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How does Companies Act protect the interest of Debenture holders?
Companies Act 1956 has made certain provisions to protect the interest of Debenture holders.
1) A company who accepts funds from debenture holders shall appoint one or more debenture trustees and it should be mentioned in Prospectus or Letter of Offer. The debenture trustee will be primarily responsible to ensure that the interests of the debenture holders are protected and the grievances of the debenture holders are effectively redressed. The debenture trustee should take the following effective steps to ensure:
a. That the assets of the company and the guarantors are sufficient to discharge the principal amount at all times.
b. That the prospectus of the letter of offer does not contain any inconsistent matter with the terms of debentures or with the trust deed.
c. That the company does not commit any breach of the provisions of the agreement.
d. That the immediate steps are taken to remedy any breach of the provisions of trust deed.
e. That the meeting of debenture holders can be called as and when required.
2) The trust deed should be executed in the prescribed form and within stipulated period.
3) This trust deed can be inspected by any debenture holders of the company and he can take the copies of the same on the payment of prescribed fees.
4) A company is required to created debenture redemption reserve for the redemption of debentures and every year adequate amount should be credited to this reserve out of the profits until such debentures are redeemed.
5) If any default is made on part of the company in redemption of the debentures on the date of maturity, then the Company Law Board can order the company to pay the principal amount of debentures and the interest thereon.
6) If any default is made in complying with the order of Company Law Board, every responsible officer shall be punishable with a fine which may extent to Rs. 500 per day during which the offence continues.
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