Creation of drr
This query is : Resolved
17 December 2013
If a company issue debenture for 2 years term & voluntarily want to create DRR of 100% of the amount of debenture in first year So can it do so?
17 December 2013
Awaiting reply.
17 December 2013
pls expert reply
17 December 2013
no experts to answer this query.
20 December 2013
still awaiting reply.
20 December 2013
no expert here.
20 December 2013
NO one will try to answer.
20 July 2024
Yes, a company can voluntarily create a Debenture Redemption Reserve (DRR) of 100% of the amount of debentures issued, even if the debentures have a 2-year term. Here’s a detailed explanation:
### Understanding DRR Requirements:
1. **Mandatory DRR**: As per the Companies Act, 2013, companies are required to create a Debenture Redemption Reserve (DRR) for the purpose of redeeming their debentures. The requirement is to create and maintain the DRR equivalent to at least 25% of the value of debentures issued, before commencing the redemption of debentures.
2. **Voluntary DRR**: While the law mandates a minimum of 25%, companies have the option to create a DRR exceeding this minimum threshold voluntarily. Therefore, a company can choose to create a DRR of 100% of the amount of debentures issued if it so desires.
3. **Timing of Creation**: The Companies Act does not specify a timeline within which the DRR must be created, except that it must be before the company starts redeeming the debentures. Hence, a company can create the DRR in the first year itself, even if the debentures have a tenure of 2 years.
### Practical Considerations:
- **Board Resolution**: The decision to create a DRR of 100% should typically be approved by the board of directors through a resolution. This resolution would specify the amount and purpose of the DRR creation.
- **Accounting Treatment**: The amount transferred to the DRR account should be shown separately in the company’s financial statements and maintained until the debentures are redeemed.
- **Compliance and Reporting**: Ensure compliance with reporting requirements as per the Companies Act and relevant accounting standards while creating and maintaining the DRR.
### Conclusion:
In summary, yes, a company can voluntarily create a Debenture Redemption Reserve (DRR) of 100% of the amount of debentures issued, including in the first year of issuance, as long as it complies with the Companies Act provisions and internal governance requirements. This demonstrates a proactive approach by the company towards fulfilling its financial obligations and enhancing investor confidence.
### Understanding DRR Requirements:
1. **Mandatory DRR**: As per the Companies Act, 2013, companies are required to create a Debenture Redemption Reserve (DRR) for the purpose of redeeming their debentures. The requirement is to create and maintain the DRR equivalent to at least 25% of the value of debentures issued, before commencing the redemption of debentures.
2. **Voluntary DRR**: While the law mandates a minimum of 25%, companies have the option to create a DRR exceeding this minimum threshold voluntarily. Therefore, a company can choose to create a DRR of 100% of the amount of debentures issued if it so desires.
3. **Timing of Creation**: The Companies Act does not specify a timeline within which the DRR must be created, except that it must be before the company starts redeeming the debentures. Hence, a company can create the DRR in the first year itself, even if the debentures have a tenure of 2 years.
### Practical Considerations:
- **Board Resolution**: The decision to create a DRR of 100% should typically be approved by the board of directors through a resolution. This resolution would specify the amount and purpose of the DRR creation.
- **Accounting Treatment**: The amount transferred to the DRR account should be shown separately in the company’s financial statements and maintained until the debentures are redeemed.
- **Compliance and Reporting**: Ensure compliance with reporting requirements as per the Companies Act and relevant accounting standards while creating and maintaining the DRR.
### Conclusion:
In summary, yes, a company can voluntarily create a Debenture Redemption Reserve (DRR) of 100% of the amount of debentures issued, including in the first year of issuance, as long as it complies with the Companies Act provisions and internal governance requirements. This demonstrates a proactive approach by the company towards fulfilling its financial obligations and enhancing investor confidence.
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