. Debentures Adequate amount of capital is necessary to run a business effectively/successfully. In some cases capital arranged through internal resources i.e. by way of issuing equity share capital or using accumulated profit is not adequate and the organisation is resorted to external resources of arranging capital i.e.
External Commercial borrowing (ECB), Debentures, Bank Loan, Public Fixed Deposits etc. When a company needs funds for extension and development purpose without increasing its share capital, it can borrow from the general public by issuing certificates for a fixed period of time and at a fixed rate of interest. Such a loan certificate is called a debenture. Debentures are offered to the public for subscription in the same way as for issue of equity shares.
Debenture is issued under the common seal of the company acknowledging the receipt of money. According to Section ( ) of Companies Act “debenture” includes debenture stock, bonds or any other instrument of a company evidencing a debt, whether constituting a charge on the assets of the company or not; It is evident from the definition that the term debentures covers both secured and unsecured debentures.