When Debenture redemption reserve is created?

Before redemption of debentures At the closure of the financial year At least three months before the redemption None of the above

Before redemption of debentures

A debenture is a debt security that lets investors borrow money at a fixed interest rate. This instrument is considered unsecured because it is not backed by an asset, lien, or any other form of collateral. Therefore, to protect debenture holders from the risk of default by the issuing company, Section 117C of the Indian Companies Act of 1956 implemented the debenture redemption reserve (DRR) mandate. This mandate requires companies to set aside in cash a certain percentage of the amount raised through the debenture issue in a special fund only to be used in extreme cases to repay their debt obligation rather than defaulting on the debenture. As per the provisions of the Companies Act, 2013, the company must set aside a portion of profits every year and transfer it to Debenture Redemption Reserve for redemption of debentures until the debentures are redeemed. Where a company has issued debentures, it shall create a Debenture Redemption Reserve for the redemption of such debentures, to which adequate amount shall be credited, from out of its profit every year until such debentures are redeemed. (b) The amount credited to the Debenture Redemption Reserve shall not be utilised by the company except for the purpose of redemption of debentures.