Creation of drr

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Mohit Kumar Naharia (Querist)
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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?

Mohit Kumar Naharia

Mohit Kumar Naharia (Querist)
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17 December 2013 Awaiting reply.

Mohit Kumar Naharia

Mohit Kumar Naharia (Querist)
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17 December 2013 pls expert reply

Mohit Kumar Naharia

Mohit Kumar Naharia (Querist)
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17 December 2013 no experts to answer this query.

Mohit Kumar Naharia

Mohit Kumar Naharia (Querist)
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20 December 2013 still awaiting reply.

Mohit Kumar Naharia

Mohit Kumar Naharia (Querist)
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20 December 2013 no expert here.

Mohit Kumar Naharia

Mohit Kumar Naharia (Querist)
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20 December 2013 NO one will try to answer.

Aashok Kumar Sharma online

Aashok Kumar Sharma online

(Expert)
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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.

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