What is meant by redemption of debentures by conversion?
Answers
Redemption of Debentures: Sources and Methods!
Redemption of debentures means payment of the amount of debentures by the company. When debentures are redeemed, liability on account of debentures is discharged. Amount of funds required for redemption of debentures is quite large and, therefore, prudent companies make sufficient provision out of profits and accumulate funds to redeem debentures.
In this connection, The Companies (Amendment) Act, 2000 has introduced section 117 C which provides that:
ADVERTISEMENTS:
1. Where a company issues debentures after the commencement of this Act, it shall create a debenture redemption reserve for the redemption of such debentures, to which adequate amounts shall be credited, from out of its profits every year until such debentures are redeemed.
2. The amounts credited to the debenture redemption reserve shall not be utilized by the company except for the purpose aforesaid.
It should also be noted that before the introduction of this section, there was no provision in the Companies Act 1956 for the redemption of debentures. However Securities and Exchange Board of India has provided some guidelines.