The term debenture is defined in the companies act as,” Debenture includes debenture stock, bounds any other securities of a company whether constituting a charge on the assets of the company or not”. A debenture is a document given by a company as evidence of a debt to the holder usually arising out of a loan and most commonly secured by a charge.
According to palmer, the world ‘debenture’ signifies “any instrument under seal evidencing a deed, the essence of it being the admission of indebtedness.” In other words debenture is a document creating or acknowledging an indebtedness of the company which may or may not be secured.
Characteristics of a debenture:
1. It is an instrument in writing. An oral promise in acknowledgement of a debt is not a debenture.
2. It is an acknowledgement of the indebtedness of the company to its holder for the amount stated in it.
ADVERTISEMENTS:
3. It is usually under the seal of the company but it is not necessary. A certificate signed by two directors of a company and without bearing the company’s seal is a valid debenture.
4. It is one of a series of like debentures. But a single debenture may be issued to one man.
5. It provides for the payment fixed sum with interest of a specified rate by a specified time. But this is not essential because a company may issue perpetual debentures. Section 120 of the companies’ act 1956 expressly provides for the issue of perpetual or irredeemable debentures w3hich are made payable only in the event of a winding up or some serious default with the company.
6. It is generally secured by a charge, fixed or floating on any part of the company’s property or undertaking. But this is, however, not an essential condition because section 2(12) provides that the debentures may or may not constitute a charge on the assets of the company.