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A private company issues unsecured debentures without advertisement. I understand it is a violation of Section 58A as unsecured debentures are treated as deposits.

But can a member of the company who missed out on the offer of debentures because it was not advertised, claim a right to purchase the debentures? Where is the procedure for offering and allotment of unsecured debentures by a private company laid down?

Deepak, email

I think the private company is not guilty of anything. Being a private company it cannot advertise for shares, debentures or deposits. The shareholders’ pre-emptive rights do not extend to debentures.

In any case such pre-emptive rights are not available to the shareholders of a private company statutorily which is the case with a public company. Therefore, one cannot make a grievance out of it unless the articles of the private company mandate offer of debentures proportionately to all the shareholders.

S. MURLIDHARAN

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