Sebi's new regulations to allow trusteeship in govt-guaranteed debentures

Regulator had issued a consultation paper for amending the existing norms on debenture trustees

Markets regulator Sebi has put in place new regulations for debenture trustees, wherein an entity will not be prohibited from acting as a trustee if the government provides guarantees for the debenture issued.

The norms comes following recommendations of a Sebi- appointed task force that examined the "challenges in performing the obligations and duties as Debenture Trustees (DTs) to protect the interests of the debenture holders".

The amendments seek to fortify the existing provisions to enable the DTs to perform the task of securing the interest of investors and also harmonise the existing provisions with those of the Companies Act, 2013.

Earlier, several provisions in the DT Regulations had reference to the erstwhile Companies Act, 1956, which have been repealed and replaced by the new companies law.

Among various changes, Sebi has changed the definition of principal officer, who is entrusted with overseeing the activities of the DT, to include Key Management Personnel (KMP) who in turn can be the CEO, managing director, company secretary, whole-time Director, CFO or such other officer.

Earlier, a person could not act as a DT in case of any issue of debentures by an associate.

Now, a person cannot be appointed as a DT if he beneficially owns shares in the company, is a promoter, director or KMP or an employee of the company or its holding, subsidiary or associate company, Sebi said in a notification dated July 13.

Besides, a person cannot be appointed DT 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, holding or associate company, has furnished any guarantees in respect of the principal debts secured by the debentures, is relative of any promoter, director or KMP.

The prohibition will also apply if the person has any pecuniary relationship with the company amounting to 2 per cent or more of gross turnover or total income of Rs 50 lakh or a higher amount during the two preceding years or during the current fiscal.

However, Sebi said that wherever the government provides guarantees for the debentures issued, the proposed prohibition to act as DT may not be be applicable.

Sebi said that DT would be responsible for communicating promptly to the debenture holders defaults, if any, with regard to payment of interest or redemption of debentures and action taken by the trustee.

A debenture trustee would be liable for action in case it fails to resolve the complaints of investors; furnishes any false or misleading information to Sebi, does not submit periodic returns or reports; does not co-operate in any enquiry, inspection or investigation conducted by the regulator.

In February, Sebi had issued a public consultation paper for changes to the debenture trustee regulations and had sought public views on it till March 8.