Creation of Debenture Redemption Reserves (DRR)
A company has to create DRR as per the requirements of the Companies Act for redemption of debentures in accordance with the provisions given below:
If debentures are issued for project finance, the DRR can be created up to the date of commercial production, either in equal installments or higher amounts if profits so permit. In the case of partly convertible debentures, the DRR should be created with respect to the non-convertible portion on the same lines as applicable for fully non-convertible debenture issue. In the case of convertible is issues by new companies, the creation of DRR should commence from the year the company earns profits for the remaining life of debentures. The DRR should he treated as a part of the general reserves for consideration of bonus issue proposals and for price fixation related post-tax return. The company should create the DRR equivalent to 50 per rent of the amount of debenture issue before debenture redemption commences. The drawl from DRR is after 10 per cent of the liability has actually been reduced by the company. The requirement of creation of ORR is not. however, applicable in the debt instrument by infrastructure companies.