Q.What is a debenture? Explain its main features.

A debenture is, at bottom, proof that a company has borrowed money — it is a loan document, not a unit of ownership, and every one of its features follows from that one fact.

Because the holder is a creditor, not a member, interest is a fixed liability payable regardless of profit — this is the single sharpest difference from a share's dividend.

A debenture is the principal instrument through which a joint stock company borrows medium- and long-term money from the investing public. Section 2(30) of the Companies Act, 2013 defines it inclusively: "debenture" includes debenture stock, bonds, and any other instrument of a company evidencing a debt, whether or not it constitutes a charge on the company's assets. In practical terms, it is a certificate, issued under the company's authority, by which the company acknowledges it has borrowed a stated sum from the person named in it and promises to repay that sum, with interest at a fixed rate, on the terms stated at issue.

The main features of a debenture all flow from the fact that it represents debt, never ownership. First, a debenture-holder is a creditor of the company, not a member of it, unlike a shareholder. Second, interest on a debenture is a fixed contractual charge, payable at the agreed rate and intervals whether or not the company has earned any profit that year — a genuine liability the company cannot lawfully withhold, unlike dividend, which is paid only out of profit if declared. Third, Section 71(2) of the Companies Act, 2013 expressly bars a company from issuing any debenture carrying voting rights, so a debenture-holder has no vote and no say in the company's management. Fourth, on the company's winding up, debenture-holders must be repaid ahead of every class of shareholder, and where the debenture is secured by a charge on specific assets, the holder can look to those assets in priority to most unsecured creditors as well. Fifth, a debenture is ordinarily redeemable — repayable at the end of a fixed period, by lump sum or instalment — though a rare irredeemable debenture may be repayable only on a stated contingency. Finally, debentures are transferable in the manner their own terms of issue specify, and the decision to issue them rests with the company's Board of Directors, subject to the Articles of Association and the Companies Act, 2013.

Students often list 'fixed interest' and 'no voting rights' as unrelated features rather than explaining that both follow from the same underlying fact — a debenture-holder is a creditor, not an owner. Another common error is stating debentures are 'always secured'; security is only one classification (secured/unsecured), not a universal feature of every debenture.