SEBI (Debenture Trustees) Regulations, 1993

SEBI (Debenture Trustees) Regulations, 1993 (Part 1)

Definition: A debenture trustee is a trustee appointed in respect of any issue of debentures of a body corporate.
Registration: To register as a debenture trustee, an application must be made to SEBI in the prescribed format, and the applicant must meet certain prerequisites, including:
- Being a scheduled bank, public financial institution, insurance company, or body corporate
- Having necessary infrastructure, experience, and personnel
- Meeting capital adequacy requirements
- Paying a non-refundable fee of fifty thousand rupees and a registration fee of twenty lakh rupees
Permitted Activities: A debenture trustee may undertake activities regulated by other financial sector regulators or non-regulated activities, subject to certain conditions, including:
- Undertaking activities at arm's length through separate business units
- Maintaining separate records and staff for non-regulated activities
- Disclosing non-regulated activities on its website and obtaining stakeholder confirmation
Capital Adequacy Requirements: The net worth of a debenture trustee must be at least ten crore rupees, with existing debenture trustees having three years to meet this requirement.
Responsibilities and Obligations: Debenture trustees have various obligations, including:
- Entering into a written agreement with the body corporate before the issue of debentures
- Ensuring compliance with regulations and provisions of the Companies Act, 2013
- Not acting as a debenture trustee for an associate or having certain relationships with the body corporate
Key Terms:
- Debenture Trustee: A trustee appointed in respect of any issue of debentures of a body corporate
- Registration: The process of obtaining a certificate of registration from SEBI to act as a debenture trustee
- Capital Adequacy Requirements: The minimum net worth required for a debenture trustee to operate

SEBI (Debenture Trustees) Regulations, 1993 (Part 2)

Eligibility Criteria: A person shall not be eligible to be appointed as a debenture trustee if:
- They have any pecuniary relationship with the company amounting to 2% or more of its gross turnover or total income or ₹50 lakh or such higher amount as may be prescribed, whichever is lower, during the two immediately preceding financial years or during the current financial year.
- They are a relative of any promoter or any person who is in the employment of the company as director or key managerial personnel.
- They are likely to have a conflict of interest in any other manner.
Exceptions: The requirement shall not be applicable in respect of debentures issued:
- Wherever there is a guarantee by the state/central government for the debentures issued.
- Prior to the commencement of the Companies (Amendment) Act, 2000, where recovery proceedings in respect of the assets charged against security have been initiated, or the body corporate has been referred to the Board for Industrial and Financial Reconstruction under the Sick Industrial Companies (Special Provisions) Act, 1985.

Obligations of Debenture Trustees

Trust Deed: Every debenture trustee shall accept the trust deeds which shall contain the matters as specified in section 71 of Companies Act, 2013 and Form No. SH.12 specified under the Companies (Share Capital and Debentures) Rules, 2014.
Dispute Resolution: All claims, differences, or disputes between a debenture trustee and a body corporate which has appointed the debenture trustee, arising out of or in relation to the activities of the debenture trustee in the securities market must be submitted to a resolution mechanism that includes mediation and/or conciliation and/or arbitration.
Grievance Redressal Mechanism: The debenture trustee must redress investor grievances promptly but not later than twenty-one calendar days from the date of receipt of the grievance.

Duties of Debenture Trustees

Monitoring: The debenture trustee shall monitor the company's activities to ensure compliance with the terms of the issue of debentures and the covenants of the trust deed.
Reporting: The debenture trustee shall call for periodical status/performance reports from the issuer company within 7 days of the relevant board meeting or within 45 days of the respective quarter, whichever is earlier.
Default: The debenture trustee shall communicate promptly to the debenture holders' defaults, if any, with regard to payment of interest or redemption of debentures and action taken by the trustee.
Nominee Director: The debenture trustee shall appoint a nominee director on the Board of the company in the event of two consecutive defaults in payment of interest to the debenture holders, or default in the creation of security for debentures, or default in the redemption of debentures.

Maintenance of Books of Account, Records, Documents, etc.

Record-Keeping: Every debenture trustee shall keep and maintain proper books of account, records, and documents, relating to the trusteeship functions for a period of not less than five financial years from the date of redemption of debentures.
Intimation to SEBI: Every debenture trustee shall intimate to SEBI the place where the books of account, records, and documents are maintained.

Code of Conduct for Debenture Trustees

Protection of Interest: A debenture trustee shall make all efforts to protect the interest of debenture holders.
Integrity and Fairness: A debenture trustee shall maintain high standards of integrity, dignity, and fairness in the conduct of its business.
Due Diligence: A debenture trustee shall at all times exercise due diligence, ensure proper care, and exercise independent professional judgment.
Client Identification: A debenture trustee shall take all reasonable steps to establish the true and full identity of each of its clients and each client's financial situation and maintain a record of the same.

SEBI (Debenture Trustees) Regulations, 1993 (Part 3)

Introduction: The SEBI (Debenture Trustees) Regulations, 1993, outline the responsibilities and obligations of debenture trustees in India.
Key Responsibilities:
- Ensure prompt information to clients and debenture holders about any change in registration status, penal action, or material change in financial position.
- Avoid conflict of interest and make adequate disclosure of interests.
- Maintain confidentiality of client information.
- Establish a mechanism to resolve conflict-of-interest situations.
- Provide adequate and appropriate information to clients and debenture holders about the business.
- Ensure adequate disclosures to debenture holders in a comprehensible and timely manner.
- Deal with inquiries and grievances of debenture holders in a timely and appropriate manner.
Code of Conduct:
- Definition: A set of principles and guidelines that outline the expected behavior and standards of conduct for debenture trustees.
- Details: The code of conduct includes principles such as avoiding misrepresentation, maintaining knowledge and competency, and not making untrue statements or suppressing material facts.
Monitoring and Disclosure Requirements:
- Debenture Trustee's Role: The debenture trustee is responsible for monitoring the compliance of listed debt securities and submitting reports to the stock exchange within specified timelines.
- Reports and Certificates: The debenture trustee shall submit reports and certificates, including security cover or higher security cover certificates, statement of value of pledged securities, and net worth certificates of guarantors.
- Disclosure on Website: The debenture trustee shall make disclosures on its website, including revision in credit ratings, status of payment of interest/principal, and monitoring of security cover or higher security cover.
Appointment of Compliance Officer:
- Regulation 17A: Every debenture trustee shall appoint a compliance officer responsible for monitoring compliance with the Act, rules, and regulations.
- Compliance Officer's Role: The compliance officer shall report any non-compliance to SEBI and obtain certification in terms of the SEBI CAPSM Regulations, 2007.
Investor Charter:
- Definition: A document that outlines the rights and responsibilities of investors and the debenture trustee.
- Details: The debenture trustee shall ensure compliance with the Investor Charter specified by SEBI from time to time.

SEBI (Debenture Trustees) Regulations, 1993 (Part 4)

Definition: The SEBI (Debenture Trustees) Regulations, 1993, outline the guidelines for debenture trustees in India.
Details: The regulations cover various aspects, including registration, duties, and responsibilities of debenture trustees.

Key Violations

Non-Compliance: The case involves a violation of Regulation 15(1)(q)(iii) & (iv) of the SEBI Debenture Trustee Amendment Regulations, 2017.
Details of Violation: The debenture trustee, ATSL, failed to monitor payments of interest/principal made by the issuer company to debenture holders, and did not carry out due verification to ascertain the status of payment of NCDs.

SEBI Guidelines and Circulars

SEBI Circulars: The case refers to SEBI circulars dated August 6, 2007, and March 15, 2013, which outline the responsibilities of debenture trustees.
Code of Conduct: The case also involves a violation of Clause 19 of the Code of Conduct and Regulation 16 of the SEBI Debenture Trustee Regulations.

Review Questions

Eligibility for Registration: As per SEBI (Debenture Trustees) Regulations, the following can apply for registration as a Debenture Trustee:
- Scheduled Bank
- Public Finance Institution
- Insurance Company
Validity of Registration: The certificate of registration as Debenture Trustee is valid permanently until suspended.
Communication with Debenture Holders: The debenture trustee shall communicate to the debenture holders on a half-yearly basis regarding compliance, defaults, etc.
Compliance with Ombudsman Award: The statement "The debenture trustee shall comply with the award of Ombudsman passed under the Securities and Exchange Board of India (Ombudsman) Regulations, 2003" is True.