IOL, a manufacturing company, issued partly convertible debentures with ₹6 crore few years back. The convertible option is only for 50% of the issue and debentures are redeemable in the current financial year. What is th

Section 71(4) of Companies Act, 2013, read with Rule 18(7) of the Companies (Share Capital & Debentures) Rules, 2014 provides for creation of a Debenture Redemption Reserve (DRR) out of the profits of the company available for payment of dividend. The amount credited to such account shall not be utilised by the company except for the redemption of debentures. The provisions for creation of DRR for manufacturing companies are 25% of the value of outstanding debentures issued through public issue as per present SEBI (Issue and Listing of Debt Securities) Regulations, 2008 and also 25% DRR is required in the case of privately placed debentures by listed companies. For unlisted companies issuing debentures on private placement basis, the DRR will be 25% of the value of outstanding debentures. Every company required to create Debenture Redemption Reserve shall on or before the 30th day of April in each year, is required to invest or deposit a sum which shall not be less than 15% of the amount of debentures maturing during the current financial year ending 31st March of next year. In case of partly convertible debentures, Debenture Redemption Reserve shall be created in respect of non- convertible portion of debenture issue in accordance with this rule. Since, only 50% of the debentures are convertible, for the non-convertible part the DRR is required to be created. Hence, only for ₹3 crore worth of debentures DRR is required. Therefore, 25% of ₹3 crore is ₹75 lakhs to be created as DRR and ₹45 Lakhs (15%) deposited in the invested bank account or in securities, etc. during the current financial year.