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CA Intermediate · Corporate and Other Laws · Share Capital and Debentures

Vindhya Cement Ltd, an unlisted public company, issued 2,000 secured debentures of Rs 1,00,000 each through a private placement, raising Rs 20 crore. The company has not created any debenture redemption reserve. The debentures are not issued by a NBFC, a housing finance company or an all-India financial institution. Which statement is correct under the Companies Act, 2013 and the Companies (Share Capital and Debentures) Rules, 2014 as amended?

The company need not create a debenture redemption reserve, as an unlisted company's privately placed debentures are exempt. However, it must still invest or deposit 15 percent of the debentures maturing in the following year in specified instruments, and it must appoint a debenture trustee for secured debentures.

  1. AIt must create a debenture redemption reserve of 25 percent of the value of the debentures issued
  2. BIt must invest 15 percent of the amount of debentures maturing in the next year in specified instruments, but no debenture redemption reserve is required for an unlisted company's privately placed debenturesCorrect
  3. CIt need not create a debenture redemption reserve, and also has no obligation to appoint a debenture trustee
  4. DIt must create a debenture redemption reserve of 10 percent of the value of the debentures issued

Explanation

After the 2019 amendment, an unlisted company other than NBFCs and housing finance companies that privately places debentures is exempt from creating the debenture redemption reserve. However, it must invest or deposit at least 15 percent of the debentures maturing during the year ending 31 March next following, in specified instruments, before 30 April. Option C is wrong because a debenture trustee must be appointed for secured debentures.

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