Meaning: - Joint Stock Companies can issue either non-convertible or convertible debentures. SEBI (Disclosure and Investor Protection) Guidelines 2000 has given necessary provisions relating to convertible and nonconvertible debentures.
Section 81(3) of the Companies Act permits companies to issue Convertible debentures. Convertible debentures are converted into equity shares on maturity. The conversion date and rate of conversion is stated in the prospectus. Convertible debentures are not redeemed by the company.
Convertible debentures are further classified as (A) Full Convertible Debentures, (B) Partly convertible Debentures.
Procedure for conversion of Debentures into Shares:
1. Board Resolution: -A resolution for conversion is approved in the board meeting. The shareholders as well as debenture holders’ approval is taken for conversion. A special resolution is passed to that effect. A copy of special resolution is filed with the Registrar of companies within 30 days of its passing.
2. Letter of Option: -A letter of option is sent to debenture holders and one copy of the same is filed with SEBI. The secretary then verifies the consent sent by debenture holders for conversion.
3. Allotment of Shares: -Debenture is converted into equity shares. A notice of conversion is sent and debenture holders are asked to return debenture certificates. Secretary carries out allotment of shares to debenture holders in due course.
4. Changes in Register of Charges: -After allotment of shares, necessary changes are to be made in the Register of Charges. Company has to cancel the charges against assets which were created at the time of issue of debentures.
5. Entry in Register of Members: -Shares Certificate is issued to holders and their names are entered in the Register of Members.
6. Filing of Returns of Allotment: -A Return of allotment is filed with the Register of Companies within 30 days of allotment.
