Q.Justify the following statement:
A company has to create charge on its assets for issuing secured debentures.

The statement is correct. Secured debentures are secured precisely by a charge on the company's property; without creating that charge the debentures would not be 'secured', and the law under the Companies Act, 2013 requires the charge to be created and a debenture trustee appointed to protect the holders.

Debentures may be issued as secured or unsecured. A secured debenture is one whose payment of interest and repayment of principal is backed by security in the form of a charge on the company's assets. The very meaning of 'secured' depends on the existence of this charge, and the Companies Act, 2013 formalises the requirement.

Reasons a charge must be created:

• Meaning of security: a debenture is 'secured' only when there is a charge (mortgage) on the company's assets. The charge is the security itself; without it the debenture is merely unsecured.
• Protection of debenture holders: the charge gives holders a legal claim over specific or general assets, so that if the company fails to pay interest or repay principal, those assets can be sold to satisfy their dues.
• Legal requirement: the Companies Act, 2013 and the related rules require that secured debentures be secured by a charge on the company's assets, that the charge be registered with the Registrar of Companies, and that a Debenture Trustee be appointed to safeguard the interests of the holders and hold the charged assets in trust. …