# Debenture Redemption Reserve (DRR) [Section 71(4) read with Rule 18(7)]
## Fundamental Requirement
A company shall create a Debenture Redemption Reserve (DRR) account out of the profits of the company available for payment of dividend.
Use Restriction: The amount credited to DRR account shall NOT be utilised by the company except for the redemption of debentures.
## A. Categories — DRR Requirement Matrix
| Category | Publicly Placed Debentures | Privately Placed Debentures |
|---|---|---|
| All India Financial Institutions (regulated by RBI) | Exempted | Exempted |
| Banking Companies | Exempted | Exempted |
| Listed Companies (other than AIFIs and Banking) | Exempted (except NBFCs not registered with RBI u/s 45IA and HFCs not registered with NHB) | Exempted (except NBFCs not registered with RBI u/s 45IA and HFCs not registered with NHB) |
| Unlisted Companies (other than AIFIs and Banking) | DRR = 10% of Outstanding Debentures | DRR = 10% of Outstanding Debentures (Except NBFCs registered with RBI u/s 45IA and HFCs registered with NHB) |
### Key Clarifications
1. Purpose of relaxations: These exemptions were introduced by MCA to reduce the cost of borrowings incurred by companies.
2. Other Financial Institutions under Section 2(72) shall be treated like NBFCs registered with RBI for DRR purposes.
3. Partly Convertible Debentures: DRR shall be created only in respect of the non-convertible portion of debentures.
## B. Investment / Deposit Requirement (for Debentures Maturing During the Year)
### Who Must Invest?
| Type of Company | Type of Debenture Covered |
|---|---|
| Listed Company (other than AIFIs and Banking) | Publicly placed debentures |
| Unlisted Company (other than AIFIs and Banking) | Publicly placed AND Privately placed debentures (other than those by NBFCs registered with RBI u/s 45IA and HFCs registered with NHB) |
### Quantum and Timing
- By 30th April of each year
- An amount equal to 15% of debentures maturing during the financial year (ending 31st March of next year) must be invested or deposited.
### Permitted Methods of Investment
| # | Eligible Investment |
|---|---|
| a | Deposits with any scheduled bank, free from any charge or lien |
| b | Unencumbered securities of the Central Government or any State Government |
| c | Unencumbered securities under sub-clauses (a) to (d) and (ee) of Section 20 of Indian Trusts Act, 1882, OR unencumbered bonds of companies notified under sub-clause (f) of Section 20 |
### Maintenance Rule
The amount remaining invested/deposited shall NOT at any time fall below 15% of the amount of debentures maturing during the year ending 31st March of that year.
Meaning: The amount must be invested/deposited by 30th April and maintained thereafter till end of financial year (or till maturity if earlier).
## Quick Decision Tree
```
Is the company exempted from DRR?
→ AIFI / Banking Company → YES, exempted
→ Listed company (non-AIFI, non-Bank) → YES, exempted
(unless NBFC not regd u/s 45IA or HFC not regd with NHB)
→ Unlisted company → NO → Create DRR = 10% of outstanding debentures
Is 15% Investment required?
→ Listed Company → only for PUBLICLY placed debentures
→ Unlisted Company → for both publicly and privately placed (with exceptions)
```