SECURITIES Market

Intermediaries
DEBENTURE TRUSTEE

Dr JAYENDRA KASTURE
VIT School of law - Chennai

CAPITAL MARKETS AND SECURITIES REGULATION

 INTERMEDIARIES

• Intermediaries are service providers.

• The Market Regulator, i.e., SEBI regulates
various intermediaries.
• These Regulations also empower SEBI to
inspect the functioning of these intermediaries.
CAPITAL MARKET INTERMEDIARIES

• The capital market intermediaries are vital link

between investor, issuer and regulator.
• Corporations and Governments do not market
their securities directly to the investors.
• Investors, particularly small investors, find it
difficult to make direct investment.
by providing investment consultancy, market
analysis and credit rating of investment
instruments.
 INTERMEDIARY
According to SEBI (Intermediaries) Regulations, 2008,
“intermediary” means a person mentioned in
• Section – 11(2) (b) and (ba)
• Section – 12 (1) and (1A)
• but does not include foreign institutional investor,
foreign venture capital investor, mutual fund,
collective investment scheme and venture capital
fund.
 Market Intermediaries in the Securities
Market
• Merchant Bankers
• Underwriters
• Stock-brokers and sub-brokers
• Debenture Trustees
• Depository Participant
 DEBENTURE TRUSTEE
 ‘Debenture Trustee’ means a trustee of a trust deed for
securing any issue of debentures of a body corporate.
 It is necessary that the company makes proper arrangements to
extend assurances and comply with legal requirements in
favour of the investors who are entitled to this type of security.
 Intermediaries such as Trustees who are generally Banks and
Financial Institutions render this service to the investors for a
fee payable by the company.
 The issuing company has to complete the process of finalising
and executing the trust deed or document and get it registered
within the prescribed period and file the charge with the
Registrar of Companies (ROC) in respect of the security
offered
 DEBENTURE TRUSTEE
Role and Functions
 Call for periodical reports from the body corporate,
i.e., issuer of debentures.
 Take possession of trust property in accordance with
the provisions of the trust deed.
 Exercise due diligence to ensure compliance by the
body corporate with the provisions of the Companies
Act, the listing agreement of the stock exchange or
the trust deed
 DEBENTURE TRUSTEE
Role and Functions
Enforce security in the interest of the
debenture holders.
To take appropriate measures for protecting the
interest of the debenture holders as soon as any
breach of the trust deed or law comes to his
notice.
Inform the SEBI immediately of any breach of
trust deed or provision of any law
 DEBENTURE TRUSTEE
Role and Functions
To ascertain that the debentures have been
converted or redeemed in accordance with the
provisions and conditions under which they are
offered to the debenture holders.
Appoint a nominee director on the board of the
body corporate when required
 SEBI (DEBENTURE TRUSTEES)
REGULATIONS, 1993
Regulation 3 – Application made to SEBI
seeking grant of a certificate of registration.
No debenture trustee who has been granted a
certificate by SEBI shall act as debenture
trustee unless he enters into a written
agreement with the body corporate
 SEBI (DEBENTURE TRUSTEES)
REGULATIONS, 1993
Consideration of application – The applicant
• has the necessary infrastructure like adequate office space,
equipments, and manpower
• has any past experience as a debenture trustee or has in his
employment minimum two persons who had the experience
• has in his employment at least one person who possesses the
professional qualification in law
• any of its director or principal officer is or has at any time been
convicted for any offence involving moral turpitude or has been
found guilty of any economic offence
• fulfills the capital adequacy requirements - not be less than the
networth of two crore rupees
 SEBI (DEBENTURE TRUSTEES)
REGULATIONS, 1993
Eligibility for being debenture trustee
No person shall be entitled to act as a debenture trustee
unless he is either
• a scheduled bank carrying on commercial activity
• a public financial institution
• an insurance company
• body corporate
• The certificate of registration - shall be valid unless it is
suspended or cancelled by the Board
Where debenture trustee proposes, change in control, it
shall obtain prior approval of the Board
 SEBI (DEBENTURE TRUSTEES)
REGULATIONS, 1993
Debenture trustee NOT to act for any issue of
debentures in case
• it is an associate of the body corporate
• it has lent and the loan is not yet fully repaid or
is proposing to lend money to the body
corporate
RESPONSIBILITIES AND OBLIGATIONS OF
DEBENTURE TRUSTEES
Regulation 15
 satisfy itself that the prospectus or letter of offer
does not contain any matter which is inconsistent
with the terms of the issue of debentures or with
the trust deed.
 satisfy itself that the covenants in the trust deed
are not prejudicial to the interest of the debenture
holder
 call for periodical status/ performance reports
from the issuer company
RESPONSIBILITIES AND OBLIGATIONS OF
DEBENTURE TRUSTEES
Regulation 15
 appoint a nominee director on the Board of the
company in the event of
• two consecutive defaults in payment of interest to the
debenture holders; or
• default in creation of security for debentures; or
• default in redemption of debentures.
 inform the debenture holders immediately of any
breach of the terms of issue of debentures or
covenants of the trust deed;
RESPONSIBILITIES AND OBLIGATIONS OF
DEBENTURE TRUSTEES
Regulation 15
 ensure that the company does not commit any breach of
the terms of issue of debentures or covenants of the trust
deed and take such reasonable steps as may be necessary
to remedy any such breach;
 ensure that the assets of the company issuing debentures
and of the guarantors, if any, are sufficient to discharge
the interest and principal amount at all times and that such
assets are free from any other encumbrances except those
which are specifically agreed to by the debenture holders;
RESPONSIBILITIES AND OBLIGATIONS OF
DEBENTURE TRUSTEES
Regulation 15
 call for reports on the utilization of funds raised
by the issue of debentures
 take steps to convene a meeting of the holders of
debentures as and when such meeting is required
to be held;
 ensure that the debentures have been converted or
redeemed in accordance with the terms of the
issue of debentures;
 perform such acts as are necessary for the
protection of the interest of the debenture holders
RESPONSIBILITIES AND OBLIGATIONS OF
DEBENTURE TRUSTEES
Regulation 15
 ascertain and satisfy itself that –
 in case where the allotment letter has been issued and
debenture certificate is to be issued after registration of charge,
the debenture certificates have been dispatched by the body
corporate to the debenture holders within 30 days of the
registration of the charge with the Registrar of Companies
 debenture certificates have been dispatched to the debenture
holders or debentures have been credited in the demat accounts
of the debenture holders
 debenture holders have been paid the monies due to them on
the date of redemption of the debenture
RESPONSIBILITIES AND OBLIGATIONS OF
DEBENTURE TRUSTEES
Regulation 15
 inform the SEBI immediately of any breach of trust deed or
provision of any law, which comes to the knowledge of the
trustee
 The debenture trustee shall
(a) obtain reports from the leading bank regarding the project.
(b) monitor utilization of funds raised in the issue
 No debenture trustee can relinquish its assignment in respect
of the debenture issue of any body corporate, unless and until
another debenture trustee is appointed in its place by the body
corporate.
 COMPLIANCE OFFICER

 Regulation 17A provides that every debenture

trustee is required to appoint a compliance officer
responsible for monitoring the compliance of the
Act, rules and regulations, notifications,
guidelines, instructions etc. issued by SEBI or
Central Government. He is also responsible for
redressal of investor grievances. The compliance
officer is under an obligation to immediately and
independently report to SEBI any non-compliance
observed by him.