Accountancy · Ch 7 — Issue and Redemption of Debentures
Meaning of Debentures
Meaning of Debentures
The word debenture comes from the Latin debere, meaning "to borrow." A debenture is a written instrument under the company's common seal that acknowledges a debt. It contains a contract for repayment of the principal amount after a specified period (or at intervals, or at the company's option) and for payment of interest at a fixed rate, usually payable half-yearly or yearly on fixed dates.
Section 2(30) of The Companies Act, 2013 defines a debenture as including "debenture stock, bonds and any other securities of a company whether constituting a charge on the assets of the company or not."
This definition is broad. It tells us two key things:
- Debentures include debenture stock, bonds, and other securities.
- A debenture may or may not create a charge on the company's assets. In other words, a debenture can be secured (backed by assets) or unsecured (just a promise to pay).
Bonds are also instruments acknowledging debt. Traditionally, governments issued bonds, but today semi-government and non-government organisations also issue them. The terms "debentures" and "bonds" are now used interchangeably. …