Balbharti Maharashtra State Board Class 12 Secretarial Practice Important Questions Chapter 4 Issue of Debentures Important Questions and Answers.
Maharashtra State Board 12th Secretarial Practice Important Questions Chapter 4 Issue of Debentures
1A. Select the correct answer from the options given below and rewrite the statements.
Question 1.
A company raises debt capital through the issue of ___________
(a) equity shares
(b) preference shares
(c) debentures
Answer:
(c) debenture
Question 2.
Debenture holder is ___________ of the company.
(a) Owner
(b) debtor
(c) creditor
Answer:
(c) creditor
Question 3.
Debenture holders get income in the form of ___________
(a) Dividend
(b) Interest
(c) Bonus
Answer:
(b) Interest
Question 4.
Power to issue debentures rests with ___________
(a) Chairman
(b) Secretary
(c) Board of Directors
Answer:
(c) Board of Directors
Question 5.
The word ‘Debenture’ is derived from the Latin word ___________
(a) Debere
(b) Debenture
(c) Debire
Answer:
(a) Debere
Question 6.
Debenture cannot be redeemed ___________
(a) at par
(b) at premium
(c) at discount
Answer:
(c) at discount
Question 7.
The company has to obtain the consent of ___________ if the issue of debentures exceeds ₹ 1.
(a) SEBI
(b) Registrar
(c) National Stock Exchange
Answer:
(a) SEBI
Question 8.
Debenture certificate must be issued within ___________ months of allotment.
(a) 3
(b) 6
(c) 9
Answer:
(b) 6 months
Question 9.
The ___________ is an advertisement for the issue of debentures.
(a) memorandum of association
(b) articles of association
(c) prospectus
Answer:
(c) prospectus
Question 10.
Debenture holders is entitled to receive ___________ certificate from the company.
(a) Share
(b) Debenture
(c) Dividend
Answer:
(b) Debenture
Question 11.
Fully convertible debentures are converted into ___________ shares on maturity.
(a) equity
(b) deferred
(c) bonus
Answer:
(a) Equity
Question 12.
A return of allotment is filed with the Registrar within ___________ days of allotment.
(a) 30
(b) 60
(c) 90
Answer:
(a) 30
Question 13.
The ___________ can direct the company to repay the principal amount of debenture with interest.
(a) Company Law Board
(b) Registrar
(c) Shareholders
Answer:
(a) Company Law Board
Question 14.
In order to redeem old debentures the company issues ___________
(a) assets
(b) public deposits
(c) fresh debenture
Answer:
(c) fresh debenture
1B. Match the pairs.
Question 1.
| Group ‘A’ | Group ‘B’ |
| (1) Debenture Trustees | (a) No voting rights |
| (2) Debenture | (b) ICRA |
| (3) Convertible debenture | (c) Security about Repayment |
| (4) Secured debenture | (d) CARE |
| (5) Debenture holder | (e) Equity Shares |
| (f) Borrowed capital | |
| (g) Protect Debenture holders |
Answer:
| Group ‘A’ | Group ‘B’ |
| (1) Debenture Trustees | (g) Protect Debenture holders |
| (2) Debenture | (f) Borrowed capital |
| (3) Convertible debenture | (e) Equity Shares |
| (4) Secured debenture | (c) Security about Repayment |
| (5) Debenture holder | (a) No voting rights |
Question 2.
| Group ‘A’ | Group ‘B’ |
| (1) Charge on Asset | (a) Credit Rating |
| (2) Redeemable debenture | (b) Secured debenture |
| (3) Board of Directors | (c) 90 days |
| (4) CRISIL | (d) Power to issue debenture |
| (5) Debenture Certificate | (e) Unsecured Debenture |
| (f) Repaid on maturity | |
| (g) 6 months |
Answer:
| Group ‘A’ | Group ‘B’ |
| (1) Charge on Asset | (b) Secured debenture |
| (2) Redeemable debenture | (f) Repaid on maturity |
| (3) Board of Directors | (d) Power to issue debenture |
| (4) CRISIL | (a) Credit Rating |
| (5) Debenture Certificate | (g) 6 months |
Question 3.
| Group ‘A’ | Group ‘B’ |
| (1) Board of Directors | (a) Within 6 months after allotment |
| (2) Debentures | (b) No voting right |
| (3) Debenture holder | (c) Application of debentures |
| (4) CARE | (d) Interest |
| (5) Debenture Certificate | (e) Voting right |
| (f) Within 120 days after allotment | |
| (g) Credit rating agency | |
| (h) Dividend | |
| (i) SEBI | |
| (j) Creditors |
Answer:
| Group ‘A’ | Group ‘B’ |
| (1) Board of Directors | (c) Application of debentures |
| (2) Debentures | (d) Interest |
| (3) Debenture holder | (b) No voting right |
| (4) CARE | (g) Credit rating agency |
| (5) Debenture Certificate | (a) Within 6 months after allotment |
Question 4.
| Group ‘A’ | Group ‘B’ |
| (1) Trust Deed | (a) Owner |
| (2) Debenture Certificate | (b) Deed for debenture holders |
| (3) Secured Debenture | (c) Charge on company’s assets |
| (4) Redemption by annual installment | (d) Creditors of the company |
| (5) Debenture holders | (e) Signature of two directors |
| (f) Two coupons | |
| (g) Deed for depositors | |
| (h) No charge on the company’s assets | |
| (i) CARE | |
| (j) Credit rating |
Answer:
| Group ‘A’ | Group ‘B’ |
| (1) Trust Deed | (b) Deed for debenture holders |
| (2) Debenture Certificate | (e) Signature of two directors |
| (3) Secured Debenture | (c) Charge on company’s assets |
| (4) Redemption by annual installment | (f) Two coupons |
| (5) Debenture holders | (d) Creditors of the company |
1C. Write a word or a term or a phrase that can substitute each of the following statements.
Question 1.
The provision dealing with the issue of debenture.
Answer:
Section 71 of the companies Act 2013
Question 2.
Name of the capital controller in India.
Answer:
SEBI
Question 3.
Debenture converted in equity shares.
Answer:
Convertible Debenture
Question 4.
Redemption time of secured debenture.
Answer:
10 years
Question 5.
The authority which listing the debentures.
Answer:
Stock Exchange
Question 6.
Application received more than the issue.
Answer:
Over Subscription
Question 7.
Authority consulted by Debenture Trustee.
Answer:
NCLT
Question 8.
The agency provides a credit rating of the security.
Answer:
Credit Rating Agency
Question 9.
Register of Entries of the debenture.
Answer:
Register of debenture
Question 10.
Meeting conducted in an emergency.
Answer:
Extraordinary General Meeting.
1D. State whether the following statements are true or false.
Question 1.
Debenture holders are the creditors of the company.
Answer:
True
Question 2.
Board has no power to issue debenture.
Answer:
False
Question 3.
Debenture helps to raise borrowed capital.
Answer:
True
Question 4.
Debenture holders enjoy normal voting rights.
Answer:
False
Question 5.
The debenture is permanent capital.
Answer:
False
Question 6.
A debenture trustee is a link between the company and Debenture holders.
Answer:
True
Question 7.
Appointment of the underwriter is compulsory.
Answer:
False
Question 8.
Listing of debenture is compulsory.
Answer:
True
Question 9.
SEBI has contracted over the security market.
Answer:
True
Question 10.
The allotment procedure should be completed within 60 days.
Answer:
True
Question 11.
A debenture Trust deed is a legal Agreement.
Answer:
True
1E. Find the odd one.
Question 1.
SEBI, NCLT, SBI
Answer:
SBI
Question 2.
25%, 15%, 10%
Answer:
10%
Question 3.
CARE, CRISIL, SEBI
Answer:
SEBI
Question 4.
Credit Rating Agency Stock Exchange, SBI
Answer:
SBI
Question 5.
SEBI, NCLT, CRISIL
Answer:
CRISIL
Question 6.
Debenture Certificate Trust Deed, share certificate
Answer:
Share Certificate
1F. Complete the sentences.
Question 1.
Debenture holder has no ___________ rights.
Answer:
Voting
Question 2.
CRISIL is responsible to ___________ of securities.
Answer:
Credit Rating
Question 3.
Company enters into ___________ with underwriter.
Answer:
Underwriting Agreement
Question 4.
___________ is needed to increase borrowing power.
Answer:
Special Resolution
Question 5.
If borrowing power of board is to be increased ___________ must be held.
Answer:
Extra Ordinary General Meeting
1G. Select the correct option from the bracket.
Question 1.
| Group ’A’ | Group ’B’ |
| (1) Board of Directors | (a) ……………………. |
| (2) ……………………. | (b) Interest |
| (3) Debenture holders | (c) …………………….. |
| (4) …………………….. | (d) Credit Rating Agency |
| (5) Debenture certificate | (e) ……………………….. |
(Debenture, Application of debenture, No Voting Rights, 6 months, CARE)
Answer:
| Group ’A’ | Group ’B’ |
| (1) Board of Directors | (a) Application of debenture |
| (2) Debenture | (b) Interest |
| (3) Debenture holders | (c) No Voting Rights |
| (4) CARE | (d) Credit Rating Agency |
| (5) Debenture certificate | (e) 6 months |
1H. Answer in one sentence.
Question 1.
Who creates a charge over assets?
Answer:
Debenture Trustee can create a charge over asset.
Question 2.
When is the permission of SEBI required?
Answer:
When borrowing capital exceeds 1 crore, consent of SEBI is required.
1I. Correct the underlined word and rewrite the following sentences.
Question 1.
Debenture holders get fluctuating interest.
Answer:
Debenture holders get Fixed interest.
Question 2.
Convertible debenture holders can be converted into preference shares.
Answer:
Convertible debenture holders can be converted into Equity Shares.
Question 3.
Shareholders have the power to issue debenture.
Answer:
The Board of directors has the power to issue debenture.
Question 4.
A debenture Trust deed is an illegal document.
Answer:
A debenture Trust deed is a legal document.
Question 5.
Debenture certificate issued by the company within 3 months.
Answer:
Debenture certificate issued by the company within 6 months.
Question 6.
Debenture holders are the owners of the company.
Answer:
Debenture holders are the creditor of the company.
Question 7.
Debentures generate owned capital for the company.
Answer:
Debentures generate borrowed capital for the company.
1J. Arrange in proper order.
Question 1.
(a) Offer letter
(b) Debenture Trust Deed
(c) Written Consent
Answer:
(a) Offer letter
(b) Written Consent
(c) Debenture Trust Deed
Question 2.
(a) Allotments of debenture
(b) Return with ROC
(c) Debenture Certificate
Answer:
(a) Allotments of debenture
(b) Debenture Certificate
(c) Return with ROC
Question 3.
(a) Issue of prospectus
(b) Return with ROC
(c) Underwriting Agreement
Answer:
(a) Issue of prospectus
(b) Underwriting Agreement
(c) Return with ROC
Question 4.
(a) Board meeting
(b) Open Separate Bank Account
(c) Extra-Ordinary General Meeting
Answer:
(a) Board meeting
(b) Extra-Ordinary General Meeting
(c) Open Separate Bank Account
Question 5.
(a) Receiving Application Money
(b) Allotment of debenture
(c) Open Bank Account
Answer:
(a) Receiving Application Money
(b) Open Bank Account
(c) Allotment of debenture
Question 6.
(a) Preparation and consent to the prospectus
(b) Filing with ROC
(c) Special Resolution Passed
Answer:
(a) Special Resolution Passed
(b) Preparation and consent to the prospectus
(c) Filing with ROC
Question 7.
(a) Debenture Certificate
(b) Entries in Register
(c) Underwriting contract
Answer:
(a) Underwriting contract
(b) Debenture Certificate
(c) Entries in Register
2. Explain the following terms/concepts.
Question 1.
Debenture
Answer:
The company raises capital by borrowing money from the public or its members. It is a proof of loan taken by the company. A person who purchases debenture is called a debenture holder. Interest is paid to the debenture holders.
Question 2.
Debenture Redemption Reserve
Answer:
Debenture Redemption Reserve is useful for the redemption of the debenture. It is created out of the profit of the company which has maintained a 25% minimum of the value of outstanding debenture in DRR.
Question 3.
Minimum Subscription
Answer:
Minimum subscription is a term that is used to represent the amount of the issue which has to be subscribed or else the shares can’t be issued if it is not being subscribed.
Question 4.
Underwriting
Answer:
An underwriting contract is a contract between an underwriter and the issuer of securities. It is helpful to issuer companies when securities are not being subscribed by the public. Here, underwriters guarantee the sale of issued stock at the agreed price.
Question 5.
Credit Rating
Answer:
It is an estimation of the ability of a person or organization to fulfill their financial requirement, commitments, based on previous dealings. Credit Rating Agencies are responsible for credit rating.
Question 6.
Secured debenture
Answer:
Secured debentures are bonds that are issued with collateral. Here, a charge is created against the assets of the company. If a company is in default, assets can be realized to recover the dues.
3. Study the following case/situation and express your opinion.
1. ABC Limited is going to redeem its 1000 debentures of ₹ 100 each. Please advise them on the following:
Question (a).
Which fund should be created by the company to redeem debentures?
Answer:
The company should create a Debenture Redemption Reserve to redeem debentures.
Question (b).
Can debenture trustees consult NCLT if the company is at default?
Answer:
If the company is at default regarding repayment of debentures, then Debenture trustees can consult the NCLT.
Question (c).
What will be the change in the register of debenture holders?
Answer:
If debentures are redeemed, their entries will be cancelled from requisite.
2. Zeal Co. Ltd. is going to issue 2000 debentures. Please advise them on the following:
Question (a).
Does the company have to list the debentures on the stock exchange?
Answer:
Yes, the company has to list the debentures on the stock exchange.
Question (b).
Should the company get a credit rating for issuing debentures?
Answer:
Yes, the company should get a credit rating for issuing debenture and from SEBI.
Question (c).
Can the company show a credit rating in the prospectus?
Answer:
Yes, the credit rating should be mentioned in the prospectus/offer letter/letter of offer.
4. Answer in brief.
Question 1.
Define Debenture and State its meaning.
Answer:
Definitions of Debenture:
- According to Section 82 of Companies Act, “Debenture to any member of the company is a movable property, transferable in the manner provided by the Articles of Association:
- According to the Oxford dictionary “Debenture is a certificate issued by a company act now leading that it has borrowed money on which interest is being paid”.
Meaning:
- The word ‘Debenture’ is derived from the Latin word ‘Debere’- which means to owe something to someone.
- It is a proof of loan taken by the company on certain terms and conditions.
- It can be issued by public or private companies to raise borrowed capital.
- A person who purchases it is called a debenture holder and he is a creditor of a company.
- It can be issued at par, premium, and discount.
- The Board of Directors has the power to issue debentures.
- Debenture holders get a fixed rate of interest on their investments.
Question 2.
State the provisions as per Companies (Share Capital and Debenture) Rules, 2014 (i.e. Rule 18).
Answer:
If a company issued secured debenture, then it has to follow Rule 18 of Companies Rules, 2014. The provisions are as follows:
(i) Tenure of secured debenture:
All secured debentures should be redeemed within 10 years from the date of its issue. Infrastructure companies, Companies permitted by the Ministry of Corporate Affairs, Central Government, or RBI can issue debentures beyond the period of 10 years but not exceeding 30 years.
(ii) Create charge on assets:
Secured debentures create charges on assets. The value of the charge should be adequate to cover the entire value of debentures issued and the interest to be paid on it.
(iii) Debenture Trustee:
Before issuing a prospectus, the company has to appoint a Debenture Trustee. The company should execute the trust deed within 60 days from allotment of a debenture or before issuing the prospectus/offer letter. The Rules and Regulations of Trust Deed decide the role of debenture trustees.
(iv) Debenture Redemption Reserve:
The company has to create a Debenture Redemption Reserve to redeem debentures. The company should maintain at least 25% of the value of outstanding debentures in the DRR account. Money from this account is used for the redemption of the debenture. Every year on or before 31st March, the company has to invest or deposit a sum of not less than 15% in the DRR account for the maturing debentures in the next year.
Question 3.
What are/Explain the requirement of SEBI for the issue of debentures?
Answer:
Following are the requirements as per SEBI for the issue of debentures in the market:
(i) Condition of minimum subscription: Regulation 12 of SEBI Regulation Act 2008 is responsible to regulate the minimum subscription collected by the company. As per SEBI, the minimum subscription for public issues is 75% of the issue price. If the minimum subscription is not received, then it should be refunded within 12 days from the date of closure of the issue.
(ii) Over Subscription:
Oversubscription means a situation where a company has more buyers than the shares to fulfill the client’s order. The company can retain oversubscription on up to a maximum of 100% of the issue price or any lower unit as specified by the prospectus.
(iii) Underwriting:
A company may enter into an underwriting agreement with underwriters for its public issue of debentures. The appointment of underwriters must be mentioned in the prospectus/offer letter/letter of offer.
(iv) Credit Rating:
As per SEBI, the company making public issue, or right issue of convertible debenture must obtain a credit rating from one or more credit rating agencies. The rating must be mentioned in the offer letter/prospectus. In India, ICRA, CRISIS, CARE are famous or recognized credit rating agencies for the corporate sector.
Question 4.
Who are Debenture Trustees?
OR
Explain the role of Debenture Trustees.
OR
Write a note on Debenture Trustees.
Answer:
- Debenture holders are the creditors of the company and they cannot participate in the routine affairs of the management of the company. So, in order to protect the interest of debentures, the company appointed debenture trustees.
- Debenture trustees are the institutions that protect the interest of debenture holders.
- Debenture Trustees create a charge on assets of the company on behalf of debenture holders. They are the custodian of assets on which charge has been created.
- In order to appoint debenture trustees, the company has to execute the debenture trust deed within 3 months, and the offer letter should be issued within 60 days after the allotment.
- The prospectus or offer letter must mention the names of debenture trustees.
5. Justify the following statements.
Question 1.
The company can list its debentures on Stock Exchange.
Answer:
- A company can issue secured as well as unsecured debentures.
- Debentures are issued to the general public.
- The company can issue debentures to its members through public offers or offer through private placement.
- The company gets its debentures rate from one or more credit rating agencies which attract the general public or members of the company.
- Thus, it is rightly said that a company can list its debentures on Stock Exchange.
Question 2.
Debenture holders do not enjoy any voting rights.
Answer:
- The company borrows a large amount of money by issuing debentures.
- Debentures are considered to be the long-term loan that is repaid after a long period.
- Debenture holders are the creditors of the company.
- The company has to pay interest to the debenture holders even if the company makes a loss in the current year.
- Thus, it is rightly said that debenture holders do not enjoy any voting rights.
Question 3.
Debenture Redemption Reserve Account is used for the redemption of debentures.
Answer:
- Debenture Redemption Reserve is created from the profits earned by the company.
- The company has to maintain at least 25% of the value for the outstanding debentures in the DRR account.
- Similarly, every year on or before 31st March, the company has to invest or deposit a sum of not less than 15% in the DRR account for the maturing debentures in the next year.
- Thus, it is rightly said that Debenture Redemption Reserve Account is used for the redemption of debentures.
Question 4.
Members, as well as debenture holders, can inspect the debenture trust deed.
Answer:
- The company enters into the contract with the debenture trustees which is called as ‘Debenture Trust Deed”.
- It is a legal instrument conveying the assets of a company of the trustees.
- The deed includes the rights of debenture holders and the duties and powers of debenture trustees.
- It contains terms and conditions agreed between the company and debenture trustee.
- Thus, it is rightly said that members, as well as debenture holders, can inspect the debenture trust deed.
6. Attempt the following.
Question 1.
Explain the regulations governing the issue of different types of debentures.
Answer:
A company has to comply with the provisions while issuing different types of debentures. Depending upon the type of debenture, the company has to fulfill the following provisions/regulations:
(i) Companies Act, 2013: Sec. 71 of Companies Act, 2013 contains provisions for the issue of debentures.
(ii) Company Rules 2014 (Share Capital and Debentures), Rule 18: Rule 18 of Companies (Share Capital and Debentures) Rules, 2014 contains provisions for the issue of the secured debenture.
(iii) SEBI Regulations, 2008: SEBI Regulations, 2008 covers the provisions related to the issue and listing of debentures that are not convertible, either wholly or partly into equity shares. It is applicable to only those debentures which are issued through public offer, private placement. Disclosure requirements are to be followed the same as the public issue of equity shares.
(iv) SEBI Regulations, 2009: SEBI Regulations, 2009 (Issue of Capital and Disclosure Requirement) covers provisions for issue of debentures and listing of debentures that are convertible, rather partially, fully, or optionally into listed or unlisted equity shares. It also has to follow the same disclosure norms as applicable to equity shares.
(v) SEBI Regulations, 2015: SEBI Regulations, 2015 (Listing Obligations and Disclosure Requirements) covers provisions for the listed company issuing non-convertible debentures, perpetual debt instruments, etc. It includes various listing conditions which a company has to comply with.
(vi) RBI Guidelines: RBI Guidelines are formed for the banks which raise capital by issuing non-equity instruments.