Section 117C requires a company that has issued Debentures to create a Debenture Redemption Reserve out of its profits for the year. A circular issued by the Department also clarifies that in case of no profits for the year, no DRR is to be created.
If a Company had issued Debentures due for redemption at the end of five years and during these five years, the Company had made minor lossess and hence did not create any DRR, then how would the redemption take place.
Had the Company created DRR, then post redemption, the DRR would have to be transferred to General Reserve. Hence, in any case, the Balance Sheet or the Net Worth of the Company would not have been adversely affected. I would like views on the following queries:
1) Can the Company redeem debentures out of fresh borrowings?
2) Should the Company extend the tenure of the debentures with approval from the debentureholders? But in case debenture holders do not agree, then what is the course of action for the company. The Company has sufficient borrowing capacity.
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