Sebi proposes changes in the debenture trustee rules

To protect the interest of the debenture holder, market regulator Securities and Exchange board of India (Sebi) on Thursday has proposed a slew of changes in the existing regulation for the debenture trustee (DT).

The regulator has issued a consultation paper in this regard seeking public comments by March 8.

According to it, a person cannot be appointed as a DT if he beneficially owns shares in the company, is a promoter, director or key managerial person (KMP) or an employee of the company or its holding, subsidiary or associate company.

To enable the DTs to perform the task of securing investors' interest more effectively, Sebi had set up a task force comprising of Sebi officials and representative of (DTs) for examining the "challenges in performing the obligations and duties as Debenture Trustees to protect the interests of the debenture holders", said Sebi's consultation paper.

The proposed changes said that an individual cannot be appointed as debenture trustee if he is beneficially entitled to money to be paid by the company other than remuneration payable to the DT, is indebted to the company or its subsidiary has furnished any guarantees in respect of the principal debts secured by the debentures, is relative to any promoter, director or KMP, Sebi said.

Accordingly, the task force has submitted its recommendations which, inter alia, include proposal regarding amendments to the DT regulations. The said modification has been proposed in the existing provisions of Sebi's (Debenture Trustee Regulations), 1993, (Substantial Acquisition of Shares and Takeovers Regulations) 2011 and consequential changes for improvement.

Among other changes, Sebi has also proposed to change the definition of the principal officer, who is entrusted with overseeing the activities of the DT, to include key management personnel who in turn can be a chief executive officer, managing director, company secretary, whole-time director or such other officer. At present, a person cannot act as a DT in the case of any issue of debentures by an associate.

Besides, it has also proposed changes in the provisions relating to the liability for action against the DTs with regard to default or non- compliance required to be modified to streamline them with other Sebi regulations so as to have consistency.

To sync debenture trustee provisions with Sebi's takeover norms, it has also proposed certain changes in the provision relating to the definition of 'change in control' and of 'insurance company'.