No.6/3/2001-CL.V
5th
floor, `A' Wing, Shastri
Bhavan,
Dr.
R.P. Road, New Delhi.
Dated: 18.4.2002
To
All
Regional Directors
All
Registrars of Companies
All Chambers of
Commerce
Reserve
Bank of India
Securities
and Exchange Board of India
One of the measures that the Central Government took to protect the
interests of small investors in Companies Act was to insert Section 117C in the
Companies (Amendment) Act, 2000 which contemplates the creation of security and
liquidity to ensure timely repayment by companies on redemption of debentures
and thereby afford protection to the debenture holders.
Section 117C requires every company to create a Debenture Redemption
Reserve (DRR) to which 'adequate amounts' shall be credited out of its 'profits'
every year until such debentures are redeemed, and shall utilize the same
exclusively for redemption of a particular set or series of debentures only.
Thus, the quantum of DRR to be created before the redemption liability actually
arises in normal circumstances should be 'adequate' to pay the value of
debentures plus accrued interest (if not already paid), till the debentures are
redeemed and cancelled. Since the Section requires that the amount to be
credited as DRR will be carved out of profits of the company only, there is no
obligation on the part of the company to create DRR if there is no profit for
the particular year.
The Department of Company Affairs (DCA) has received a number of
representations from Public Financial Institutions, Non-Banking Financial
Companies, Professionals, FICCI, CII, Chambers, etc. seeking clarifications in
this regard.
The matter was considered keeping in view the purpose of the introduction
of Section 117C and the genuine problems likely to be caused to the NBFCs, All
India Financial Institutions (AIFIs) and banks that deal in financial products
and would find it difficult to create DRR after transferring 20% of the profits
to Reserve Fund out of the divisible profits as already required by RBI
norms.
After taking into consideration the RBI directions/regulation on
prudential norms applicable to banking companies, AIFIs and NBFCs, and the SEBI
(Disclosure and Investor Protection), Guidelines, 2000, the Government hereby
clarifies on adequate DRR and other related matters as under
:-
a.
No
DRR is required for debentures issued by All India Financial Institutions
(AIFIs) regulated by Reserve Bank of India and Banking Companies for both public
as well as privately placed debentures. For other FIs within the meaning of
Section 4A, DRR will be as applicable to NBFCs registered with RBI.
b.
For
NBFCs registered with the RBI under Section 45-IA of the RBI (Amendment) Act,
1997, 'the adequacy' of DRR will be 50% of the value of debentures issued
through public issue as per present SEBI (Disclosure and Investor Protection)
Guidelines 2000 and no DRR is required in the case of privately placed
debentures.
c.
For
manufacturing and infrastructure companies, the adequacy of DRR will be 50% of
the value of debentures issued through public issue and 25% for privately placed
debentures.
d.
Section
117C will apply to debentures issued and pending to be redeemed and as such DRR
is required to be created for debentures issued prior to 13.12.2000 and pending
redemption subject to clarifications issued herein.
e.
Section
117C will apply to non-convertible portion of debentures issued whether they are
fully or partly convertible.
Yours
faithfully
Ph: 338 9263