Conversion of Convertible Debentures into Equity Shares

Conversion Happens on Pre-Fixed Terms, Never by Later Negotiation

As the Issue of Debentures chapter explained, a convertible debenture carries the holder's contractual right to convert it — wholly (a Fully Convertible Debenture) or partly (a Partly Convertible Debenture) — into equity shares of the company, at a ratio and after a period fixed at the time of issue, following the special resolution Section 71(1) of the Companies Act, 2013 required before such a debenture could even be issued. Conversion is therefore never a fresh negotiation between the company and the holder when the conversion date arrives — the company's letter simply informs the holder that the pre-fixed terms are now being carried out.

What a Conversion Letter States

1. The folio number and distinctive numbers of the debentures being converted, and whether the conversion is of the whole holding or only the convertible part of it, for a Partly Convertible Debenture.
2. The conversion ratio fixed at issue — for example, so many equity shares of a stated face value for every debenture of a stated face value converted.
3. The number of equity shares the holder will accordingly receive.
4. A request to surrender the debenture certificate — or, for a Partly Convertible Debenture, to exchange it for a fresh debenture certificate for the un-converted, non-convertible balance — in exchange for the new share certificate.
5. A statement that, from the date of conversion, the holder ceases to receive debenture interest on the converted portion and instead becomes entitled to whatever dividend the company may declare on the new shares — the holder's position has genuinely changed, from creditor to member, at least for that portion.

Specimen Letter — Conversion of Debentures into Equity Shares

DECCAN SOFTWARE LIMITED

Registered Office: Hinjawadi IT Park, Pune – 411057

CIN: U72900MH2014PLC256789

Date: 1st July

Ms. Priya Kelkar

Folio No. SP/DEB/0044

Dear Madam,

Sub: Conversion of Fully Convertible Debentures into Equity Shares

We wish to inform you that, in accordance with the terms of issue approved by the special resolution passed by our shareholders on 12th March last year, the 50, 10% Fully Convertible Debentures of ₹100 each held by you under the above folio, bearing Distinctive Numbers 3001 to 3050, stood due for conversion on 30th June.

At the fixed conversion ratio of 2 equity shares of ₹10 each, fully paid-up, for every one debenture of ₹100, you are accordingly entitled to 100 equity shares of the Company. Interest on these debentures ceased to accrue with effect from 30th June, and you will henceforth be entitled to receive dividend, as and when declared, on these shares as a member of the Company.

Kindly surrender the original Debenture Certificate bearing the above Distinctive Numbers to our Registered Office, duly discharged, in exchange for your Share Certificate, which we shall issue to you within the period prescribed under the Companies Act, 2013, and enter your name in our Register of Members accordingly.

Thanking you,

Yours faithfully,

For Deccan Software Limited

(Nikhil Oak)

Company Secretary …