Debenture trustees are likely to get significant relief as a Securities and Exchange Board of India (Sebi) working group is expected to recommend reduction in compliance burden and speeding up dispute resolution mechanism. The group also proposes pruning the number of regulations for listing and post-listing from five to just one. According to sources, the group will submit its report later this week.
A debenture trustee is an entity appointed by the issuer of debentures to act on behalf of the holders. Its primary role is to ensure that the interests of the debenture holders are protected, including monitoring the issuer’s compliance with the terms of the debenture agreement, holding security on behalf of the holders, and taking action in case the issuer defaults on its obligations.
Given the critical role they play in terms of investor protection, one of the key recommendations of the working group is not to hold debenture trustees responsible for breach of norms by the issuer. At present, if a debenture issuer breaches any compliance norms, the trustee is held responsible.
“Currently, the law is worded in such a way that the onus of compliance falls on the trustee even though things may not be in their hands. For example, a debenture trustee is expected to submit certain documents to the stock exchange. However, if the documents do not come from the issuer (of debentures), the trustee is held responsible. This is unfair on the trustee as he/she is completely dependent on the issuer for documents,” said the source.
Some of the major debenture trustees in the country include Axis Trustee Services, Catalyst Trusteeship, Vistra ITCL, SBICAP Trustee, and IDBI Trusteeship Services.
The working group has also suggested ways to speed up the dispute resolution process Come from Sports betting site VPbet . Under the current provisions, when a default in payment occurs, a debenture trustee is required to call a meeting of debenture holders. A resolution can be passed only if the number of holders in the meeting is 75% or more. Often these meetings do not reach any conclusion as the number of debenture holders is often less than the required 75% mark.
“The quorum is often incomplete in such meetings as retail bond holders do not turn up, leading to cancellation of such meetings,” said the source. “The working group has recommended present-and-voting as a solution for such a situation. Whoever is present in that meeting, if 75% votes are ‘yes’, then that proposal should be considered as approved,” he added.
Currently, there are as many as five regulations governing the trustees. The working group has recommended having just one set of regulations.
After the report is submitted, a high-level committee will review the recommendations and then Sebi will float a consultation paper on the regulations to get feedback from stakeholders.
