Sonali Somani (Student CA IPC / IPCC) (47 Points)
14 March 2021
CA. Sourav Sarkar
(Chartered Accountant )
(24578 Points)
Replied 14 March 2021
yasaswi gomes
(My grammar is 💯 good I)
(7290 Points)
Replied 14 March 2021
The provisions relating to the CRR are available in Section 69 of the companies Act.
When a company engages in redemption or buy-back of capital, the capital base is reduced. To compensate for the reduction, the Companies Act provides that a portion of the available reserves should be separately allocated. The allocated portion should be transferred to the CRR. The purpose of the CRR is to ensure that companies maintain the capital base intact in the event of a capital diminution. A capital diminution refers to a depletion in the paid-up capital of a company. It can be caused when a company redeems preference capital or opts to undertake a buy-back scheme.
From my understanding, Although assets and liabilities don’t have a mismatch due to redemption or buy back, a separate classification is done to give confidence to the lenders. So it deBITS the general reserve, credits a new CRR as per company acts requirements. This CRR must be of equal value of the nominal amount of buyback, this is just like drr. Lots of compliances are listed here by Indian companies act: https://www.indiafilings.com/learn/companies-act-capital-redemption-reserve/
CAclubindia
