Debentures are never redeemed by the company.

Debentures are never redeemed by the company.

Ans. False.

Reasons: (1) Debenture is the loan capital of the company. As the debenture capital is borrowed capital it has to be paid back. The repayment of debenture amount to debenture holder is called as redemption of debentures. Every company is required to create a 'Debenture redemption reserve' for the purpose of redemption of debentures.

(2) Debenture holders are creditors of the company. Return on Debentures is interest payable at a fixed rate by the company.  Debentures are secured by creating charge over assets of the company.

(3) As creditors they get first priority in payment of interest and repayment of capital. Both interest payment and repayment of capital at maturity are obligations of the company.

(4) Redemption means paying back / refunding money to the investors.

(5) It has to be returned either after a fixed period or during lifetime or at the time of winding up of the company. It is not permanent capital of the company. Company also creates Debenture Redemption Reserve (DRR) to handle paying back in a smooth manner. So, debentures are redeemable / refundable capital of the company.

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