A Company can issue:

Question

Accepted Answer

The correct option is 4:
All type of debentures as shown in (1), (2) and (3)

A company has the flexibility, within the framework of the Companies Act and SEBI regulations, to issue a diverse range of debt instruments to meet its funding requirements. The term 'debentures' is a broad category, and the options listed—Zero coupon rate debentures, Partly convertible debentures, and Secured debentures—represent valid, distinct, and common forms of debenture instruments used in the financial market. Zero Coupon Debentures offer a unique interest structure by selling at a discount, Partly Convertible Debentures serve as a hybrid instrument that blends debt and equity features, and Secured Debentures provide asset-backed security to investors. Since a company is legally empowered to issue any or all of these types, Option 4 is the only choice that comprehensively and accurately describes the full spectrum of permissible debenture issuance.

The incorrect option is 1:
Zero coupon rate debentures are a permissible type of debenture that a company can issue, but this is only one of many forms. These debentures are attractive to certain investors because the principal amount is paid back at maturity, while the interest component is embedded in the initial deep discount at which they are issued. They are specifically allowed under company law. However, choosing only this option incorrectly suggests that a company cannot issue other conventional debentures like those with a fixed interest rate or those that are secured. Therefore, while technically true that a company *can* issue them, it is an incomplete answer to the general question.

The incorrect option is 2:
Partly convertible debentures are a sophisticated financial instrument that provides an option for debenture holders to convert a part of the debenture into equity shares after a specified period. This hybrid nature makes them appealing as they offer the fixed income of debt alongside the potential capital gain of equity participation. Companies frequently issue these to lower their borrowing costs and delay immediate equity dilution. Nevertheless, limiting the answer to just this type is too narrow, as a company may also choose to issue fully non-convertible or fully convertible debentures. The existence of other valid options makes this choice inadequate.

The incorrect option is 3:
Secured debentures are arguably the most traditional type of debenture, backed by a floating or fixed charge on the company's assets, which offers a layer of protection to the investors. This security feature is a major factor in determining investor confidence and the coupon rate. A company can, and often does, issue secured debentures to access debt capital. However, a company is also permitted to issue unsecured debentures, subject to regulatory compliance. Because the company's issuing power is not limited to only secured debentures—it can issue all the types listed—this specific option is not the best and most complete answer.