Debenture Redemption Reserve

Sir, in case a company wants to make a right issue of partly convertible debentures, section 71 of companies act 2013 states that a company must create a DRR account out of the profits available for paying dividend. My question is where the company does not have profit or inadequate profit , then is it still required to create a DRR account and for how much quantum ?

Secondly the 15% amount which is required to be invested, should it be invested every year or only in the financial year in which the debentures will be redeemed?

asked Aug 20, 2016 in General by Alisha (2 points) 627 views

1 Answer

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A company is required to create DRR only in respect of the non-convertible portion of the partly-convertible debentures.   In case a company does not have divisible profits or insufficient profits to create DRR, then of course the company will not be able to create DRR.  in that case the Debenture Trustees must call a meeting of the Debenture Trust and decide on the future course of action depending on the terms of the issue of the Debentures.  

Rule 18(7) of the Companies (Share Capital and Debentures) Rules, 2014 requires the companies creating DRR to deposit or invest  on or before 30th April an amount at least equal to 15% of the debentures to be redeemed up to 31st March of the next year in specified securities. 

For example if debentures are to be redeemed on April 20, 2016, then the company must invest or deposit in specified securities a sum at least equal to 15% of the nominal value of debentures to be redeemed either before or on 30th April, 2015.  It is clear that last date for making investment is 30th April but definitely investment can be made on any date before 30th April.

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answered Aug 21, 2016 by jbsclasses (3,971 points)