Conditions and Procedure for Issue of Debentures

Debentures, like shares, may be issued on any one of three price conditions relative to their face value. Issue at par occurs when the issue price charged from the debenture-holder equals the face value of the debenture — a debenture of face value ₹100 issued at par is issued for exactly ₹100. Issue at premium occurs when the issue price exceeds the face value — a debenture of face value ₹100 issued at a premium of ₹5 is issued for ₹105, and the excess (the premium) is credited to a Securities Premium Account, usable only for the specific purposes stated in Section 52 of the Companies Act, 2013 (such as writing off preliminary expenses or providing for the premium payable on redemption). Issue at discount occurs when the issue price is less than the face value — a debenture of face value ₹100 issued at a discount of ₹5 is issued for ₹95. Unlike shares, where the issue of shares at a discount is tightly restricted, the Companies Act, 2013 places no comparable statutory bar on issuing debentures at a discount, since a debenture is a debt and not a unit of share capital — though the discount is still written off, over the debenture's life, out of the company's profits or against the Securities Premium Account.

A further, related distinction concerns redemption price rather than issue price: on redemption, a debenture may be redeemed at par (the same amount as the face value), or at a premium (an amount over and above the face value, offered as an added incentive to the original subscriber for having lent money to the company) — a company may combine any issue condition with any redemption condition (for instance, issued at par but redeemable at a premium), and Secretarial Practice questions frequently test a student's ability to keep the issue price and the redemption price of the same debenture clearly separate. …