Rule 18 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.
Rule 18 of the Share Capital Rules carries the working conditions for secured debentures, which any loan and security documentation for an issue must follow. Sub-rules (1) to (6) cover the redemption period, the charge, the debenture trustee, the trustee's duties, debenture holder meetings and the trust deed in Form SH-12. This article states those sub-rules as amended up to G.S.R. 43(E) dated 21 January 2023 per the MCA e-book; later amendments should be checked. The debenture redemption reserve in sub-rules (7) to (11) is in a companion article.
A company shall not issue secured debentures unless the redemption date is within ten years of issue (up to thirty years for infrastructure and certain other classes), the issue is secured by a charge on assets of sufficient value, a debenture trustee is appointed before the prospectus or letter of offer, and a trust deed in Form SH-12 is executed. Sub-rules (2) to (5) do not apply to a public offer of debentures. The Act's own provisions are in section 71.
Conditions for a secured issue: sub-rule (1)
| Clause | Condition |
|---|---|
| (a) | Date of redemption must not exceed ten years from the date of issue. |
| Proviso to (a) | Four classes may issue for more than ten but not more than thirty years: companies setting up infrastructure projects; Infrastructure Finance Companies as defined in the NBFC Prudential Norms Directions, 2007; Infrastructure Debt Fund NBFCs as defined in the Infrastructure Debt Fund NBFC Directions, 2011; and companies permitted by a Ministry or Department of the Central Government, the Reserve Bank of India, the National Housing Bank or another statutory authority to issue for a longer period. |
| (b) | The issue is secured by a charge on properties or assets of the company, its subsidiaries, holding company or associate companies, of value sufficient for due repayment of the debentures and interest. |
| (c) | The debenture trustee is appointed before the prospectus or letter of offer is issued, and a trust deed is executed not later than sixty days after allotment. |
| (d) | Security by charge or mortgage is created in favour of the debenture trustee on any specific movable property of the company, its holding company, subsidiaries or associate companies or otherwise, and on any specific immovable property wherever situated, or any interest in it. |
Three further provisos follow clause (d). For a non-banking financial company, the charge under sub-clause (i) may be on any movable property. Where a Government company issues debentures fully secured by a guarantee of the Central Government, one or more State Governments or both, the requirement of a charge under the sub-rule does not apply. Where a subsidiary takes a loan from a bank or financial institution, the charge or mortgage may also be created on the holding company's properties or assets. The RBI directions named in the proviso are quoted as printed; check the current text of those directions.
Drafting note: clause (c) says the trust deed is executed not later than sixty days after allotment, while sub-rule (5) says the SH-12 trust deed is executed within three months of the closure of the issue or offer. Both periods are printed in the rule; take advice on which controls your issue, and do not assume one overrides the other.
Appointing the debenture trustee: sub-rule (2)
The company appoints trustees under section 71(5) after complying with these conditions:
- the trustees' names are stated in the letter of offer inviting subscription and in all later notices or communications to debenture holders;
- before appointment, the trustee's written consent is obtained and a statement of that consent appears in the letter of offer;
- a person cannot be appointed if he beneficially holds shares in the company; is a promoter, director, key managerial personnel, other officer or employee of the company or its holding, subsidiary or associate company; is beneficially entitled to money payable by the company other than the trustee's remuneration; is indebted to the company, its subsidiary, holding or associate company or a subsidiary of the holding company; has furnished any guarantee for the principal debts secured by the debentures or the interest; has a pecuniary relationship with the company amounting to two per cent or more of its gross turnover or total income, or fifty lakh rupees or such higher amount as may be prescribed, whichever is lower, in the two preceding financial years or the current one; or is a relative of any promoter or any person employed by the company as director or key managerial personnel;
- the Board may fill a casual vacancy, and the remaining trustee or trustees may act meanwhile; where the vacancy is caused by resignation, it can be filled only with the written consent of a majority of the debenture holders;
- a trustee may be removed before the term ends only with the approval of holders of not less than three-fourths in value of the debentures outstanding, at their meeting.
Duties of the trustee: sub-rule (3)
The trustee must:
- satisfy himself that the letter of offer holds nothing inconsistent with the terms of issue or the trust deed, and that the covenants do not prejudice debenture holders;
- call for periodical status or performance reports, and reports on the utilisation of funds raised;
- communicate promptly to debenture holders any default in interest or redemption and the action taken;
- appoint a nominee director on the Board on two consecutive defaults in interest, a default in creating the security, or a default in redemption;
- ensure the company does not breach the terms of issue or the trust deed, take reasonable steps to remedy any breach and inform holders immediately of it;
- ensure security is created and the debenture redemption reserve requirements are implemented;
- ensure the assets of the company and any guarantors are sufficient to discharge interest and principal at all times and are clear of other encumbrances except those the holders specifically agreed;
- act if the security becomes enforceable, convene meetings of holders when required, ensure debentures are converted or redeemed under the terms of issue, and do all acts necessary to protect holders and resolve their grievances.
Meetings, the SH-12 trust deed and public offers
Meetings (sub-rule (4)). The trustee convenes a meeting of all debenture holders on a written requisition signed by holders of at least one-tenth in value of the debentures outstanding, or on the happening of any event that constitutes a breach or default or, in the trustee's opinion, affects holders' interest.
Trust deed (sub-rule (5)). For section 71(13) and sub-rule (1), a trust deed in Form SH-12, or as near to it as possible, is executed by the company in favour of the debenture trustees within three months of the closure of the issue or offer.
Public offers (sub-rule (6)). Sub-rules (2) to (5) do not apply to a public offer of debentures. The sub-rule's wording does not mention sub-rule (1), so the conditions in sub-rule (1) are not displaced by it.
Example
Greenline Power Limited plans to raise money through secured debentures for a power transmission project. As a company setting up infrastructure projects it may fix a redemption date more than ten years, but not more than thirty years, from the issue date. It obtains the written consent of a debenture trustee company before issuing the letter of offer, names the trustee in it, checks the trustee against the disqualifications in sub-rule (2)(c), executes the SH-12 trust deed, and creates a charge on specific property in the trustee's favour.
Need help with debenture documentation?
A secured issue involves a trust deed, trustee consent, security creation and disclosures that must match each other. We help draft and review these papers; see our loan and security documentation support.
Key takeaways
- Redemption within ten years; up to thirty years for four named classes.
- The issue must be secured by a charge on assets of sufficient value.
- The trustee is appointed before the prospectus or letter of offer, with written consent.
- Sub-rule (2)(c) lists who cannot be trustee; sub-rule (3) lists the trustee's duties.
- Form SH-12 trust deed; sub-rules (2) to (5) do not apply to a public offer.
Read next
- Rule 18(7)–(11): debenture redemption reserve and investment of funds
- Rules 1–4 of the Registration of Charges Rules: CHG-1 and delayed filing
- Debenture trust deed: trustee appointment and key clauses
- Debentures: types, issue process and compliance
Disclaimer: Based on the Companies Act, 2013 rules named above as consolidated in the MCA e-book (consulted on 3 October 2026), with the later notifications the article names. Later amendments, fees, forms and the Companies Act, 2013 provisions referred to should be checked. This article is general information, not legal advice; check the official text before acting.