SEBI issues Standardisation of Procedure to be Followed by Debenture Trustee(s)

The Capital Market Regulator – Securities and Exchange Board of India (SEBI) vide its circular dated 13th October 2020 has issued the process to be followed by the Debenture Trustee(s)in case of 'Default' by issuers of listed debt securities including seeking consent from the investors for enforcement of security and/or entering into an Inter-Creditor Agreement ("ICA").

This circular was issued in exercise of the powers conferred upon the SEBI under Section 11 (1) of the Securities and Exchange Board of India Act, 1992 read with the provisions of Regulation 2A of the Securities and Exchange Board of India (Debenture Trustees) Regulations, 1993, Regulation 31(1) of the Securities and Exchange Board of India (Issue and Listing of Debt Securities) Regulations, 2008 and Regulation 101(1) or the Securities and Exchange Board of India (Listing Obligation and Disclosure Requirements) Regulations, 2015 to protect the interest of investors in securities and to promote the development of, and to regulate, the securities market.

The circular elucidated the following procedure- (i) Event of default, (ii) Consent of investors for enforcement of security and for signing the ICA, (iii) Conditions for signing of ICA by Debenture Trustee(s) on behalf of investors.

In the Event of default Regulation 51 read with the Explanation to Clause A (11) in Part B of Schedule III of Securities and Exchange Board of India (Listing Obligations and Disclosure Requirements), 2015 ("LODR Regulations") defines 'default' as non-payment of interest or principal amount in full on the pre-agreed date which shall be recognized at the first instance of delay in the servicing of any interest or principal on debt. Further it clarified that 'event of default' shall be reckoned at the ISIN level, as all terms and conditions of issuance of security are same under a single ISIN even though it might have been issued under multiple IMs.

For Consent of investors for enforcement of security and for signing the ICA, the Debenture Trustee(s) shall send a notice to the investors within 3 days of the event of default by registered post/acknowledgement due or speed post/acknowledgement including a read receipt, and proof of dispatch of such notice or email, shall be maintained. Further it elaborated on the necessary action to enforce security or enter into the ICA or as decided in the meeting of investors. Addition to this, the consent of the majority of investors shall mean the approval of not less than 75% of the investors by value of the outstanding debt and 60% of the investors by number at the ISIN level.

With respect to conditions for signing of ICA by Debenture Trustee(s) on behalf of investors it laid down certain conditions for the Debenture Trustee(s) and consider the resolution plan on behalf of the investors upon compliance. The provisions of the circular shall come into force with immediate effect.