Q.Assertion (A) : Irredeemable debentures are also known as perpetual debentures. Reason (R) : The company does not give any undertaking for the repayment of money borrowed by issuing such debentures. They are repayable on the winding up of the company or on the expiry of a long period. Choose the correct option from the following : (A) Both Assertion (A) and Reason (R) are correct and Reason (R) is the correct explanation of Assertion (A). (B) Both Assertion (A) and Reason (R) are correct, but Reason (R) is not the correct explanation of Assertion (A). (C) Assertion (A) is incorrect, but Reason (R) is correct. (D) Assertion (A) is correct, but Reason (R) is incorrect.
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Start your 14-day free trial to unlock the full solution →Both Assertion (A) and Reason (R) are correct, and Reason (R) correctly explains why irredeemable debentures are called perpetual debentures. The correct option is (A).
Let’s first understand what debentures are. A debenture is a written instrument acknowledging a debt taken by a company. It is issued under the company’s seal and contains a promise to repay the borrowed amount at a specified date (maturity) and to pay interest at a fixed rate at regular intervals. Debentures are a form of long-term borrowing for the company.
Now, the key distinction here is between redeemable and irredeemable debentures. Redeemable debentures have a fixed maturity date on which the company must repay the principal amount. Irredeemable debentures, on the other hand, have no fixed maturity date. The company does not promise to repay the principal at any specific future date. Instead, the repayment happens only when the company winds up (is liquidated) or after a very long period, often decades. Because the company never has to repay the principal during its normal life, these debentures are effectively permanent — hence the name “perpetual debentures.”
The Reason (R) states exactly this: the company gives no undertaking for repayment of the money borrowed by issuing such debentures, and they are repayable only on winding up or after a long period. This is the precise characteristic that makes them “irredeemable” and also “perpetual.” So Reason (R) is not just a correct statement — it is the very explanation of why Assertion (A) is true.
A common mistake is to think that “irredeemable” means the company never repays the money. That is wrong. The company does repay, but only on winding up or after an extremely long period — not on a fixed date. So the debentures are not truly permanent; they are just very long-term.
A quick way to remember: “Irredeemable = No fixed redemption date = Perpetual.” The word “perpetual” literally means “lasting forever” — and since the company never has to repay during its existence, the debenture seems to last forever. …
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