts-convertible & non-convertible. Convertible portions are convertible into equity shares at the expiry of the specified period.

• Non-convertible
• portions are redeemed at the expiry of a certain period. Where the conversion takes place at or after 18 months, as per SEBI’s guidelines the conversion is optional at the discretion of the debenture holder

This Article Does Not Intend To Hurt The Sentiments Of Any Individual Community, Sect, Or Religion Etcetera. This Article Is Based Purely On The Authors Personal Views And Opinions In The Exercise Of The Fundamental Right Guaranteed Under Article 19(1)(A) And Other Related Laws Being Force In India, For The Time Being.