Debenture Trustee – Its Position, Rights and Duties

Debenture trustee, in simple terms, means any person who is given the responsibility for issuing and distributing debentures. If any company is looking for raising the capital, then they can chose the option of issuing the stocks as a form of debt with a condition that the debt had to be repaid at a specific interest rate.

The debenture trustees keep a contact with different groups. They act as a middleman between the company that issued debentures and also those debenture holders who are collecting interest payments.

In India, the debenture trustees are regulated by Securities Exchange Board of India (SEBI). Under SEBI (Debenture Trustee) Regulations, 1993 there are rules regarding eligibility criteria, registration, review, code of conduct etc.

DEBENTURE TRUSTEE’s APPOINTMENT

A company is required to appoint a debenture trustee when it issues a prospectus or make a public offer. Also, the appointment is required when any company makes an offer to its members exceeding the number of 500 or more in order to subscribe for the debentures.

If the issue of debentures is for a maturity less than 18 months then it is not necessary to appoint a debenture trustee.

Now, the entities that can be appointed as a debenture trustees are scheduled commercial bank which carries any commercial activity, an insurance company, any financial institution or a body corporate. These entities are required to be registered with SEBI.

DEBENTURE TRUSTEE’s DUTIES

The primary duty of a debenture trustee is to protect the interest of the debenture holders. They are some specific duties given to the debenture holders under the rules of Companies Act. They are:

• Ensuring that the letter of offer has no inconsistent terms according to the term of issue of debentures.
• If any default is made by the debenture holders in regards to the payment of interest or redemption of debentures, then the same must be communicated to them immediately by the trustee. This change was made by SEBI after the amendment in the Companies Act in 2013.
• Ensuring the conditions laid down regarding the Debenture Redemption Reserve is maintained.
• Convening a meeting of the debenture holders as and when required by the law for the same.
• Calling for periodical reports from the entity issuing debentures
• Exercising due diligence so that the company follows the procedures laid down under the Companies Act
• Ensuring that the debentures are redeemed or converted as accordance with the provisions of the Act. Also, they must be redeemed and converted at the conditions under which they were offered to debenture holders.

DEBENTURE TRUSTEE’s RIGHTS

• A company which wants to issue debentures having a maturity of more than 18 months cannot issue the same without the appointment of debenture trustee.
• The trustee has a right to ask for the periodical reports of the company.
• Trustee has a right to appoint a nominee in the board of directors if the company had consecutively made two defaults in the payment of interest to the holders. Also, the nominee can be appointed when there is default in creation for security of debentures and in redemption of the debentures.
• The company had to specify the name of the debenture trustee to be appointed in the offer letter.

REFERENCES

• https://www.sebi.gov.in/sebi_data/faqfiles/dec-2016/1482144051182.pdf
• https://www.caclubindia.com/articles/debenture-trustee-27207.asp
• https://www.slideshare.net/shantanu_leo/debenture-trustees
• https://economictimes.indiatimes.com/markets/stocks/news/sebi-amends-debenture-trustee-regulations/articleshow/59596918.cms

See Also: https://lawyersgyan.com/blog/clearing-corporation-of-india-its-structure-and-role-in-the-economy/

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