Shriya Nayyar writes on the scope of ‘Debentures’ under the Companies Act, 2013.

Abstract

Since its enactment on August 29, 2013, the Companies Act 2013 (“2013 Act”) has progressively gained notoriety for opening up a can of worms and unsettling the status quo on many previously settled legal positions. One such debate concerns the changed definition of ‘debentures’ under the 2013 Act which, according to some, has blurred the
distinction between negotiable instruments and marketable securities and could lead to the inclusion of negotiable instruments like Commercial Paper (“CP”) within the
ambit of ‘debentures’. This issue has much relevance in commercial circles as a CP issuance is one of the most common routes taken by corporates and NBFCs for short term investments and working capital. Many in corporate circles have expressed concerns that owing to this change, a CP issue could now require compliance with norms
related to debentures under the 2013 Act. However, no clarity on this issue has emerged from the MCA. In this comment, the author has tried to reconcile this debate by conjointly reading the 2013 Act with the Securities Contract (Regulation) Act, 1956 (“SCRA”). It is the author’s analysis that the changed definition is not an attempt to include all negotiable instruments within the ambit of debentures. Instead, the definition merely attempts to align the 2013 Act with prior judicial pronouncements of the Supreme Court. However, upon a conjoint reading of the 2013 Act with the SCRA, it may now be possible to include a CP within the ambit of a debenture.