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Question
What is meant by the redemption of debentures by “Purchase in the Open Market”?
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Solution
According to the Company Act, if a company is authorised by its Articles of Association, only then may it purchase its own debentures from the open market. The main purpose of such a purchase is as follows:
- For immediate cancellation of debenture liability, if the interest rate on its debenture is higher than the market rate of interest.
- A company may also purchase its own debentures with the motive of investment and sell them at a higher price in future and thereby earn profit.
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