What is meant by Redemption of Debenture?

Discharging or extinguishing the liability on account of debenture and in reference with the terms of redemption states in the debenture trust deed is called redemption of debentures. A company has to keep in mind the following three aspects regarding redemption that it:-

(i)                   The time of redemption.

(ii)                 The amount to be paid.

(iii)                The source from which redemption will have to be carried out.

Remedies to debenture holders:-

(i)       When the debentures are not secured by any mortgage or charge:- the remedies available to the holder when the debentures are not secured by any mortgage or charge are either:-

1. To sue the company for the recovery of the money secured by the debenture and execute the decree against the company’s property; or
2. To present a petition for the winding up of the company under section 433(e) of the companies Act, 1956 on the ground of the company inability to pay its debts. If winding up is already in progress, than the holder has to prove in which winding up the amount due to him like any other unsecured creditors.

(ii)                 Where the debentures are secured by a mortgage or charge: When the debentures are secured by a mortgage or charge the holder who wants to realize his security and recover the money due to him may apply to all or any of the following remedies:-

1. If the condition of issue permits a receiver may be appointed.
2. He may sue on his own behalf and on behalf of other debenture holders of the same class to obtain payment or enforce his security by sale.
3. An application for the winding up may be presented in the capacity of creditor for the principal and interest thereon.
4. The property can be sold by the trustee, if the debenture trust deed permits the sale.
5. An application can be made to the court for the closure of the company’s right to redeem the debentures. But in such an action all debenture holders of the company in contradiction to those of a class as well as the company should be joined as parties.
6. After the date of the liquidation of the company the debenture holder will not be entitled for payment of interest, only the value of security will be raised, and debt for the balance is proved. He is not entitled to recover the interest out of his security when arriving at a balance for which he can prove in the winding up.