Chapter - 7
Correspondence with Debenture holders
Chapter : 1 Introduction to Corporate Finance
Chapter: 2 Source of Corporate Finance
Chapter: 3 Issue of Shares
Chapter: 4 Issue of Debentures
Chapter: 5 Deposits
Chapter: 6 Correspondence with Members
Chapter: 7 Correspondence with Debenture holders
Chapter: 8 Correspondence with Depositors
Chapter : 9 Depository and Interests
Chapter : 10 Dividend and Interest
Chapter: 11 Financial Markets
Chapter: 12 Stock Exchange
Q.1 A) Select the correct answer from the options given below and rewrite the statements.
1. Debenture capital is a .................. capital of a company.
a) borrowed
b) owned
c) permanent
Ans: a) Borrowed
2. Debentureholders are ................. of the company.
a) Owners
b) Creditors
c) Debtors
Ans: b) Creditors
3. Borrowed Capital is provided to the company by ......................
a) Equity shareholder
b) Debentureholder
c) Preference shareholder
Ans: b) Debenture holder
4. Interest on Registered Debentures is given through ................. .
a) Interest coupons
b) Interest warrant
c) Refund order
Ans: b) Interest Warrant
5. ................. are the creditors of the company.
a) Shareholders
b) Debentureholders
c) Directors
Ans: b) Debentureholder
6. Bearer Debentureholders get interest through ........................... .
a) Interest Warrants
b) Refund orders
c) Interest coupons
Ans: c) Interest Warrant
7. Return of income on debentures is ................. at fixed rate.
a) Dividend
b) Loan
c) Interest
Ans: c) Interest
8. ................. is an acknowledgement of debt issued by the company under common seal.
a) Debentures
b) Shares
c) Reserve
Ans: a) Debenture
9. Debentures repayable after a certain period are ................. debentures.
a) Convertible
b) Registered
c) Redeemable
Ans: c) Redeemable
10. The rate of interest payable on debentures is ................. .
a) uncertain
b) floating
c) fixed
Ans: c) Fixed
11. Debentureholders receive ............................ certificate from the company.
a) Share
b) Bond
c) Debenture
Ans: c) Debenture
12. Interest warrants are sent to ............................ of the company.
a) Shareholders
b) Debentureholders
c) Owners
Ans: b) Debentureholder
B) Match the pairs.
B. (I) Match the Pairs
|
Group
A |
Group
B |
||
|
a) |
Debenture holders |
1 |
Borrowed
Capital |
|
b) |
Interest on
Registered Debentures |
2 |
Interest Coupons |
|
c) |
Convertible
Debentures |
3 |
Evidence of
Loan |
|
d) |
Debenture
Certificate |
4 |
Safe and
secured investment |
|
e) |
Investment in
Debentures |
5 |
Interest
warrant |
|
f) |
Redeemable
Debentures |
6 |
Conversion
into Debentures |
|
g) |
Debentures |
7 |
Risky
investment |
|
|
8 |
Evidence of
shares |
|
|
9 |
Creditors |
||
|
10 |
Conversion
into equity shares |
||
|
11 |
Redeemed
after fixed period |
||
|
12 |
Redeemed at
winding up of company |
||
|
13 |
Owner |
||
|
14 |
Owner Capital |
||
Ans:
|
Group
A |
Group
B |
||
|
a) |
Debenture holders |
1 |
Borrowed
Capital |
|
b) |
Interest on
Registered Debentures |
2 |
Interest Coupons |
|
c) |
Convertible
Debentures |
3 |
Evidence of
Loan |
|
d) |
Debenture
Certificate |
4 |
Safe and
secured investment |
|
e) |
Investment in
Debentures |
5 |
Interest
warrant |
|
f) |
Redeemable
Debentures |
6 |
Conversion
into Debentures |
|
g) |
Debentures |
7 |
Risky investment |
C) Write a word or a term or a phrase which can substitute each of the following statements.
1. Return on investment in debentures.
Ans: Interest
2. Documentary evidence of holding the debentures.
Ans: Debenture Certificate
3. Status of debenture holders.
Ans: Creditors
4. Debentures which can be converted into equity shares.
Ans: Convertible Debenture
5. The person who purchases debentures of the company.
Ans: Debenture holder
6. An acknowledgement of debt issued by the company under its common seal.
Ans: Debenture
7. Debentures whose name is mentioned in the Register of debenture holders.
Ans: Registered Debenture
D) State whether the following statements are true or false.
1. Debenture holders get regular dividend.
Ans: True
2. Debenture is a loan capital of the company.
Ans: True
3. Convertible Debentures can be converted into equity shares.
Ans: True
4. Interest on debentures is paid notwithstanding the volume of profit.
Ans: True
5. Debenture holders enjoy full membership rights of the company.
Ans: True
6. Dividend warrants are used to pay interest to the debenture holders.
Ans: False
7. All types of debentures are eligible for conversion into equity shares.
Ans: False
8. Debentures are never redeemed by the company.
Ans: False
9. Debenture holders are the owners of the company
Ans: False
10. Debentures are always fully paid-up.
Ans: True
E) Find the odd one.
1. Depository, Interest, Dividend
Ans: Depository
2. Interest warrant, Dividend Warrant, Demat
Ans: Demat
3. Debentureholder, Shareholder, Dematerialisation
Ans: Dematerialisation
4. Debentureholder, Shareholder, SEBI
Ans: SEBI
F) Complete the sentences.
1. Debentureholder is a .......................... of the company.
Ans: Creditors
2. Company issues .......................... certificate to the debenture holder after allotment of debentures.
Ans: Debenture
3. Debenture Holder gets .......................... at fixed rate as a return or income.
Ans: Interest
4. In case of Registered Debentures, Interest .......................... are used to pay interest.
Ans: Warrant
5. The .......................... has to correspond with debentureholders on important occasions.
Ans: Secretary
6. The person who purchases the debentures of a company is called .......................... .
Ans: Debenture holders
7. Interest does not depend upon .......................... of the company.
Ans: Profit
8. Company cannot issue debentures with .......................... rights.
Ans: Voting
9. Debenture certificate should be issued within a period of .......................... months, from
the date of allotment of debentures.
Ans: 6 months
10. A company cannot issue debentures to more than 500 people without appointing a
..........................
Ans: Debenture trustees
11. The power to issue debentures has been vested with the ..........................
Ans: Board of Directors
G) Select the correct option from the bracket.
|
Group ‘A’ |
Group ‘B’ |
|
a) Return on
Debentures |
1)
------------ |
|
b) Debenture
certificate |
2) ------------ |
|
c) ------------ |
3) Debenture holders |
|
d) ------------ |
4) Debentures |
|
e) ------------ |
5) Power to
issue debentures |
( Debt capital, Board of Directors, Creditors, Issued within 6 months, Interest )
Ans:
Group ‘A’ | Group ‘B’ |
a) Return on Debentures | 1) |
b) Debenture certificate | 2) |
c) | 3) Debenture holders |
d) | 4) Debentures |
e) | 5) Power to issue debentures |
H) Answer in one sentence.
1. Who is debenture holder ?
Ans: i) These are the parties who provide loan and receive, a ‘Debenture Certificate’ as evidence.
ii) The person who purchases debentures of the company is called debenture holder.
2. What is the income of debenture holder ?
Ans: Debenture holders receive interest as an income
3. What is debenture ?
Ans: A debenture is a document given by a company as evidence of debt to the holder, usually arising out of loan, and most commonly secured by charge.”
4. What is convertible debentures ?
Ans: Convertible debentures give right to holder to convert them into equity shares after a specific period of time.
5. Who takes decision to allot the debentures ?
Ans: The Board of Directors take the decision to allot debentures.
6. Which form is enclosed along with the letter of redemption of debentures ?
Ans: Debenture Redemption form is enclosed along with the letter of redemption of debentures.
7. Which certificate will be issued after allotment of debentures ?
Ans: A debenture certificate will be issued after the allotment of debentures.
I) Correct the underlined word/s and rewrite the following sentences.
1. The person who purchases debentures of the company is called shareholder.
Ans: Debenture holder.
2. Debenture holders get regular dividend at fixed rate.
Ans: Interest
3. A Share Certificate must be issued after allotment of debentures.
Ans: Debenture Certificate.
4. A Debenture Redemption Reserve Fund is created by the company for the redemption of Shares.
Ans: Debentures
5. A Demat Request Form is sent along with the letter of Redemption of Debentures.
Ans: Debenture Redemption Form
6. A company must issue Debenture Certificate within 8 months of allotment of debentures.
Ans: 6
J) Arrange in proper order.
1. a) Board Resolution
b) Allotment of Debentures
c) Board meeting
Ans: (c) Board meeting (a) Board Resolution (b) Allotment of Debentures
2. a) Interest warrant
b) Allotment of Debentures
c) Board meeting
Ans: (c) Board meeting (b) Allotment of Debentures (a) Interest warrant
Q.2 Explain the following terms/concepts.
1. Debentures
Ans: a) A debenture is a document given by a company as evidence of debt to the holder, usually arising out of loan, and most commonly secured b charge.”
b) According to the above definitions, debenture is evidence of indebtedness. It is an instrument issued in the form of debenture certificate, under the common seal of the company.
c) A fixed rate of interest is agreed upon and is paid periodically in case of debentures.
2. Debenture holder
Ans: a) These are the parties who provide loan and receive, ‘Debenture Certificate’ as an evidence.
b) Debenture Holder is a creditor of the company. Since debenture is a loan taken by company, interest is payable on it at fixed rate, at fixed interval until the debenture is redeemed.
c) Debenture holders have no right to vote at the general meeting of the company.
3. Interest on Debentures
Ans: a) A fixed rate of interest is agreed upon and is paid periodically in case of debentures.
b) Payment of interest is a fixed liability of the company.
c) It must be paid by company irrespective of the fact, whether the company makes profit or not.
4. Redemption of debentures
Ans: a) Redemption of Debentures means repayment of the amount of debentures by the company to debenture holders.
b) Repayment can be made at fixed date at the end of a specific period or b installment during the lifetime of the company.
c) A Debenture Redemption Reserve Fund (DRRF) is created b the company for the purpose of redemption of debentures. The debenture Redemption form is sent along with this letter.
5. Conversion of Debentures
Ans: a) Convertible Debentures are the debentures that are converted into equity shares on the expiry of a specified period and at a specified rate mentioned in the terms of issue.
b) After receiving Letter of Option, the secretary sends a letter informing the debenture holders that the debentures are converted into equity shares.
c) Company has to get approval of shareholders by passing special resolution at the Extra Ordinary General Meeting for conversion of debentures into equity shares.
Ans: a) Interest Warrants are used to pay interest to the debenture holders.
b) An interest warrant is a written order given by the company to its banker to pay the amount mentioned in it to the debenture holder.
7. Conciseness
Ans: a) The Secretary has to communicate the decisions of the management and other information to the Debenture holders by conducting correspondence.
b) The letter to the debenture holders should be concise i.e. brief, short, and to the point. Unnecessary and irrelevant information must be avoided.
8. Precise information
Ana: a) Being the creditors, due respect should be given to the debenture holder in secretarial correspondence.
b) The tone of language in the letter should be courteous. Rude and harsh language should be strictly avoided
9. Courtesy
Ans: a) Being the creditors, due respect should be given to the debenture holder in secretarial correspondence.
b) The tone of language in the letter should be courteous. Rude and harsh language should be strictly avoided.
10. Debenture certificate
Ans: a) Debenture certificate is a formal document issued by the company acknowledging a debt and a written promise given by the company.
b) Debentures are issued with the due date stated in the debenture certificate. The principal amount of the debenture is repaid on the maturity date.
Q.3 Answer in brief.
1. Which are the precautions to be taken by the Secretary while corresponding with debentureholders ?
Ans: The following precautions are to be kept in mind by the Secretary while corresponding with the debentureholders -
1. Politeness (Courtesy) : Being the creditors, due respect should be given to the debentureholder in secretarial correspondence. The tone of language in the letter should be courteous. Rude and harsh language should be strictly avoided.
2. Prompt Response : The Secretary should promptly reply and respond to the queries and complaints of the debentureholders without any delay.
3. Legal provisions : The Secretary should follow the statutory provisions of the Companies Act, 2013 and other relevant laws while corresponding with debentureholders. Secretary should be cautious and careful while corresponding with debentureholders on legal matters.
4. Transparency : To maintain greater transparency with debentureholders, it is necessary to disclose all correct and accurate information of the company, credit rating of the company, true and real facts of companies affairs, etc. in correspondence.
5. Conciseness : The letter to the debentureholders should be concise i.e. brief, short and to the point. Un-necessary and irrelevant information must be avoided.
6. Precise Information : The Secretary should provide precise and up to date information to the debentureholders. The information must be factual and true.
7. Secrecy : As a confidential officer of the company, secretary should not disclose any important and secret information related to the company while corresponding with debentureholders.
8. Image and Goodwill of the company : While corresponding with debenture holders, the Secretary should always try to maintain goodwill and create a good image of the company in the mind of debenture holders.
2. What are the circumstances under which correspondence can be made with debenture holders ?
Ans: The following are the few circumstances under which the Secretary enters into correspondence with the debenture holders :
1. Informing the applicant about allotment of debentures.
2. Informing about Payment of Interest though :
a) Interest Warrant b) Electronic Payment of Interest
3. Letter for conversion of debentures into equity shares.
4. Letter for redemption of debentures.
Q.4 Justify the following statements.
1. The company secretary should take certain precautions while corresponding with debentureholders.
Ans: The following precautions are to be taken by the Secretary while corresponding with Debentureholder.
1) Politeness (Courtesy): Being the creditors, due respect should be given to the debenture holder in secretarial correspondence. The tone of language in the letter should be courteous. Rude and harsh language should be strictly avoided.
2) Prompt Response: The Secretary should promptly reply and respond to the queries and complaints of the debenture holders without any delay.
3) Legal provisions: The Secretary should follow the statutory provisions of the Companies Act, 2013 and other relevant laws while corresponding with debenture holders. Secretary should be cautious and careful while corresponding with debenture holders on legal matters.
4) Transparency: To maintain greater transparency with debenture holders, it is necessary to disclose all correct and accurate information of the company, credit rating of the company, true and real facts of companies affairs, etc. in correspondence.
2. There are certain circumstances when a secretary has to correspond with debentureholders.
Ans: The following are the few circumstances under which the Secretary enters into correspondence with the debenture holder.
Informing the applicant about allotment of debentures.
Informing about Payment of Interest though :
a) Interest Warrant
b) Electronic Payment of InterestLetter for conversion of debentures into equity shares.
Letter for the redemption of debentures
Q.5 Attempt the following.
1. Draft a letter of allotment to debentureholder.
Ans:
2. Write a letter to the debentureholder regarding payment of interest through Interest Warrant.
Ans:
3. Draft a letter to debentureholder informing him about redemption of debentures.
Ans.
4. Write a letter to debenture holder informing him about conversion of debentures into equity shares.
Ans.
5. Write a letter to the debentureholder regarding payment of interest electronically.
Ans.
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