Sebi fines Vistra ITCL Rs 5 lakh for violating debenture trustees norms

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Markets regulator Sebi Friday imposed a penalty of Rs 5 lakh on debenture trustee Vistra ITCL India (formerly known as IL&FS Trust Company) for lapses in a fund raising case relating to Pincon group firm LRN Finance.

In April 2016, Hongkong-based Vistra Group had acquired IL&FS Trust Company Ltd (ITCL), a subsidiary of IL&FS Group.

The regulator in an order said, ITCL was appointed as debenture trustee for non-convertible debentures (NCDs) issued by the LRN and Rs 27 crore was raised from 4,178 investors in 2012 in a private placement.

A debenture trustee, in market parlance, is a person or entity that serves as the holder of debenture stock for the benefit of another party. Debenture is a debt instrument that is not secured by physical assets or collateral.

Sebi noted from the records that the LRN issued debentures all over the country and there is nothing demonstrated by the LRN or ITCL to substantiate that the issue was a private placement and invitation for subscription was made only to specific/predetermined persons.

Besides, LRN did not prove that its offer was not open for subscription to public at large. On the contrary, ITCL on its own submission has mentioned that there was an advertisement on the website of LRN wherein it was seeking public subscription for fund raising and that too after the closure of the issue, regulator said.

When it came to its notice that LRN was soliciting funds from general public to subscribe for NCDs, "ITCL did not take immediate step to stop such fund raising and bring to the notice of Sebi and other regulators," the market watchdog said.

"ITCL as a debenture trustee failed to make efforts to protect the interest of debenture holders and fulfil its obligations in a prompt, ethical and professional manner. I also note that ITCL had failed to maintain high standards of integrity, dignity and fairness in the conduct of the business...," Sebi's Adjudicating officer Sahil Malik said.

Accordingly, a fine of Rs 5 lakh was imposed on ITCL.

In a separate order, Systematix Corporate Services settled a case with regulator Sebi regarding disclosure lapses after it paid Rs 5 lakh towards settlement charges.

The entity had filed applications to settle the "proposed adjudication proceedings" for the delayed compliance of disclosure norms as required under SAST (Substantial Acquisition of Shares and Takeover) Regulations.