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  13. Chapter 7 – Correspondence...

Chapter 7 – Correspondence with Debenture holders.

11 Dec 2020 6:47 am

Chapter 7, Correspondence with Debenture holders, hsc, sp, secretarial practice, maharashtra board, full solution,

Select the correct answer from the options given below and rewrite the statement.

1.Debenture capital is a ______ capital of a company.

Options
  • borrowed
  • owned
  • permanent

2.Debenture holders are ______ of the company.

Options
  • Owners
  • Creditors
  • Debtors

3.Borrowed Capital is provided to the company by ______.

Options
  • Equity shareholder
  • Debenture holder
  • Preference shareholder

4.Interest on Registered Debentures is given through ______.

Options
  • Interest coupons
  • Interest warrant
  • Refund order

5.______ are the creditors of the company.

Options
  • Shareholders
  • Debenture holders
  • Directors

6.Bearer Debentureholders get interest through ______.

Options
  • Interest Warrants
  • Refund orders
  • Interest coupons

7.Return of income on debentures is ______ at fixed rate.

Options
  • Dividend
  • Loan
  • Interest

8.______ is an acknowledgement of debt issued by the company under common seal.

Options
  • Debentures
  • Shares
  • Reserve

9.Debentures repayable after a certain period are ______ debentures.

Options
  • Convertible
  • Registered
  • Redeemable

10.The rate of interest payable on debentures is ______.

Options
  • uncertain
  • floating
  • fixed

11.Debenture holders receive ______certificate from the company.

Options
  • Share
  • Bond
  • Debenture

12.Interest warrants are sent to ______ of the company.

Options
  • Shareholders
  • Debenture holders
  • Owners

Match the pairs.

Group ‘A’Group ‘B’
a) Debentureholder1) Borrowed Capital
b) Interest on Debentures2) Interest coupons
c) Convertible Debentures3) Evidence of Loan
d) Debenture Certificate4) Safe and secured investment
e) Investment in Debentures5) Interest warrant
f) Redeemable Debentures6) Conversion into Debentures
g) Debentures7) Risky investment
 8) Evidence of shares
 9) Creditor
 10) Conversion into equity shares
 11) Redeemed after fixed period
 12) Redeemed at winding up of company
 13) Owner
 14) Owned Capital

SOLUTION

Group ‘A’Group ‘B’
a) Debentureholder9) Creditor
b) Interest on Debentures5) Interest warrant
c) Convertible Debentures10) Conversion into equity shares
d) Debenture Certificate3) Evidence of Loan
e) Investment in Debentures4) Safe and secured investment
f) Redeemable Debentures11) Redeemed after fixed period
g) Debentures1) Borrowed Capital

Write a word or a term or a phrase which can substitute the following statement.

1.Return on investment in debentures.

SOLUTION

Return on investment in debentures. – Interest

2.Documentary evidence of holding the debentures.

SOLUTION

Documentary evidence of holding the debentures. – Debenture Certificate

3.Status of debenture holders.

SOLUTION

Status of debenture holders. – Creditors

4.Debentures which can be converted into equity shares.

SOLUTION

Debentures which can be converted into equity shares. – Convertible Debentures

5.The person who purchases debentures of the company.

SOLUTION

The person who purchases debentures of the company. – Debenture holder

6.An acknowledgement of debt issued by the company under its common seal.

SOLUTION

An acknowledgement of debt issued by the company under its common seal. – Debenture

7.Debentures whose name is mentioned in the Register of debenture holders.

SOLUTION

Debentures whose name is mentioned in the Register of debenture holders. – Registered Debentures


State whether the following statement is true or false.

1.Debenture holders get regular dividend.

Options
  • True
  • False

2.Debenture is a loan capital of the company.

Options
  • True
  • False

3.Convertible Debentures can be converted into equity shares.

Options
  • True
  • False

4.Interest on debentures is paid notwithstanding the volume of profit.

Options
  • True
  • False

5.Debenture holders enjoy full membership rights of the company.

Options
  • True
  • False

6.Dividend warrants are used to pay interest to the debenture holders.

Options
  • True
  • False

7.All types of debentures are eligible for conversion into equity shares.

Options
  • True
  • False

8.Debentures are never redeemed by the company.

Options
  • True
  • False

9.Debenture holders are the owners of the company.

Options
  • True
  • False

10.Debentures are always fully paid-up.

Options
  • True
  • False

Complete the sentence.

1.Debenture holder is a ______ of the company.

SOLUTION

Debenture holder is a creditor of the company.

2.Company issues ______ certificate to the debenture holder after allotment of debentures.

SOLUTION

Company issues debenture certificate to the debenture holder after allotment of debentures.

3.Debenture holder gets ______ at fixed rate as a return or income.

SOLUTION

Debenture holder gets interest at fixed rate as a return or income.

4.In case of Registered Debentures, Interest ______ are used to pay interest.

SOLUTION

In case of Registered Debentures, Interest warrants are used to pay interest.

5.The ______has to correspond with debenture holders on important occasions.

SOLUTION

The company secretary has to correspond with debenture holders on important occasions.

6.The person who purchases the debentures of a company is called ______

SOLUTION

The person who purchases the debentures of a company is called debenture holder.

7.Interest does not depend upon ______ of the company.

SOLUTION

Interest does not depend upon profits of the company.

8.Company cannot issue debentures with ______ rights.

SOLUTION

Company cannot issue debentures with voting rights.

9.Debenture certificate should be issued within a period of ______ months, from the date of allotment of debentures.

SOLUTION

Debenture certificate should be issued within a period of six months, from the date of allotment of debentures.

10.A company cannot issue debentures to more than 500 people without appointing a ______.

SOLUTION

A company cannot issue debentures to more than 500 people without appointing a Debenture Trustee.

11.The power to issue debentures has been vested with the ______.

SOLUTION

The power to issue debentures has been vested with the Board of Directors.


Select the correct option from the bracket.

Group ‘A’Group ‘B’
a) Return on Debentures1) __________________
b) Debenture certificate2) __________________
c) __________________3) Debentureholders
d) __________________4) Debenture
e) __________________5) Power to issue debentures

SOLUTION

Group ‘A’Group ‘B’
a) Return on Debentures1) Interest
b) Debenture certificate2) Issued within 6 months
c) Creditors3) Debenture holders
d) Debt capital4) Debenture
e) Board of Directors5) Power to issue debentures

Answer in one sentence.

1.Who is debenture holder?

SOLUTION

Debenture holder is a person who subscribes to the debentures of a company.

2.What is the income of debenture holder?

SOLUTION

The debenture holder earns income in the form of a fixed rate of interest.

3.What is debenture?

SOLUTION

Debentures are debt instruments issued by a company to raise capital.

4.What is convertible debentures?

SOLUTION

Convertible Debentures are the debentures which are converted into equity shares on the expiry of specified period and at a specified rate mentioned in the terms of issue.

5.Who takes decision to allot the debentures?

SOLUTION

The Board of Directors takes decision to allot the debentures.

6.Which form is enclosed along with the letter of redemption of debentures?

SOLUTION

Debenture Redemption Form is issued along with the letter of redemption of debentures.

7.Which certificate will be issued after allotment of debentures?

SOLUTION

Debenture Certificate is issued after the allotment of debentures.


Correct the underlined word and rewrite the following sentence.

1.The person who purchases debentures of the company is called shareholder.

SOLUTION

The person who purchases debentures of the company is called debenture holder.

2.Debenture holders get regular dividend at fixed rate.

SOLUTION

Debenture holders get regular interest at fixed rate.

3.A Share Certificate must be issued after allotment of debentures.

SOLUTION

A Debenture Certificate must be issued after allotment of debentures

4.A Debenture Redemption Reserve Fund is created by the company for the redemption of Shares.

SOLUTION

A Debenture Redemption Reserve Fund is created by the company for the redemption of Debentures.

5.A Demat Request Form is sent along with the letter of Redemption of Debentures

SOLUTION

A Debenture Redemption Form is sent along with the letter of Redemption of Debentures.

6.A company must issue Debenture Certificate within 8 months of allotment of debentures.

SOLUTION

A company must issue Debenture Certificate within 6 months of allotment of debentures.


1.Arrange in proper order.

  1. Board Resolution
  2. Allotment of Debentures
  3. Board meeting

SOLUTION

  1. Board Meeting
  2. Board Resolution
  3. Allotment of Debentures

2.Arrange in proper order.

  1. Interest warrant
  2. Allotment of Debentures
  3. Board meeting

SOLUTION

  1. Board meeting
  2. Allotment of Debentures
  3. Interest warrant

Explain the following term/concept.

1.Debentures

SOLUTION

Debentures are debt instruments issued by a company to raise capital. Debenture capital is the borrowed capital of a company. A debenture is an acknowledgement of the debt. Debentures are issued for a specific period and it carries a fixed rate of interest as a return on the investment in debentures.

2.Debenture holder

SOLUTION

Debentures are debt instruments issued by a company to raise capital. The registered holders of such debentures are called debenture holders. The debenture holder is a creditor of the company. They get a fixed rate of interest for the amount they have invested in the debentures.

3.Interest on Debentures

SOLUTION

Debenture capital is a loan or borrowed capital of the company. Debenture holders are the creditors of the company. They get a fixed rate of interest as a return on their investment in debentures. Interest is a debt. It is not dependent on profits. The company pays interest on debentures either through interest warrant or via electronic mode i.e. NEFT, ECS, etc.

4.Redemption of debentures

SOLUTION

Redemption of debentures means repayment of the debentures by the company to the debenture holders. Debentures are redeemed on maturity or expiry of the period for which they were issued. A Debenture Redemption Reserve Fund (DRRF) is created by the company for the purpose of redemption of debentures.

5.Conversion of Debentures

SOLUTION

Conversion of debentures means debentures are converted into equity shares on the expiry of a specified period and at a specified rate mentioned in the terms of the issue. The company has to get the approval of shareholders by passing a special resolution at the Extra Ordinary General Meeting for the conversion of debentures into equity shares.

6.Interest warrant

SOLUTION

A fixed-rate of interest is paid by the company on the investment made by the debenture holders. This interest is paid by the company by means of an interest warrant. The interest warrant is attached to the letter for payment of interest which is sent to debenture holders by the secretary.

7.Conciseness

SOLUTION

The secretary has to communicate the decisions of the management and other information to the debenture holders. The letters to debenture holders should be concise i.e. brief, short, and to the point. Unnecessary and irrelevant information must be avoided.

8.Precise information

SOLUTION

The secretary has to communicate the decisions of the management and other information to the debenture holders by conducting correspondence. The secretary should take care that precise and up to date information is provided to the debenture holders. The information provided must be factual and true.

9.Courtesy

SOLUTION

The secretary has to be cautious and careful while corresponding with the debenture holders. Being the creditors, due respect should be given to the debenture holder in secretarial correspondence. The tone of the letter to debenture holders must be polite. Rude language should be strictly avoided while corresponding with the debenture holder

10.Debenture certificate

SOLUTION

Debenture Certificate is a document that certifies that the holder is the creditor of the company for the amount mentioned in the certificate. It is issued to all debenture holders. It is issued within a period of six months from the date of allotment of debentures.


Answer in brief.

1.Which are the precautions to be taken by the Secretary while corresponding with debenture holders?

SOLUTION

A secretary has to communicate the decisions taken by the management and other information to the debenture holders of the company through correspondence. While corresponding, he has to be cautious and careful. The secretary has to keep the following precautions in mind while corresponding with the Debenture holders.

  1. CORRECT & PRECISE INFORMATION: The secretary should always provide correct, up-to-date, and factual information to the debenture holders. The secretary should take due care while providing facts and figures.
  2. CONCISENESS: The letter to the debenture holders should be concise i.e. it should be brief, short, and to the point. Any unnecessary and irrelevant information must be avoided.
  3. POLITENESS (COURTESY): Politeness means the use of courteous language in the letter. Being the creditors, due respect should be given to the debenture holders in secretarial correspondence. The tone of the letter to debenture holders must be polite. Rude language should be strictly avoided while corresponding with the debenture holders.
  4. SECRECY: As a confidential officer of the company, the secretary should not disclose any important and confidential information related to the company while corresponding with debenture holders.
  5. PROMPT RESPONSE: The secretary should promptly reply to any queries and complaints of the debenture holders. There should not be any delay in the correspondence.
  6. IMAGE & 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.
  7. LEGAL PROVISIONS: The secretary should follow all the statutory provisions of the Companies Act, 2013, and any other relevant laws while corresponding with the debenture holders. The secretary should be cautious and careful while corresponding with debenture holders on legal matters.
  8. TRANSPARENCY: To maintain greater transparency with the debenture holders, it is necessary to disclose all correct and accurate information of the company, credit rating of the company, true facts of the company’s affairs, etc. in the correspondence.

2.What are the circumstances under which correspondence can be made with debenture holders?

SOLUTION

Debenture holders are the creditors of the company. They have the right to know about the decisions taken by the management of the company and other information. The secretary corresponds with the debenture holders under various circumstances. The following are the few circumstances under which the secretary enters into correspondence with the debenture holders:

  1. Informing the applicant about the allotment of debentures.
  2. Informing about payment of interest through:
    i. Interest Warrant
    ii. Electronic Mode
  3. Letter for the conversion of debentures into equity share
  4. Informing the debenture holders about the redemption of their debentures.

Justify the following statement.

1.The company secretary should take certain precautions while corresponding with debenture holders.

SOLUTION

  1. Debenture holders are creditors of the company.
  2. The company secretary has to communicate the decisions of the management and other information to debenture holders through correspondence.
  3. While writing letters, a secretary should provide correct, up-to-date, and factual information to the debenture holders.
  4. He should be prompt in replying to any queries or complaints of debenture holders.
  5. He should not give out sensitive and confidential information about the company. He should always strive to maintain a good image of the company.
  6. The secretary should follow the provisions of the Companies Act, 2013, and its latest amendments.
  7. Most importantly, he must use courteous language during all his correspondence.
  8. Thus, the company secretary should take certain precautions while corresponding with debenture holders.

2.There are certain circumstances when a secretary has to correspond with debenture holders.

SOLUTION

  1. Debenture capital is the borrowed capital of a company.
  2. The debenture holders are the creditors of the company.
  3. The secretary has to communicate the decisions of the management and other information to the debenture holders by conducting correspondence.
  4. The Secretary has to correspond with debenture holders under special circumstances, such as
    a. Allotment of debentures
    b. Payment of interest through interest warrant or electronically
    c. Conversion of debentures into equity shares
    d. Redemption of debentures etc.
  5. Thus, there are certain circumstances when a secretary has to correspond with debenture holders.

1.Draft a letter of allotment to debenture holder.

SOLUTION

  1. When a company allots debentures to the applicant, the letter of allotment is sent to the debenture holders.
  2. The debenture holders get the debenture certificate in exchange for this letter.
  3. This letter contains the details of issue of debentures i.e. Number of debentures applied, Number of debentures allotted, Distinctive numbers of debentures, Amount received, Types of debentures, Rate of Interest, Maturity date, etc.

HULK MOTORS LTD.

Registered office: Plot No. 05, Commercial Towers, P.K. Road,

Mumbai – 400067

CIN: R20020 MH 1000 PLC123456

Website: wwww.hulkmotors.in

Email: hulk4321@gmail.com

Date: 17th Oct, 2020

Phone: 022 12345678

Fax: 022 – 11112222

Ref. No.: C/2060/20-18

Mr. John Methiw

508, Lokesh Apartments,

AK.D. Road,

Mumbai – 4000089

Sub: Allotment of Debentures

Dear Sir,

        In response to your application No. V65432 dated 27th Sep 2020, I am directed by the Board of Directors to inform you that, you have been allotted 100, 10% Non-convertible secured debentures of ₹100/- each. The tenure of debentures is for 5 years.

       These debentures are allotted to you as per Board Resolution passed at Board Meeting held on 15th Oct 2020 and as per terms and conditions of Articles of Association of the company and Debenture Trust Deed.

The details of allotment of debentures are as follows:

12345
Folio No.No. of Debentures AppliedNo. of Debentures AllottedDistinctive NumbersAmount Received (₹)
   FromTo 
D-1231001009011000₹ 10,000

The Debenture Certificate is enclosed herewith.

Thanking You,

Yours Faithfully,

For Hulk Motors Ltd.

Sign

Mr. Kamlesh Gaikwad

Company Secretary

Encl: Debenture Certificate


2.Write a letter to the debenture holder regarding payment of interest through Interest Warrant.

SOLUTION

  1. Debenture capital is a loan or borrowed capital of a company.
  2. Debenture holders are the creditors and they get a fixed rate of interest as a return on their investment in debentures.
  3. The interest paid by the company is a debt and does not depend upon profits.
  4. The company pays interest through an Interest warrant which is sent along with this letter.
  5. This letter contains details such as No. of debentures, Distinctive numbers, Gross amount of interest payable, TDS deducted, Net amount of interest payable, etc.

HULK MOTORS LTD.

Registered office: Plot No. 05, Commercial Towers, P.K. Road,

Mumbai – 400067

CIN: R20020 MH 1000 PLC123456

Website: wwww.hulkmotors.in

Email: hulk4321@gmail.com

Date: 17th Oct, 2020

Phone: 022 12345678

Fax: 022 – 11112222

Ref. No.: C/2060/20-18

Mr. John Methiw

508, Lokesh Apartments,

AK.D. Road,

Mumbai – 4000089

Sub: Payment of Interest on Debentures.

Dear Sir,

I am directed to inform you that, the Board of Directors has passed a resolution in the Board Meeting held on 15th Oct, 2020 regarding payment of interest on your 100, 10% Non-convertible debentures of ₹ 100/- each for the year ending 31st March, 2020.

The details of payment of interest payable to you are as follows:

1234567
Folio No.No. of DebenturesDistinctive NumbersGross Amt. of InterestT.D.S (10% on interest)Net Amt. of InterestInterest Warrant No.
  FromTo    
D-1231009011000₹ 1,000NIL₹ 1,000C1234

The Interest Warrant is enclosed herewith. Please detach the Interest Warrant along the perforated line.

Thanking You,

Yours Faithfully,

For Hulk Motors Ltd.

 Sign           

Mr. Kamlesh Gaikwad

Company Secretary

Encl: Interest Warrant


3.Draft a letter to debentureholder informing him about redemption of debentures.

SOLUTION

  1. Letter of Redemption is sent to debentureholders whose debentures are to be redeemed after the specified period.
  2. A Debenture Redemption Reserve Fund (DRRF) is created by the company for the purpose of redemption of debentures.
  3. Debenture Redemption Form is sent along with this letter. This form along with necessary documents has to be submitted to the company by the debentureholders in order to redeem the shares.
  4. This letter is sent in order to inform the debentureholders that their debentures have become due for redemption.

HULK MOTORS LTD.

Registered office: Plot No. 05, Commercial Towers, P.K. Road,

Mumbai – 400067

CIN: R20020 MH 1000 PLC123456

Website: www.hulkmotors.in

Email: hulk4321@gmail.com

Date: 17th Oct, 2020

Phone: 022 12345678

Fax: 022 – 11112222

Ref. No.: C/2060/20-18

Mr. John Methiw

508, Lokesh Apartments,

AK.D. Road,

Mumbai – 4000089

Sub: Redemption of Debentures

Dear Sir,

      This is to inform you that 100000, 10% Non-convertible Debentures issued in June, 2015 are due for redemption on 15th June, 2020. According to Board Resolution No. 1234, passed at the Board Meeting held on 8th June, 2020, debentures shall be redeemed out of the ‘Debenture Redemption Reserve Fund’ of the company.

     Please arrange to submit the enclosed ‘Debenture Redemption Form’ along with the original Debenture Certificate to the company, on or before 3rd July, 2020  On completion of the above formalities, the redemption amount will be credited to your bank account.

     You are requested to provide us your Bank Account details.

      Thanking You,

Yours Faithfully,    

For Hulk Motors Ltd.

 Sign             

Mr. Kamlesh Gaikwad

Company Secretary

Encl: Debenture Redemption Form


4.Write a letter to debentureholder informing him about conversion of debentures into equity shares.

SOLUTION

  1. Convertible debentures are the debentures that are converted into equity shares on the expiry of a specified period at a specified rate mentioned in the terms of issue.
  2. After the receipt of the Letter of Option, the Secretary sends a letter informing the debenture holders that the debentures are converted into equity shares.
  3. The secretary either sends the share certificate along with the letter or states in the letter that the share certificate will be issued to them in due course.
  4. The company has to get the approval of shareholders by passing a special resolution at the Extra Ordinary General Meeting for the conversion of debentures into equity shares.
  5. After receiving the approval, the company sends a letter of conversion of debentures to the debenture holders.

HULK MOTORS LTD.

Registered office: Plot No. 05, Commercial Towers, P.K. Road,

Mumbai – 400067

CIN: R20020 MH 1000 PLC123456

Website: wwww.hulkmotors.in

Email: hulk4321@gmail.com

Date: 17th Oct, 2020

Phone: 022 12345678

Fax: 022 – 11112222

Ref. No.: C/2060/20-18

Mr. John Methiw

508, Lokesh Apartments,

AK.D. Road,

Mumbai – 4000089

Sub: Conversion of Debentures into Equity Shares

Dear Sir,

        I am directed to inform you that in accordance with the terms decided at the time of issue of 1,00,000, 10% fully convertible debentures, the debentures are due for conversion. In accordance with the above, a Special Resolution was passed by the shareholders in the Extra – Ordinary General Meeting held on 5th Oct, 2020 for approval of the conversion of debentures into equity shares in the ratio of 2 : 1.

        As per your Letter of Option you have been allotted 50 Equity shares in lieu of 100 Debentures. Details of your holding after conversion are as follows:

12345
Folio No.No. of Debentures heldNo. Of Equity Shares IssuedDistinctive NumbersShare Certificate No.
   FromTo 
D-123100509011005678

      Duly signed and executed share certificate is enclosed herewith. Debenture Certificate will be null and void w.e.f. 5th Oct, 2020.

      Thanking You,

Yours Faithfully,    

For Hulk Motors Ltd.

 Sign           

Mr. Kamlesh Gaikwad

Company Secretary

Encl: Share Certificate


5.Write a letter to debentureholder informing him about conversion of debentures into equity shares.

SOLUTION

  1. Convertible debentures are the debentures that are converted into equity shares on the expiry of a specified period at a specified rate mentioned in the terms of issue.
  2. After the receipt of the Letter of Option, the Secretary sends a letter informing the debenture holders that the debentures are converted into equity shares.
  3. The secretary either sends the share certificate along with the letter or states in the letter that the share certificate will be issued to them in due course.
  4. The company has to get the approval of shareholders by passing a special resolution at the Extra Ordinary General Meeting for the conversion of debentures into equity shares.
  5. After receiving the approval, the company sends a letter of conversion of debentures to the debenture holders.

HULK MOTORS LTD.

Registered office: Plot No. 05, Commercial Towers, P.K. Road,

Mumbai – 400067

CIN: R20020 MH 1000 PLC123456

Website: wwww.hulkmotors.in

Email: hulk4321@gmail.com

Date: 17th Oct, 2020

Phone: 022 12345678

Fax: 022 – 11112222

Ref. No.: C/2060/20-18

Mr. John Methiw

508, Lokesh Apartments,

AK.D. Road,

Mumbai – 4000089

Sub: Conversion of Debentures into Equity Shares

Dear Sir,

        I am directed to inform you that in accordance with the terms decided at the time of issue of 1,00,000, 10% fully convertible debentures, the debentures are due for conversion. In accordance with the above, a Special Resolution was passed by the shareholders in the Extra – Ordinary General Meeting held on 5th Oct, 2020 for approval of the conversion of debentures into equity shares in the ratio of 2 : 1.

        As per your Letter of Option you have been allotted 50 Equity shares in lieu of 100 Debentures. Details of your holding after conversion are as follows:

12345
Folio No.No. of Debentures heldNo. Of Equity Shares IssuedDistinctive NumbersShare Certificate No.
   FromTo 
D-123100509011005678

       Duly signed and executed share certificate is enclosed herewith. Debenture Certificate will be null and void w.e.f. 5th Oct, 2020.

      Thanking You,

Yours Faithfully,    

For Hulk Motors Ltd.

 Sign           

Mr. Kamlesh Gaikwad

Company Secretary

Encl: Share Certificate


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