Hey guys, I had a doubt w.r.t the distinction between deposits and debentures under the CA, 2013. So, apart from the fact that the definition of deposits excludes certain kinds of debentures, why is the distinction between deposits and debentures made? Can someone please explain the rationale?
Debentures are issued in one go and Return of Allotment is filed post allotment of debentures while deposits are accepted by Companies for longer duration. Also, deposits need to be repayed within 3 years while debentures can remain outstanding for 20 years.
Deposit is a wider term than debenture, as any kind of receipt of money would be deposit, unless specifically excluded.
Debenture is a specific format of instrument and whilst it represents a debt, is different from loan.
Also, any company may issue debenture, but unless specific thresholds are met, a company cannot accept deposit.
To summarise, all debentures (unless excluded in terms of Acceptance of Deposit Rules, basis the subscriber (such as company) or nature of instrument (item (ix) and (ixa)) ) are deposit, but not all deposits are debentures.
I had a doubt w.r.t the distinction between deposits and debentures under the CA, 2013.
So, apart from the fact that the definition of deposits excludes certain kinds of debentures, why is the distinction between deposits and debentures made?
Can someone please explain the rationale?
Deposits can only be raised through members.
(And persons other than members if public company crosses a certain threshold prescribed.)
Further, certain debentures are convertible into equity shares but deposits cannot be converted into equity.
Also, deposits need to be repayed within 3 years while debentures can remain outstanding for 20 years.
Debenture is a specific format of instrument and whilst it represents a debt, is different from loan.
Also, any company may issue debenture, but unless specific thresholds are met, a company cannot accept deposit.
To summarise, all debentures (unless excluded in terms of Acceptance of Deposit Rules, basis the subscriber (such as company) or nature of instrument (item (ix) and (ixa)) ) are deposit, but not all deposits are debentures.