{"id":2449,"date":"2019-09-24T09:51:32","date_gmt":"2019-09-24T09:51:32","guid":{"rendered":"https:\/\/commerceiets.com\/?p=2449"},"modified":"2019-09-24T09:51:32","modified_gmt":"2019-09-24T09:51:32","slug":"redemption-of-debentures","status":"publish","type":"post","link":"https:\/\/commerceiets.com\/redemption-of-debentures\/","title":{"rendered":"REDEMPTION OF DEBENTURES"},"content":{"rendered":"\n<div id=\"ez-toc-container\" class=\"ez-toc-v2_0_69_1 counter-hierarchy ez-toc-counter ez-toc-grey ez-toc-container-direction\">\n<div class=\"ez-toc-title-container\">\n<p class=\"ez-toc-title\" style=\"cursor:inherit\">Table of Contents<\/p>\n<span class=\"ez-toc-title-toggle\"><a href=\"#\" class=\"ez-toc-pull-right ez-toc-btn ez-toc-btn-xs ez-toc-btn-default ez-toc-toggle\" aria-label=\"Toggle Table of Content\"><span class=\"ez-toc-js-icon-con\"><span class=\"\"><span class=\"eztoc-hide\" style=\"display:none;\">Toggle<\/span><span class=\"ez-toc-icon-toggle-span\"><svg style=\"fill: #999;color:#999\" xmlns=\"http:\/\/www.w3.org\/2000\/svg\" class=\"list-377408\" width=\"20px\" height=\"20px\" viewBox=\"0 0 24 24\" fill=\"none\"><path d=\"M6 6H4v2h2V6zm14 0H8v2h12V6zM4 11h2v2H4v-2zm16 0H8v2h12v-2zM4 16h2v2H4v-2zm16 0H8v2h12v-2z\" fill=\"currentColor\"><\/path><\/svg><svg style=\"fill: #999;color:#999\" class=\"arrow-unsorted-368013\" xmlns=\"http:\/\/www.w3.org\/2000\/svg\" width=\"10px\" height=\"10px\" viewBox=\"0 0 24 24\" version=\"1.2\" baseProfile=\"tiny\"><path d=\"M18.2 9.3l-6.2-6.3-6.2 6.3c-.2.2-.3.4-.3.7s.1.5.3.7c.2.2.4.3.7.3h11c.3 0 .5-.1.7-.3.2-.2.3-.5.3-.7s-.1-.5-.3-.7zM5.8 14.7l6.2 6.3 6.2-6.3c.2-.2.3-.5.3-.7s-.1-.5-.3-.7c-.2-.2-.4-.3-.7-.3h-11c-.3 0-.5.1-.7.3-.2.2-.3.5-.3.7s.1.5.3.7z\"\/><\/svg><\/span><\/span><\/span><\/a><\/span><\/div>\n<nav><ul class='ez-toc-list ez-toc-list-level-1 ' ><li class='ez-toc-page-1 ez-toc-heading-level-1'><a class=\"ez-toc-link ez-toc-heading-1\" href=\"https:\/\/commerceiets.com\/redemption-of-debentures\/#MEANING\" title=\"MEANING\">MEANING<\/a><ul class='ez-toc-list-level-3' ><li class='ez-toc-heading-level-3'><ul class='ez-toc-list-level-3' ><li class='ez-toc-heading-level-3'><a class=\"ez-toc-link ez-toc-heading-2\" href=\"https:\/\/commerceiets.com\/redemption-of-debentures\/#PROVISIONS_CONDITIONS_FOR_REDEMPTION_OF_DEBENTURES\" title=\"PROVISIONS\/ CONDITIONS FOR REDEMPTION OF DEBENTURES\">PROVISIONS\/ CONDITIONS FOR REDEMPTION OF DEBENTURES<\/a><ul class='ez-toc-list-level-4' ><li class='ez-toc-heading-level-4'><a class=\"ez-toc-link ez-toc-heading-3\" href=\"https:\/\/commerceiets.com\/redemption-of-debentures\/#CREATION_OF_DEBENTURE_REDEMPTION_RESERVE\" title=\"CREATION OF DEBENTURE REDEMPTION RESERVE\">CREATION OF DEBENTURE REDEMPTION RESERVE<\/a><\/li><li class='ez-toc-page-1 ez-toc-heading-level-4'><a class=\"ez-toc-link ez-toc-heading-4\" href=\"https:\/\/commerceiets.com\/redemption-of-debentures\/#INVESTMENT_IN_SPECIFIED_SECURITIES_BY_30TH_APRIL\" title=\"INVESTMENT IN SPECIFIED SECURITIES BY 30TH APRIL\">INVESTMENT IN SPECIFIED SECURITIES BY 30TH APRIL<\/a><\/li><li class='ez-toc-page-1 ez-toc-heading-level-4'><a class=\"ez-toc-link ez-toc-heading-5\" href=\"https:\/\/commerceiets.com\/redemption-of-debentures\/#ENCASHMENT_OF_INVESTMENT_IN_SPECIFIED_SECURITIES\" title=\"ENCASHMENT OF INVESTMENT IN SPECIFIED SECURITIES\">ENCASHMENT OF INVESTMENT IN SPECIFIED SECURITIES<\/a><\/li><li class='ez-toc-page-1 ez-toc-heading-level-4'><a class=\"ez-toc-link ez-toc-heading-6\" href=\"https:\/\/commerceiets.com\/redemption-of-debentures\/#USE_OF_DRR\" title=\"USE OF DRR\">USE OF DRR<\/a><\/li><li class='ez-toc-page-1 ez-toc-heading-level-4'><a class=\"ez-toc-link ez-toc-heading-7\" href=\"https:\/\/commerceiets.com\/redemption-of-debentures\/#OBLIGATION_TO_CREATE_DRR\" title=\"OBLIGATION TO CREATE DRR\">OBLIGATION TO CREATE DRR<\/a><\/li><li class='ez-toc-page-1 ez-toc-heading-level-4'><a class=\"ez-toc-link ez-toc-heading-8\" href=\"https:\/\/commerceiets.com\/redemption-of-debentures\/#COMPANIES_EXEMPTED_FROM_CREATING_DRR\" title=\"COMPANIES EXEMPTED FROM CREATING DRR\">COMPANIES EXEMPTED FROM CREATING DRR<\/a><\/li><\/ul><\/li><li class='ez-toc-page-1 ez-toc-heading-level-3'><a class=\"ez-toc-link ez-toc-heading-9\" href=\"https:\/\/commerceiets.com\/redemption-of-debentures\/#METHODS_OF_REDEMPTION_OF_DEBENTURES\" title=\"METHODS OF REDEMPTION OF DEBENTURES\">METHODS OF REDEMPTION OF DEBENTURES<\/a><ul class='ez-toc-list-level-4' ><li class='ez-toc-heading-level-4'><a class=\"ez-toc-link ez-toc-heading-10\" href=\"https:\/\/commerceiets.com\/redemption-of-debentures\/#REDEMPTION_AFTER_STIPULATED_TIME_PERIOD\" title=\"REDEMPTION AFTER STIPULATED TIME PERIOD\">REDEMPTION AFTER STIPULATED TIME PERIOD<\/a><\/li><li class='ez-toc-page-1 ez-toc-heading-level-4'><a class=\"ez-toc-link ez-toc-heading-11\" href=\"https:\/\/commerceiets.com\/redemption-of-debentures\/#REDEMPTION_BY_ANNUAL_DRAWINGS\" title=\"REDEMPTION BY ANNUAL DRAWINGS\">REDEMPTION BY ANNUAL DRAWINGS<\/a><\/li><li class='ez-toc-page-1 ez-toc-heading-level-4'><a class=\"ez-toc-link ez-toc-heading-12\" href=\"https:\/\/commerceiets.com\/redemption-of-debentures\/#REDEMPTION_BY_PURCHASE_OF_DEBENTURES_IN_THE_OPEN_MARKET\" title=\"REDEMPTION BY PURCHASE OF DEBENTURES IN THE OPEN MARKET\">REDEMPTION BY PURCHASE OF DEBENTURES IN THE OPEN MARKET<\/a><\/li><\/ul><\/li><\/ul><\/li><\/ul><\/li><\/ul><\/nav><\/div>\n<h1 class=\"has-text-align-center wp-block-heading\"><span class=\"ez-toc-section\" id=\"MEANING\"><\/span>MEANING<span class=\"ez-toc-section-end\"><\/span><\/h1>\n\n\n\n<p class=\"has-medium-font-size\">Redemption of <a href=\"https:\/\/commerceiets.com\/debentures\/\" target=\"_blank\" rel=\"noreferrer noopener\" aria-label=\"debentures (opens in a new tab)\">debentures<\/a> means the amount of repayment to the debenture holders of the debt due to them. The debentures are usually repaid after the expiry of certain time period. When debentures are redeemed, liability on account of debentures is discharged. Amount of funds required for redemption of debentures is quite large and therefore prudent companies make sufficient provisions out of profits and accumulate funds to redeem debentures.<\/p>\n\n\n\n<h3 class=\"has-text-align-center wp-block-heading\"><span class=\"ez-toc-section\" id=\"PROVISIONS_CONDITIONS_FOR_REDEMPTION_OF_DEBENTURES\"><\/span>PROVISIONS\/ CONDITIONS FOR REDEMPTION OF DEBENTURES<span class=\"ez-toc-section-end\"><\/span><\/h3>\n\n\n\n<p class=\"has-medium-font-size\">The Companies Act 2013 regulates the Redemption of Debentures. The following are the provisions or conditions related to the redemption of debentures as per the <strong>Section 71(4) of Companies Act 2013<\/strong> and <strong>Rule 18(7) of the Companies Rules, 2014<\/strong>:<\/p>\n\n\n\n<h4 class=\"wp-block-heading\"><span class=\"ez-toc-section\" id=\"CREATION_OF_DEBENTURE_REDEMPTION_RESERVE\"><\/span>CREATION OF DEBENTURE REDEMPTION RESERVE<span class=\"ez-toc-section-end\"><\/span><\/h4>\n\n\n\n<p class=\"has-medium-font-size\">Debenture redemption reserve is the reserve created\nespecially for the purpose of redemption of the debentures. It is created as\nper the provisions of Section 71(4). The following are the provisions related\nto the redemption of debentures:<\/p>\n\n\n\n<ul class=\"wp-block-list\"><li>DRR is created out of the surplus i.e. the\nbalance of Statement of profit and loss.<\/li><li>It is created atleast equal to the 25% of the\ntotal face value of the debentures to be redeemed.<\/li><li>The DRR is created equal to the 100% in\ncase&nbsp; redemption is made out of the\nProfit.<\/li><\/ul>\n\n\n\n<h4 class=\"wp-block-heading\"><span class=\"ez-toc-section\" id=\"INVESTMENT_IN_SPECIFIED_SECURITIES_BY_30TH_APRIL\"><\/span>INVESTMENT IN SPECIFIED SECURITIES BY 30<sup>TH<\/sup> APRIL<span class=\"ez-toc-section-end\"><\/span><\/h4>\n\n\n\n<p class=\"has-medium-font-size\">The <strong>rule 18 (7)(c)<\/strong> of the <strong>Companies Rules, 2014<\/strong> states that every company must invest the amount of DRR in the specified securities. The following are the provisions related to this:<\/p>\n\n\n\n<ul class=\"wp-block-list\"><li>Investment is made atleast equal to the 15% of\nthe face value of the debentures to be redeemed.<\/li><li>The investment is made before the date of 1<sup>st<\/sup>\nApril of the year at the end of which the debentures are to redeemed.<\/li><li>The amount invested in the securities must be\nused only for the purpose of redemption of debentures.<\/li><\/ul>\n\n\n\n<h4 class=\"wp-block-heading\"><span class=\"ez-toc-section\" id=\"ENCASHMENT_OF_INVESTMENT_IN_SPECIFIED_SECURITIES\"><\/span>ENCASHMENT OF INVESTMENT IN SPECIFIED SECURITIES<span class=\"ez-toc-section-end\"><\/span><\/h4>\n\n\n\n<p class=\"has-medium-font-size\">The company should encash the investment in specified\nsecurities before the redemption of debentures.<\/p>\n\n\n\n<h4 class=\"wp-block-heading\"><span class=\"ez-toc-section\" id=\"USE_OF_DRR\"><\/span>USE OF DRR<span class=\"ez-toc-section-end\"><\/span><\/h4>\n\n\n\n<p class=\"has-medium-font-size\">The Debenture Redemption reserve will not be utilized by the\ncompany for any other purpose except for redemption of debentures.<\/p>\n\n\n\n<h4 class=\"wp-block-heading\"><span class=\"ez-toc-section\" id=\"OBLIGATION_TO_CREATE_DRR\"><\/span>OBLIGATION TO CREATE DRR<span class=\"ez-toc-section-end\"><\/span><\/h4>\n\n\n\n<p class=\"has-medium-font-size\">The creation of DRR is obligatory in the case of:<\/p>\n\n\n\n<ul class=\"wp-block-list\"><li>Non-convertible debentures<\/li><li>Non-convertible portion of partly convertible\ndebentures.<\/li><\/ul>\n\n\n\n<h4 class=\"wp-block-heading\"><span class=\"ez-toc-section\" id=\"COMPANIES_EXEMPTED_FROM_CREATING_DRR\"><\/span>COMPANIES EXEMPTED FROM CREATING DRR<span class=\"ez-toc-section-end\"><\/span><\/h4>\n\n\n\n<p class=\"has-medium-font-size\">As per the <strong>Rule 18(7)<\/strong> of the <strong>Companies Rules, 2014<\/strong> the following companies are exempted from the creation of DRR:<\/p>\n\n\n\n<ul class=\"wp-block-list\"><li>All India Financial Institutions regulated by\nRBI.<\/li><li>Banking Companies.<\/li><\/ul>\n\n\n\n<h3 class=\"has-text-align-center wp-block-heading\"><span class=\"ez-toc-section\" id=\"METHODS_OF_REDEMPTION_OF_DEBENTURES\"><\/span>METHODS OF REDEMPTION OF DEBENTURES<span class=\"ez-toc-section-end\"><\/span><\/h3>\n\n\n\n<p class=\"has-medium-font-size\">There are three ways of redemption of debentures which are as follows:<\/p>\n\n\n\n<figure class=\"wp-block-image\"><img loading=\"lazy\" decoding=\"async\" width=\"960\" height=\"720\" src=\"https:\/\/commerceiets.com\/wp-content\/uploads\/2019\/09\/Slide4-2.jpg\" alt=\"Methods of Redemption of Debentures\" class=\"wp-image-2451\" srcset=\"https:\/\/commerceiets.com\/wp-content\/uploads\/2019\/09\/Slide4-2.jpg 960w, https:\/\/commerceiets.com\/wp-content\/uploads\/2019\/09\/Slide4-2-300x225.jpg 300w, https:\/\/commerceiets.com\/wp-content\/uploads\/2019\/09\/Slide4-2-768x576.jpg 768w\" sizes=\"(max-width: 960px) 100vw, 960px\" \/><\/figure>\n\n\n\n<h4 class=\"wp-block-heading\"><span class=\"ez-toc-section\" id=\"REDEMPTION_AFTER_STIPULATED_TIME_PERIOD\"><\/span>REDEMPTION AFTER STIPULATED TIME PERIOD<span class=\"ez-toc-section-end\"><\/span><\/h4>\n\n\n\n<p class=\"has-medium-font-size\">The debentures are redeemed after the fixed period of time.\nAt the time of the issue of the debentures, the debenture certificate is issued\nto the debenture holders. The date of the redemption of the debentures is\nmentioned on the debenture certificate. Thus, the company knows in advance the\ndate of redemption of the debentures, so it is easy for the company to make\narrangement for the funds. The date of redemption of debentures is known as the\nmaturity date.<\/p>\n\n\n\n<h4 class=\"wp-block-heading\"><span class=\"ez-toc-section\" id=\"REDEMPTION_BY_ANNUAL_DRAWINGS\"><\/span>REDEMPTION BY ANNUAL DRAWINGS<span class=\"ez-toc-section-end\"><\/span><\/h4>\n\n\n\n<p class=\"has-medium-font-size\">The debentures are also redeemed in installments. The\ncompany repay the amount due on the debentures in installments. Thus at the end\nof the life period of debentures, the full amount is repaid over them.<\/p>\n\n\n\n<p class=\"has-medium-font-size\">In case of redemption of debentures by annual drawings,\ndrawing by lots technique is used. In this system, the slips containing the\ndistinctive number of debentures are put into a box. The required numbers of\nslips are put out of the box. The slips selected are the debentures that are to\nbe redeemed by annual drawings.<\/p>\n\n\n\n<p class=\"has-medium-font-size\">The amount of debentures to be redeemed are calculated as\nfollows:<\/p>\n\n\n\n<p class=\"has-pale-cyan-blue-background-color has-background has-medium-font-size\"><strong>Total number of debentures\/ No. of years.<\/strong><\/p>\n\n\n\n<p class=\"has-medium-font-size\">The amount calculated is equal in all installments. However\nit may be unequal also.<\/p>\n\n\n\n<h4 class=\"wp-block-heading\"><span class=\"ez-toc-section\" id=\"REDEMPTION_BY_PURCHASE_OF_DEBENTURES_IN_THE_OPEN_MARKET\"><\/span>REDEMPTION BY PURCHASE OF DEBENTURES IN THE OPEN MARKET<span class=\"ez-toc-section-end\"><\/span><\/h4>\n\n\n\n<p class=\"has-medium-font-size\">The company can also redeem its debentures by purchasing\nthem from the open market. The company do so only if it seems convenient and\nprofitable to it. Purchase of debentures by this method will reduce the\nliabilities of the company against the debentures. Reduction of debentures will\nalso mean its cancellation and virtually redemption. Own debentures may also be\npurchased by the company for its own investment and same may be reissued in\nfuture also. This method leads to following gains for the company:<\/p>\n\n\n\n<ul class=\"wp-block-list\"><li>There would be immediate saving of an equal\namount to difference of par value and purchase price of the debenture.<\/li><li>There would be a future saving of the amount of\nany premium which was promised at the date on which they were to redeem.<\/li><li>There would be a saving of annual interest\npayable on the debentures in future i.e. the interest which would be payable if\nthe debentures had not been purchased in the open market.<\/li><\/ul>\n","protected":false},"excerpt":{"rendered":"<p>MEANING Redemption of debentures means the amount of repayment to the debenture holders of the debt due to them. The debentures are usually repaid after the expiry of certain time period. When debentures are redeemed, liability on account of debentures is discharged. Amount of funds required for redemption of debentures is quite large and therefore&#8230;<\/p>\n<p class=\"more-link-wrap\"><a href=\"https:\/\/commerceiets.com\/redemption-of-debentures\/\" class=\"more-link\">Read More<span class=\"screen-reader-text\"> &ldquo;REDEMPTION OF DEBENTURES&rdquo;<\/span> &raquo;<\/a><\/p>\n","protected":false},"author":2,"featured_media":2454,"comment_status":"open","ping_status":"closed","sticky":false,"template":"","format":"standard","meta":{"rank_math_lock_modified_date":false,"footnotes":""},"categories":[102],"tags":[161,162],"class_list":["post-2449","post","type-post","status-publish","format-standard","has-post-thumbnail","hentry","category-corporate-accounting","tag-methods-of-redemption-of-debentures","tag-provisions-conditions-for-redemption-of-debentures"],"_links":{"self":[{"href":"https:\/\/commerceiets.com\/wp-json\/wp\/v2\/posts\/2449"}],"collection":[{"href":"https:\/\/commerceiets.com\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/commerceiets.com\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/commerceiets.com\/wp-json\/wp\/v2\/users\/2"}],"replies":[{"embeddable":true,"href":"https:\/\/commerceiets.com\/wp-json\/wp\/v2\/comments?post=2449"}],"version-history":[{"count":0,"href":"https:\/\/commerceiets.com\/wp-json\/wp\/v2\/posts\/2449\/revisions"}],"wp:featuredmedia":[{"embeddable":true,"href":"https:\/\/commerceiets.com\/wp-json\/wp\/v2\/media\/2454"}],"wp:attachment":[{"href":"https:\/\/commerceiets.com\/wp-json\/wp\/v2\/media?parent=2449"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/commerceiets.com\/wp-json\/wp\/v2\/categories?post=2449"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/commerceiets.com\/wp-json\/wp\/v2\/tags?post=2449"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}