Somesh Lund 

The Securities and Exchange Board of India (SEBI) in its board meeting held on 26 April 2017 [1] has approved the amendments to the SEBI (Debenture Trustee) Regulations, 1993[2](hereinafter referred to as “Regulations”)as proposed in the consultative paper issued on 16 February 2017[3].The consultative paper was placed on SEBI’s website and suggestions were invited.

The Companies acts, 2013, as well as the SEBI regulations, prescribe the framework pertaining to debenture trustees. This led to several overlaps and ambiguities. Thus with a view to address this issue, SEBI formed a task force comprising of SEBI officials and representatives of the debenture trustees to conform the Debenture Trustee Regulations with the Companies Act, 2013.

The Key amendments proposed by the task force are mentioned here under:-

1. Several provisions in the existing debenture trustees regulations have reference to Companies Act, 1956; thus in light of the new act  i.e. Companies Act,2013 being  implemented, these provisions have to be updated as per the new act. :-

The amendments are as mentioned here under:-

  • Associate:- Shall mean an ‘associate’ as defined under Companies Act,2013
  • Companies Act :- Companies act to mean ‘Companies Act, 2013’ and not ‘Companies Act 1956’
  • ‘Debenture’:- Debenture means a ‘debenture’ as defined under sub-section (30) of section 2 of the Companies Act, 2013
  • ‘Principal Officer’:- To mean KMP as defined under subsection (51) of section 2 of companies Act, 2013
  • ‘Change in control’ : – The definition of change in control will refer to SEBI (Substantial Acquisition of Shares and Takeovers) Regulations, 2011 instead of Securities and Exchange Board of India (Substantial Acquisition of Shares and Takeovers) Regulations, 1997
  • ‘Insurance Company’: – Insurance company to mean ‘Insurance company as defined under section 2(7A) of the Insurance Act, 1938.
  • ‘Body corporate’: – Shall have the meaning as stated under Companies, Act 2013.

2. Persons prohibited from acting as a debenture trustee: – 

Currently, the Regulations cast restrictions on associate of the company on acting as debenture trustees. However Clause 18 of the Companies (Share Capital and Debenture) Rules specifically prohibits certain persons from acting as debenture trustees. Thus to bring conformity between the above-mentioned provision it has been proposed that the probation mentioned in Clause 18 be incorporated in the debenture trustee regulations. These regulations state that no person shall not be appointed as a debenture trustee if  he:-

  • Is a beneficial owner of shares in the company
  • Is an employee, or director or KMP of the company or its associate company(ies)
  • Is entitled to any money other than that payable to him as remuneration to act as the debenture trustee
  • Is indebted to the company or any of its associate company(ies)
  • Acts as a guarantor in regard to any debt
  • Has a pecuniary relation with the company amounting to 2% or more of its gross turnover or in excess of Rs 50 lakh

The objective is to ensure that the Debenture Trustee appointed is impartial and no conflict of interest exists. Thus, this will help generate confidence among the debenture holders.

3. Obligation to be complied with before appointment as a debenture trustee :-

The following additional obligations have been proposed that have to be adhered with before the debenture trustee is appointed:-

  • An undertaking has to be given by the body corporate declaring that company will comply with all the prevailing provisions and regulations.
  • The time limit within which the security of the debentures shall be created should also be mentioned.

The Debenture Trustee has been made accountable to ensure that the issuer duly follows the law and the debentures have been issued within the prescribed time frame.

4. SEBI has proposed more stringent obligation on debenture trustees: –

Not only have several duties mentioned in the Companies act, 2013 have been incorporated but also certain duties have been added to these regulations. The additional obligation of debenture trustee, inter alia, are:-

  • Taking possession of the trust property as per the provisions of the debenture trust.
  • The debenture trustee is required to promptly communicate relevant information to the debenture holders. The amendment also proposes that this information can also be communicated through electronic means, notice on websites and press releases.
  • It is proposed that the debenture trustee has to procure relevant reports and documents within 7 days from relevant board meeting or 45 days from completion of the quarter, whichever is earlier. This will foster further dissemination of information which will help debenture holders make timely decisions.
  • If the listed debt securities are secured by receivables/book debts the debenture trustee can now obtain a) Quarterly certificates from directors / Managing Director of the issuer company certifying the value of the book debts / receivables. b) Yearly Certificate from the statutory auditor giving the value of book debts / receivables. Although this amendment leads to further information being provided to the trustee, it is still unclear if the trustee has right to ask for additional security in case of breach or depreciation of the charge.

5. Deletion of schedule IV: –

Currently, both SEBI, as well as MCA, prescribes the contents of the trust deed. This leads to confusion and ambiguity. Thus with a view to resolve this conflict it has been  proposed to delete schedule IV of the Debenture Trustee Regulations which deals with the contents of the trust deed. Thus only Form SH-12 under the Companies (Share Capital and Debentures) Rules 2014 will prescribe the contents. This amendment will make compliance for the issuer as well as the trustee more convenient.

6. Maintenance of books of accounts, records, and documents:

To protect the interest of debenture holder, the debenture trustees shall be required to maintain records, books of accounts and other documents for a period of 5 years. This will further safeguard the interest of the debenture holders as it puts the onus on the debenture trustees.

7. Compliance officer to obtain a certificate:-

In order to be eligible to be appointed to oversee the workings of a debenture trustee, a compliance officer will now need to obtain a certificate from the National Institute of Securities Market (NISM) established by SEBI.  The proposed amendment will help to ensure that the compliance officer has the required knowledge to undertake the duties that are to be bestowed upon him.

8. Debentures trustees’ liability in case of default: –

The liability of debenture trustees has been enhanced to further protect the interest of debenture holders. The scope of trustees’ liability has been widened to also include:-

  • The failure by debenture trustees to provide an information relating to his/ her activities to SEBI.
  • Furnishes to SEBI information which is false or misleading
  • Failure to resolve grievances of debenture holders
  • Failure to assist The Board in regards to inspections, investigations and other inquiries.

In the case of default under the above provisions action will be taken against him under Securities and Exchange Board of India (Intermediaries) Regulations, 2008 which can result in the suspension and cancellation of the certificate of registration of the debenture trustee.

9. Unsecured Debentures to come under the ambit of the Debenture Trustee regulations: –

Currently, it is unclear whether unsecured debentures come under the ambit of the Regulations. Thus it is clarified in these amendments that unsecured debentures will also come under the preview of Debenture trustee regulations. Thus resolving the ambiguity that exists.

10. Certificate from the auditor: –

It has also been clarified that the debenture trustee has to obtain a certificate from the issuer’s statutory auditor pertaining to the utilization of proceeds. This will reaffirm that the monies raised through issue of are being utilized in an appropriate manner.


The proposed (now approved) amendments are aimed to align the debenture trustee regulations in accordance with the Companies Act, 2013.These amendments will clarify several ambiguities and simplify compliance requirements to be adhered by both the trustee as well as the issuing company. Furthermore, these amendments will ensure better oversight on the working of debenture trustees and thus will foster confidence in the debt securities market.




(Author is associated with Vinod Kothari & Company and can be reached at [email protected])

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June 2021