When the debentures are paid out of current sources of the company, it is known as redemption out of capital. It means no debenture redemption reserve is created by the company. This affects the working capital adversely as per SEBI guidelines this source can be used by the following companies.
(i) Infrastructure companies (a company wholly engaged in the business of developing maintaining and operating infrastructure facilities).
(ii) A company issuing debentures with a maturity period of not more than 18 months.
(iii) A company issue debentures in the form of private placement.
In other words the above companies are not required to create debenture redemption reserve.**