GENERAL KNOWLEDGE

Detailed explanation-1: -Company shall create DRR equivalent to 50% of the amount of debenture issue before debenture redemption commences.

Detailed explanation-2: -iii A company shall create Debenture Redemption Reserve equivalent to at least 50% of the amount of debenture issue before starting the redemption of debenture. iv Withdrawal from Debenture Redemption Reserve is permissible only after 10% of the debenture liability has already been reduced by the company.

Detailed explanation-3: -As per Section 71(4) of the Companies Act, 2013 and Companies (Share Capital and Debentures) Rules, 2014, every company issuing debentures is required to create Debenture Redemption Reserve of an amount that is atleast equal to 25% of the total nominal (face) value of debenture that are redeemable by it.

Detailed explanation-4: -Rather, they have the option of crediting the account by an adequate amount every year to satisfy the 10% requirement. Before April 30 of each year, companies are also required to reserve or deposit at least 15% of the amount of its debentures that are due to mature on March 31 of the following year.

Detailed explanation-5: -Thus, as per the SEBI’s guidelines, 50% of the debentures issued should be redeemed out of the profits that are transferred to DRR and the remaining 50% of the debentures issued can be redeemed either out of profits or out of capital. Hence, no company can redeem all the debentures issued purely out of the capital.