Based on following, answer question.
XYZ Ltd. has been operating in the field of FMCG products in South Indian market. However to expand its operation in northen part of India, it needs additional capital ₹20,00,000 which is raised by issuing 10% Debenture of ₹12,00,000 of ₹100 issued at a discount of 10% to be repayable after 6 years. The rest of the funds is raised by issuing 5% debenture of ₹8,00,000 of ₹100 issued at 15% premium. These debentures are perpetual in nature. After six years of successful operation in northern India, company took a loan of ₹5,00,000 from PNB against 5% debenture of ₹8,00,000 of ₹100 each as a collateral security. The company successfully ran its operation and managed to pay off its loan within two years.
XYZ Ltd. issued another category of debenture which is perpetual in nature.
What type of debenture it is?
Answer & explanation
Correct answer: option 1
The correct answer is Option (1) → Irredeemable debentures
Debentures are classified by tenure as redeemable or irredeemable. Debentures that are perpetual carry no promise to repay the money during the life of the company; they are repaid only on winding up or after a very long period. Such debentures are irredeemable debentures.
Why the other options are incorrect
Option (2) Convertible debentures — Incorrect. This class is based on conversion into shares, not on the period of repayment.
Option (3) Redeemable debentures — Incorrect. These are repaid on the expiry of a fixed period, the opposite of perpetual.
Option (4) Bearer debentures — Incorrect. This class is based on transfer by mere delivery, not on repayment.
NCERT (2026-27 edition): |