Sunday, January 13, 2019

Narayan Kumar Maheshwari v Union of India case brief

Narayan Kumar Maheshwari v Union of India case brief summary
Debenture – an acknowledgement of debt, with a commitment to repay the principal with interest.
Non-convertible debentures v Mortgage Debenture – creates a mortgage on the assets of a company.
  1. Compulsorily convertible debenture does not postulate any repayment of the principle. It does not constitute a ‘debenture’ in its classic sense. The question of security becomes relevant for the purpose of payment of interest on these debentures and the payment of principal only in the unlikely event of winding up. They are regarded as equity and not a loan or debt. Even a debenture only convertible at option is regarded as a hybrid debenture.
Floating charge creates a present equitable right in favor of the debenture holders/ trustees. It creates a present charge in the property of a company even before the time of payment of the debenture arrives. The fact is that a company can deal with its property without the permission of debenture holders/trustees, before crystallization by resorting to a floating charge on the undertaking.

  1. A debenture is usually secured by a floating charge only.
  2. A company which creates a floating charge has a right to create future security which may be higher in rank. This rank can be restricted through agreement.
  3. Any future specific charge will rank higher to the earlier floating charge.
  4. Where no provision made in earlier floating charge with respect to ranking of a future floating charge, future floating charge will be inferior to an earlier floating charge.
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