Debenture Deed explained: this guide covers what it means, who it applies to, the step-by-step process, documents required, fees, due dates and penalties in India — so you can stay compliant with confidence and avoid costly mistakes.
What Is a Debenture Deed?
A debenture deed is the document that creates and evidences the loan obligation of a company to the debenture holders and the security (charge) created on the company's assets. Under Section 71 of the Companies Act, 2013: companies can issue debentures (secured or unsecured) to raise debt capital. Secured debentures are backed by a charge on the company's assets (first charge = priority over other creditors; second charge = subordinate to the first charge holder). The debenture deed specifies: the principal amount, interest rate, repayment schedule, security, covenants, and events of default.
First Charge vs Second Charge
| Feature | First Charge | Second Charge |
|---|---|---|
| Priority | FIRST priority — paid first from secured assets | SECOND priority — paid after first charge holder |
| Risk | Lower — first claim on assets | Higher — residual claim after first charge |
| Interest Rate | Lower (lower risk) | Higher (higher risk premium) |
| Lender | Typically banks/FIs | Typically NBFCs/supplementary lenders |
| Consent | No consent needed | First charge holder's consent usually required |
Key Clauses of Debenture Deed
1. Parties: Company (borrower) and debenture holders (or debenture trustee on behalf of holders). 2. Amount: "The Company has created and issued secured debentures of Rs. each, aggregating to Rs. ." 3. Interest: "% per annum, payable on ." 4. Redemption: "The debentures shall be redeemed at par on / in equal installments commencing ." 5. Security: "The debentures are secured by a charge on: (a) , (b) , (c) ." 6. Covenants: (a) maintain asset coverage ratio of [1.25x-1.5x], (b) not create any prior or pari passu charge without consent, (c) maintain insurance on charged assets, (d) comply with all applicable laws, (e) provide financial statements to the trustee. 7. Events of Default: (a) non-payment of interest/principal for [30] days, (b) breach of covenant, (c) insolvency, (d) winding up order, (e) cross-default. 8. Remedies: On default: the trustee/debenture holders may: (a) declare all debentures immediately due, (b) enforce the security — take possession and sell the charged assets, (c) appoint a receiver.
Section 71 Compliance
(a) Debenture Redemption Reserve (DRR): Listed companies issuing debentures must create a DRR — at least 10% of outstanding debentures (reduced from 25% by MCA notification 2019). Deposit at least 15% of debentures maturing in the current year + next year in specified securities/deposits. (b) Debenture Trust Deed: For secured debentures: a Debenture Trust Deed must be executed (within 60 days of allotment) appointing a debenture trustee — typically a scheduled bank, insurance company, or registered trustee company. (c) Charge Registration: File Form CHG-1 with ROC within 30 days of creating the charge — registering the debenture security. Non-filing: the charge is void against the liquidator and creditors. (d) Allotment Filing: File Form PAS-3 (return of allotment) within 30 days of debenture allotment.
ROC Filing — CHG-1
Under Section 77: every company creating a charge on its property/assets must file Form CHG-1 with the ROC within 30 days. The form includes: (a) nature of charge (first/second/floating), (b) description of property charged, (c) amount secured, (d) charge holder details. Late filing: up to 300 days with additional fees (condonation by Central Government). Beyond 300 days: charge cannot be registered — requires NCLT application under Section 87.
Disclaimer: This article is for informational purposes only and does not constitute legal or professional advice. While every effort has been made to ensure accuracy based on the latest laws and amendments, readers should consult a qualified professional before acting on any information provided. For expert assistance, contact us.
Key Facts About Debenture Deed
- Applies in: All states across India, under the relevant central law.
- Mode: Mostly online via the official government portal.
- Typical timeline: Ranges from a few days to a few weeks depending on the case.
- Non-compliance: May attract penalties, interest or late fees.
- Expert help: TaxClue completes the entire process end to end for you.
What is the difference between first charge and second charge debentures?
FIRST CHARGE: the debenture holder has FIRST priority over the charged assets — in case of default/liquidation, the first charge holder is paid FIRST from the sale proceeds. Lower risk → lower interest rate. Typically held by banks. SECOND CHARGE: the debenture holder has SUBORDINATE priority — paid from the charged assets ONLY after the first charge holder is fully satisfied. Higher risk → higher interest rate. Typically held by NBFCs/supplementary lenders. Creating a second charge usually requires the FIRST charge holder's CONSENT (as the first charge deed typically restricts subsequent charges).
Must a debenture trust deed be executed?
For SECURED debentures: YES — Section 71(5) requires execution of a Debenture Trust Deed within 60 DAYS of allotment, appointing a debenture trustee. The trustee acts on behalf of ALL debenture holders — monitoring the company's compliance, enforcing security on default, and protecting debenture holders' interests. Eligible trustees: (a) scheduled bank, (b) insurance company, (c) body corporate registered as trustee under the Companies Act. For UNSECURED debentures: a trust deed is not mandatory but recommended for large issues.
Over 90% of compliance penalties in India arise from missed due dates — timely handling can save businesses thousands of rupees each year.
Debenture Deed: a key compliance topic in Indian tax and corporate law that businesses and individuals must understand to remain compliant.