Read the following statements: Assertion (A) and Reason (R). Choose one of the correct alternatives given below:
Assertion (A): 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 the redemption of debentures until the debentures are redeemed.
Reason (R): No DRR is required for debentures issued by NBFCs, All India Financial Institutions (AIFIs) regulated by the Reserve Bank of India, and Banking Companies for both public as well as privately placed debentures.
Answer & explanation
Correct answer: option 2
All India financial institutions registered by the Reserve Bank of India, banking companies, NFBCs registered with the Reserve bank of India, Housing Finance companies registered to the National Housing bank and the companies listed on the stock exchange and unlisted companies are exempted from creating Debenture Redemption Reserve and may redeem debentures out of capital. Whereas for "other unlisted companies", the adequacy of the Debenture Redemption Reserve shall be ten percent of the value of the outstanding debentures.