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.
A secured debenture is only as strong as the charge behind it, and the rank of that charge decides who is paid first if the company cannot pay everyone. This guide concentrates on that point. It gives a specimen of the security and ranking clauses of a secured debenture deed, with alternatives for a first charge, a second charge and a pari passu charge, and explains how each clause works with section 71 of the Companies Act, 2013, rule 18 of the Share Capital and Debentures Rules, 2014 and the charge registration provisions of section 77. For the trustee and the full trust deed, read our companion guide on the debenture trust deed and trustee clauses. If you need the deed prepared, our loan documentation team can help.
A company may issue secured debentures only on the terms prescribed under section 71(3). Rule 18(1) says the issue must be secured by a charge on assets of the company, its subsidiaries, its holding company or its associates having a value sufficient for due repayment of the debentures and interest, and the charge or mortgage must be created in favour of the debenture trustee on specific movable property or specific immovable property. The deed should state the rank of the charge, the assets, the minimum cover and any prior charge-holder's consent. The charge must be registered with the Registrar within thirty days of creation, with extensions only as section 77 provides.
What a debenture deed does
A debenture is an instrument of debt issued by a company that acknowledges its duty to repay a sum with interest. In practice, a secured issue involves two layers of paper: the debenture certificate or terms issued to each holder, and a deed that sets out the security and the trustee's role. This article is about the security layer, where the words "first", "second" and "pari passu" appear.
Rank matters in these ways.
- A first charge gives the debenture trustee the first claim on the charged asset.
- A second charge ranks behind an earlier charge on the same asset; the second-ranking holders are paid from what remains after the first charge is satisfied.
- A pari passu charge shares the same asset equally, in proportion to the amounts secured, among two or more charge-holders.
Which one you can offer depends on what the company has already charged. Many companies have working capital lenders with a charge on current assets, so a debenture issue may have to rank second or share pari passu.
Specimen security and ranking clauses
This is a general model for the security part of a secured debenture deed. It assumes a trust deed on Form SH-12 lines is also signed. Adapt the brackets and delete the ranking option that does not apply.
DEBENTURE DEED - SECURITY AND RANKING CLAUSES This Deed is made on at BETWEEN (the "Company") AND (the "Trustee"), acting for the holders of the Debentures (the "Holders"). 1. The Debentures. The Company has issued secured debentures of face value each, for a total of (the "Debentures"), on the terms of the offer document dated , redeemable on , with interest at payable . 2. Secured Assets. The Debentures are secured by the assets described in the Schedule (the "Secured Assets"), which belong to as stated in the Schedule. Where an asset belongs to a person other than the Company, that person has joined this Deed to create the charge. 3. Nature of charge. The charge on the assets in Part A of the Schedule is a charge over specific property. The charge on the assets in Part B is a charge on . The Trustee may by written notice convert a floating charge into a fixed charge over assets named in the notice where it considers that they are in danger of being seized, sold or attached. 4. Ranking - option 1 (first charge). The charge created by this Deed is a first and exclusive charge on the Secured Assets in favour of the Trustee for the benefit of the Holders. The Company confirms that no other charge, mortgage, lien or encumbrance exists on the Secured Assets, except those listed in the Schedule under "Permitted Encumbrances". 4. Ranking - option 2 (second charge). The charge created by this Deed is a second charge on the Secured Assets, ranking after the existing first charge in favour of securing (the "Prior Charge"). The Company confirms that: (a) the Prior Charge secures not more than ; (b) the Prior Charge-holder has given its written consent to this charge, a copy of which is attached; (c) the Company is not in default under the Prior Charge; and (d) the Company shall not increase the amount secured by the Prior Charge without the Trustee's approval. 4. Ranking - option 3 (pari passu charge). The charge created by this Deed ranks equally and rateably (pari passu), without preference by reason of date or priority, with the charge in favour of securing . The Trustee and the other charge-holder have signed the sharing arrangement attached, which sets out how enforcement proceeds are shared in proportion to the amounts secured. 5. Minimum security cover. The Company shall keep the value of the Secured Assets at not less than times the amount outstanding on the Debentures (principal and interest). The value shall be certified by . If the cover falls below the ratio, the Company shall within add assets acceptable to the Trustee or pay down the Debentures. 6. Title and examination. The Company confirms that the Trustee has examined the title documents listed in the Schedule and that the Company has clear title to the Secured Assets. The Company shall give the Trustee any further papers it reasonably asks for. 7. Preservation. The Company shall keep the Secured Assets in good order, insured with the Trustee noted as interested party for and shall pay all rents, taxes and charges on them on time. 8. No further charge. Without the Trustee's prior written approval, the Company shall not create any further charge on the Secured Assets, sell, lease or otherwise part with them, or let any person exercise rights over them, except in the ordinary course of business for assets under a floating charge. 9. Future assets. Assets of the kind in Part C of the Schedule that the Company acquires later shall become Secured Assets within of acquisition, and the Company shall sign the papers needed. 10. Registration. The Company shall file the particulars of the charge, signed by the Company and the Trustee with the instruments creating it, with the Registrar of Companies within the period allowed by section 77 of the Companies Act, 2013 and shall give the Trustee the certificate of registration within of receiving it. Where the law requires, the Company shall also record the charge with . 11. Enforcement. The charge becomes enforceable when a Default Event under the Trust Deed occurs and the Trustee has given notice. The Trustee may then take possession of the Secured Assets, sell or realise them, by public auction or private contract, and apply the proceeds first to costs, then to interest, then to principal, sharing any shortfall among the Holders in proportion to the amount of Debentures held. Where the charge ranks second or pari passu, enforcement and proceeds shall follow the arrangement attached under clause 4. 12. Release. When all amounts secured have been paid, the Trustee shall at the Company's request and cost release the Secured Assets and sign the papers needed to record satisfaction of the charge. 13. Governing law and disputes. This Deed is governed by the laws of India. Disputes shall be settled by ]. IN WITNESS WHEREOF the parties have signed this Deed on the date first written above. For For Name: Name: Designation: Designation: Signature: ____________ Signature: ____________ WITNESSES 1. Name: Address: Signature: ____________ 2. Name: Address: Signature: ____________ SCHEDULE Part A - Specific assets: Part B - Floating charge assets: Part C - Future assets: Permitted Encumbrances: Prior Charge or sharing arrangement:
Clause-by-clause explanation
| Clause | What it does | Drafting tip |
|---|---|---|
| The Debentures (1) | Identifies the issue and links to the offer document | Keep the figures identical to the offer document and the trust deed |
| Secured Assets (2) | Lists assets and owners, including group companies | Where the owner is another group company, make it a party; rule 18(1)(b) allows assets of subsidiaries, holding company or associates |
| Nature of charge (3) | Fixed on specific property, floating on a class of assets | Rule 18(1)(d) requires a charge on specific movable or immovable property in favour of the trustee |
| Ranking (4) | States first, second or pari passu rank | Choose one option; attach consent or the sharing arrangement |
| Cover (5) | Keeps asset value above the debt | Name the valuer and the periodicity |
| Title (6) | Confirms ownership and examination | Attach the title papers |
| Preservation (7) | Insurance and upkeep | Note the trustee as interested party |
| No further charge (8) | Stops the company diluting the security | Allow ordinary-course dealings only for floating assets |
| Future assets (9) | Extends the security to later assets | Set a time limit |
| Registration (10) | Files the charge with the Registrar | Diarise thirty days from creation |
| Enforcement (11) | Triggers and order of payment | Align with the trust deed's events of default |
| Release (12) | Closes the charge when paid | Record satisfaction with the Registrar |
The law behind the deed
Section 71(3) of the Companies Act, 2013 lets a company issue secured debentures subject to prescribed terms. Rule 18(1) prescribes them. In summary, the redemption date must not exceed ten years from the date of issue, with longer periods up to thirty years allowed for the classes the rule names, such as companies setting up infrastructure projects. The issue must be secured by a charge on the properties or assets of the company or its subsidiaries, holding company or associates, with a value sufficient for the repayment of the debentures and interest. The company must appoint the debenture trustee before the prospectus or letter of offer and sign the trust deed within the time stated, and the charge or mortgage must be created in favour of the trustee on specific movable property or specific immovable property. For a non-banking financial company, the charge may be created on any movable property. For a Government company's issue fully backed by a surety given by the Central Government or one or more State Governments, the requirement to create a charge does not apply, as the rule's provisos state. See section 71 and rule 18(1) to (6).
Section 77(1) requires a company creating a charge to register its particulars, signed by the company and the charge-holder, together with the instruments creating the charge, with the Registrar within thirty days of creation. The provisos allow, on application and payment of additional fees, a later period: sixty days for charges created on or after the commencement of the Companies (Amendment) Act, 2019, and a further sixty days in a case that qualifies. Section 77(3) says that no charge created by a company shall be taken into account by the liquidator or any other creditor unless it is duly registered and a certificate of registration is given. See filing a charge with the Registrar.
Under section 71(4) and rule 18(7), a debenture redemption reserve may be required; the rule varies it by class of company. For debentures that can be converted into shares, section 71(1) requires approval by special resolution in general meeting. Our guide to debentures: types, issue process and compliance covers these.
Stamp duty, registration and execution
A debenture deed that creates security is ordinarily an instrument chargeable with stamp duty. The duty is fixed by the Stamp Act and Schedule of the State where it is executed; see stamp duty on bonds and debentures and stamp duty on legal documents, State-wise. Under section 17(2)(iii) of the Registration Act, 1908, a debenture not itself creating or extinguishing an interest in immovable property is outside section 17(1)(b) and (c), except so far as it entitles the holder to the security of a registered instrument by which the company mortgaged immovable property to trustees for the holders. If the deed itself mortgages immovable property, check whether registration is needed.
Execution steps: confirm approvals, examine title, obtain the prior charge-holder's consent for a second charge, settle the sharing arrangement for pari passu, sign with witnesses, then file the charge particulars with the Registrar within the period allowed and update the register of charges.
Common mistakes
- Offering a first charge on an asset already charged to a lender.
- Taking a second charge without the first lender's written consent.
- Describing assets generally instead of by location, title and value basis.
- Missing the thirty-day period for registration, and relying on a late filing.
- Ignoring the rule 18 requirement that the charge be in favour of the debenture trustee.
- Failing to set a security cover and top-up mechanism.
- Allowing the company to create later charges without trustee approval.
- Leaving out how proceeds are shared where the charge is second or pari passu.
Need help with a secured debenture issue?
A secured issue needs consistent papers: approvals, offer document, trust deed, security deed and charge filing. Our loan documentation support covers the full set and checks rank, consents and timelines before you sign.
Key takeaways
- Rank of charge is the central drafting choice: first, second or pari passu.
- Rule 18(1) requires a charge on specific assets in favour of the debenture trustee, with sufficient value.
- A second or pari passu charge needs the prior charge-holder's consent or a sharing arrangement.
- Register the charge within thirty days of creation under section 77.
- Stamp duty depends on the State; registration depends on any immovable property mortgage.
Read next
- Debenture trust deed: trustee appointment and clauses
- Section 71 of the Companies Act, 2013: debentures
- Share capital and debenture rules
- Filing a charge with the Registrar
Disclaimer: This specimen is a general model for information. Every document must be adapted to its facts and to the law, rules and forms in force when it is signed or filed; stamp duty, registration and court fees depend on the State and the forum. This article is general information, not legal advice; check the official text before acting.