Rule 18 explained: this guide covers what it means, who it applies to, the step-by-step process, documents required, fees, due dates and penalties in India — so you can stay compliant with confidence and avoid costly mistakes.
Sub-rules (7) to (11) of rule 18 deal with money, not paperwork. They say which issuers must build a debenture redemption reserve (DRR), how much, what must be invested or deposited before 30 April each year, who is exempt, and who may inspect the trust deed. This article states the sub-rules as amended up to G.S.R. 43(E) dated 21 January 2023 per the MCA e-book; later amendments should be checked. Sub-rule (7) was substituted on 16 August 2019 and its clause (b)(v) on 5 June 2020, as the e-book's notes record; the earlier wording is not the rule.
DRR is created out of profits available for payment of dividend. It is not required for All India Financial Institutions regulated by the RBI and banking companies. Listed companies and NBFCs and housing finance companies are exempt in the cases printed, while other unlisted companies must hold ten per cent of the outstanding debentures. Companies covered by two named items must invest or deposit at least fifteen per cent of debentures maturing in the year ending 31 March of the next year, on or before 30 April. Money in the DRR may be used only to redeem debentures.
The structure of sub-rule (7)
The company must comply with the DRR requirements and with the investment or deposit of a sum for debentures maturing during the year ending on 31 March of the next year, on the conditions below. For a company planning an issue, the Section 71 post gives the Act's frame, and our compliance advisory team can check which category applies.
Clause (a): the DRR is created out of profits of the company available for payment of dividend.
Clause (b) sets the limits by type of issuer:
| Issuer | DRR position as printed |
|---|---|
| All India Financial Institutions regulated by the RBI, and banking companies | Not required, for public and privately placed debentures. |
| Other Financial Institutions within clause (72) of section 2 | DRR as applicable to NBFCs registered with the RBI. |
| Listed companies (other than those above): public issue | Not required for NBFCs registered under section 45-IA of the RBI Act, 1934, for housing finance companies registered with the National Housing Bank, or for other listed companies. |
| Listed companies: privately placed debentures | Not required for the same two groups (the NBFCs and housing finance companies, and the other listed companies). |
| Unlisted: NBFCs and housing finance companies | Not required for privately placed debentures. |
| Unlisted: other companies | Adequacy of DRR is ten per cent of the value of the outstanding debentures. |
The investment or deposit: clause (b)(v) and (vi)
A company covered by item (A) of sub-clause (iii) of clause (b) or item (B) of sub-clause (iv) of clause (b) shall, on or before the 30th day of April in each year, invest or deposit, in respect of debentures it has issued, a sum of not less than fifteen per cent of the amount of debentures maturing during the year ending 31 March of the next year, in one or more of the methods listed in sub-clause (vi). A proviso adds that the amount remaining invested or deposited shall not at any time fall below fifteen per cent of the amount of debentures maturing during the year ending 31 March of that year.
The methods in sub-clause (vi) are:
- deposits with a scheduled bank, clear of any charge or lien;
- unencumbered securities of the Central Government or any State Government;
- unencumbered securities mentioned in sub-clauses (a) to (d) and (ee) of section 20 of the Indian Trusts Act, 1882; and
- unencumbered bonds issued by any other company notified under sub-clause (f) of section 20 of the Indian Trusts Act, 1882.
The e-book prints item 1 and item 2 in a jumbled layout; read it as the list above. The Indian Trusts Act, 1882 is quoted as printed; check the current law before relying on those references.
A proviso says the amount invested or deposited shall not be used for any purpose other than the redemption of debentures maturing during the year referred to.
Clause (c) (partly convertible debentures): the DRR is created in respect of the non-convertible portion of the issue, in accordance with the sub-rule.
Clause (d): the amount credited to the DRR shall not be used except for redemption of debentures.
Inspection of the trust deed: sub-rule (8)
Under clause (a), a trust deed securing any issue of debentures is open to inspection by any member or debenture holder, in the same manner, to the same extent and on payment of the same fees as if it were the register of members. Under clause (b), a copy of the trust deed shall be forwarded to any member or debenture holder who asks, within seven days of the making of the deed, on payment of fee. The rule does not print the amount of that fee; check the figure the company's own papers or the Act provide.
Exclusions: sub-rules (9) to (11)
| Sub-rule | What the rule does not apply to |
|---|---|
| (9) | Any amount received by a company against issue of commercial paper or any similar instrument issued in accordance with the guidelines, regulations or notification of the Reserve Bank of India. |
| (10) | An offer of foreign currency convertible bonds or foreign currency bonds issued under the Foreign Currency Convertible Bonds and Ordinary Shares (Through Depository Receipt Mechanism) Scheme, 1993 or RBI regulations or directions, unless that scheme, those regulations or directions provide otherwise. |
| (11) | Rupee denominated bonds issued exclusively to overseas investors in terms of RBI A.P. (DIR Series) Circular number 17 dated 29 September 2015. |
These instruments are quoted as printed. The reader should check the current RBI position, since this article does not state it.
Example
Sunrise Plastics Limited is an unlisted company that is not an NBFC or housing finance company. It has debentures outstanding. Under clause (b)(iv)(B) its DRR must equal ten per cent of the value of the outstanding debentures, created out of profits available for payment of dividend. By 30 April it must also invest or deposit not less than fifteen per cent of the debentures maturing in the year ending 31 March of the next year, say in a deposit with a scheduled bank clear of any charge, and keep it there until the redemption.
Need help with debenture compliance?
Working out whether a DRR is due, how much, and where the fifteen per cent investment is held needs the company's accounts and the debenture terms. Our compliance advisory service can review the position and the record.
Key takeaways
- DRR is created from profits available for payment of dividend and used only to redeem debentures.
- No DRR for All India FIs regulated by the RBI and banking companies; listed companies and NBFCs/HFCs are exempt in the cases printed.
- Other unlisted companies hold ten per cent of outstanding debentures.
- The fifteen per cent investment or deposit is due on or before 30 April and must stay at that level.
- Commercial paper, certain foreign currency bonds and overseas rupee-denominated bonds are excluded.
Read next
- Rule 18(1)–(6): secured debentures, trust deed and debenture trustee
- Rule 19: nomination by securities holders in SH-13 and SH-14
- Section 71: debentures, issue and redemption
- Debentures: types, issue process and compliance
Disclaimer: Based on the Companies Act, 2013 rules named above as consolidated in the MCA e-book (consulted on 3 October 2026), with the later notifications the article names. Later amendments, fees, forms and the Companies Act, 2013 provisions referred to should be checked. This article is general information, not legal advice; check the official text before acting.