Payment of Interest on Debentures

Interest Is a Fixed, Unconditional Obligation

As the Issue of Debentures chapter already established, interest on a debenture is a fixed contractual charge, payable at the agreed rate and at the agreed intervals whether or not the company has earned a profit — this is the sharpest difference between a debenture-holder's interest and a shareholder's dividend, which is payable only out of profit and only once declared. A company cannot withhold debenture interest merely because a year has gone badly; failing to pay is a genuine default, exposing the company to the Tribunal remedy under Section 71(8) already covered in the Issue of Debentures chapter.

How Interest Is Paid, and What the Letter Covers

Interest is generally paid at fixed intervals stated in the terms of issue — commonly half-yearly or annually — by an interest warrant (a payment instrument, similar to a cheque, issued specifically for interest) sent to the holder's registered address, or, increasingly, by direct electronic credit to the bank account recorded against the holder's folio. Where tax is required to be deducted at source on the interest paid, the company deducts it as applicable under the Income Tax Act and issues the holder a certificate of tax deducted at source, so the holder can claim credit for it while filing their own return. A letter accompanying or explaining an interest payment typically states:

1. The folio number and the number of debentures interest is being paid on.
2. The period for which interest is being paid, and the rate.
3. The gross amount of interest, the tax deducted at source, if any, and the net amount actually paid.
4. The mode of payment — interest warrant enclosed, or credited electronically, quoting the date of credit.
5. A request to inform the company promptly of any change in address or bank account, so future interest payments are not delayed or misdirected.

Specimen Letter — Payment of Interest on Debentures

SAHYADRI CHEMICALS LIMITED

Registered Office: Bhosari Industrial Area, Pune – 411026

CIN: U24100MH2012PLC142857

Date: 5th October

Mr. Anil Deshpande

Folio No. SP/DEB/0187

Dear Sir,

Sub: Payment of Interest on Debentures for the Half-Year Ended 30th September

We are pleased to inform you that interest for the half-year ended 30th September, on the 9.5% Secured Redeemable Non-Convertible Debentures held by you under the above folio, 100 debentures of ₹100 each, has been credited to your bank account recorded with us on 3rd October.

Gross interest for the period: ₹475.00

Tax deducted at source: ₹47.50

Net amount credited: ₹427.50

A certificate of tax deducted at source is enclosed for your record and for claiming credit while filing your income-tax return. We request you to kindly inform us promptly of any change in your bank account or address, so that future interest payments reach you without delay.

Thanking you,

Yours faithfully,

For Sahyadri Chemicals Limited

(Rohini Sane)

Company Secretary …