Suvidha Ltd. was on the verge of expansion. It was requiring ₹40 lakhs for modernisation of its Machinery. It decided to issue Rs.30 lakhs, 7% debentures to public for cash and to borrow ₹10 lakhs from SBI Bank as long term loan, with a condition from SBI to issue ₹12 lakhs. 7% debentures as a subsidiary security besides the primary security, to which the company agreed. The face value of 7% debenture was ₹100.
Identify the term used for the 7% debentures issued to SBI Bank as subsidiary security.
Answer & explanation
Correct answer: option 3
The correct answer is Option (3) → Debentures issued as collateral security
SBI gave the loan against a primary security and asked for the ₹12 lakhs debentures as a subsidiary (additional) security. Debentures given to a lender in this way, to be used only if the primary security falls short, are debentures issued as collateral security.
Option (1) Debentures issued for cash — Incorrect. No cash is received for these debentures; they only back the loan.
Option (2) Debentures issued for consideration other than cash — Incorrect. That is an issue to a vendor in payment for assets bought; SBI supplied no asset in exchange.
Option (4) Debentures issued as Secured debentures — Incorrect. A secured debenture is one backed by a charge on the company’s assets; here the debentures are themselves the security given to the bank.
NCERT (2026-27 edition): |