A debenture trustee plays a vital role in safeguarding the interests of debenture holders and addressing their grievances. The appointment of a debenture trustee occurs prior to the preparation of the prospectus and allotment letter, but it must be done within 60 days of the debenture allotment. This appointment is crucial since debenture holders do not possess voting rights, and a debenture trustee ensures the protection of their rights. In 1999, the Securities and Exchange Board of India (SEBI) issued regulations regarding debenture trustees, establishing eligibility criteria for individuals aspiring to become trustees. Additionally, the company issuing the debentures places a charge on its movable and immovable property in favour of the debenture trustee. It is mandatory for companies issuing offers to more than five hundred people to appoint a debenture trustee if the debentures are issued publicly.
Who can become a debenture trustee?
The eligibility criteria for becoming a debenture trustee were established by SEBI in 1993, as outlined in Schedule 7 of the SEBI Act. The following entities can become debenture trustees:
- Scheduled banks engaged in commercial activities
- Public financial institutions
- Body corporates
- Insurance companies
Application process and evaluation
When considering applications from individuals aspiring to become debenture trustees, SEBI evaluates the following conditions:
- The applicant must possess assets worth at least two crores rupees to ensure financial stability.
- Prior experience as a debenture trustee is taken into account.
- Background checks are conducted to verify the absence of any offences for the applicant and senior officers associated with them.
- Compliance with SEBI regulations to establish whether the applicant is a fit and proper person.
- If the applicant has legal professionals associated with them, their credentials are examined.
Duties of a debenture trustee
The responsibilities of a debenture trustee include:
- Submitting periodical returns from the company as required.
- Ensuring compliance with all SEBI regulations related to debenture trustees.
- Taking possession of the property as mandated by the act.
- Appointing a compliance officer to verify the company’s adherence to all rules and regulations specified by the Company’s Act.
- Resolving grievances raised by debenture holders.
Grounds for disqualification of a debenture trustee
A debenture trustee may be disqualified based on the following grounds:
- If the trustee is a member or employer of the company.
- If the trustee beneficially holds shares in the company.
- If the trustee receives income for activities restricted by their role.
- If the trustee is a relative of the company’s employer.
- If the trustee is indebted to an associate or subsidiary company.
The role of a debenture trustee is of utmost importance and must be carried out with diligence and care. SEBI carefully selects qualified individuals eligible to become debenture trustees, ensuring the protection of debenture holder interests.