Section 2(12) defines, "debenture includes debenture
stock, bonds and other securities of a company, whether constituting a charge
on the assets of the company or not."
2. What is hypothecation of debenture?
It is a method of creating a charge over the movable assets. Hypothecation
implies that the possession and ownership (property) in the goods remain with
the borrower (hypothecator) and only an equitable charge is created in favour
of the lender (hypothecatee). Thus, under hypothecation neither ownership
nor possession of goods is transferred to the lender but the borrower binds
himself, under an agreement, to give the possession of the goods to the lender
on demand.
3. What is debenture stock?
Debenture stock means the borrowed capital consolidated into one mass. Unlike
debentures, which is always of a fixed denomination, indivisible and transferable
in its entirely, debenture stock is not of any fixed amount, divisible to
any extent and may be transferred even in fractional amount. Debenture stock
can be issued originally.
4. What is 'Trust Deed'?
Secured debentures carry a charge, fixed or floating, on the company's property.
In the case of secured debentures, the issuing company mortgages property
with the 'trustees' through a 'debenture trust deed'. The trust deed contains
detailed conditions and stipulations safeguarding the interests of debentureholders.
It usually empowers the trustees to appoint a receiver for enforcing
the security in case the company makes a default in payment of the principal
or interest.
5. What is 'Pledge'?
A pledge is a bailment of goods by one person to another to secure payment
of a debt. Section 172 of the Indian Contract Act, 1872 defines pledge as
the "bailment of goods as security for payment of a debt or performance
of promise." Thus, under pledge possession of movable assets is given
to the pledgee as security for the debt without transferring the ownership
to him.
