‘Debenture’ is a debt instrument, used by the companies for a long period of time in order to borrow money at the fixed rate of interest. Section 2 (30) of The Companies Act, 2013 defines debentures “includes debenture stock, bonds or any other instrument of a company evidencing a debt, whether constituting a charge on the assets of the company or not”. Also Rule 18 of the Companies (Share Capital and Debentures) Rules, 2014 and Section 71 of the Companies Act, 2013 talks about debentures.
A convertible debenture is defined as one of the types of loan which is issued by a company that can be converted into a stock. In Compulsorily convertible debenture the cost of the debenture is converted into an equity share within a fixed period of time. It is also known as CCD. CCD is not a combination of pure debt or pure equity. During the issuance of the company, the CCD decides at which rate the ratio of conversion will be there from debentures to equity share capital.
Procedure of Conversion is as follows;
1. Articles of Association of the Company should allow for Conversion option.
2. Hold Board Meeting and pass the Board Resolution for Conversion of CCD into Equity Shares along with approving Notice of Genernal Meeting for the approval of Shareholders of the Company.
3. Hold General meeting of the Shareholders of the Company and pass the Special Resolution for Conversion of CCD into Equity Shares. According to Section 62 of the Companies Act, 2013 it is mandatory to prepare an explanatory statement for the special resolution. The statement should contain all the necessary information of Conversion.
4. Within 30 days of passing a Special Resolution need to file Form- MGT-14 with the Registrar of Companies.
5. A letter of an option of the same is sent to the compulsorily convertible debenture holders. It is the duty of the secretary to verify same consent sent by the debenture holders for the conversion.
6. After this company needs to receive the valuation report for conversion.
7. The allotment of a share should be completed within 12 months from the date of the passing of the special resolution. The price of the share is determined based on the valuation report.
8. As per Form SH-1, it is mandatory to prepare and issue share certificate.
9. The share certificate is issued to holders and the names are entered in the Register of Members.
10. Within 30 days of allotment of Form PAS-3, a return allotment of securities should be filed with the Registrar. The fee should be given according to the Companies (Registration Offices and Fees) Rules, 2014 along with the list of complete holders.
11. The list of paper required in for the return of allotment of PAS-3 is a list of allottees, a copy of the board of resolution, a copy of the special resolution and valuation report