Question

Explain redemption of debentures by draw of lots.

Hint:

The draw of lots ensures fairness in redemption, and it is used to redeem a portion of debentures at random rather than by priority or amount held.

Answer 1

Step 1: Understanding the Redemption Process.
Redemption of debentures by draw of lots is a method where the company redeems debentures by drawing names of the debenture holders randomly. This process ensures that the redemption is done in a fair and unbiased manner, as it does not depend on the debenture holders’ size of holdings or the time of investment. The company will decide on a date when the draw of lots will occur, and on that date, a certain number of debenture holders are selected to have their debentures redeemed.
Step 2: The Procedure for Redemption by Draw of Lots.
1. The company prepares a list of all debenture holders and assigns each debenture a serial number.
2. On the scheduled date, a draw of lots takes place where debenture holders are selected based on their serial number.
3. The selected debenture holders have their debentures redeemed by the company at face value, and the company may choose to pay either in cash or in kind (if applicable).
4. The redemption continues until all the debentures are redeemed or the company decides to stop the process.
Step 3: Conclusion.
The redemption of debentures by the draw of lots is a random and fair process where the company redeems a portion of debentures held by the investors, ensuring equality and fairness.