Q.What is a Debenture?

A debenture is a document issued by a company acknowledging that it has borrowed a certain sum, which it promises to repay with fixed interest; the holder is a creditor of the company.

A debenture is one of the important instruments used by companies to raise borrowed capital. As per Section 2(30) of the Companies Act, 2013, a debenture includes debenture stock, bonds and any other instrument evidencing a debt, whether or not it creates a charge on the company's assets.

In simple terms, a debenture is a written acknowledgement of a debt issued under the common seal (or authority) of the company. It states that the company has borrowed a certain sum of money and undertakes to repay it on a fixed date, along with interest at a fixed rate.

Key points:

• It represents borrowed capital (loan), not ownership capital.
• The holder is a creditor of the company and receives a fixed rate of interest whether or not the company makes a profit. …