TMI BlogOperational Circular for Debenture TrusteesX X X X Extracts X X X X X X X X Extracts X X X X ..... nce, each chapter of this operational circular contains footnotes corresponding to the respective erstwhile circulars. The terms Issuer and listed entity have been used interchangeably in this operational circular. 4. Debenture Trustees are directed to comply with the conditions laid down in this operational circular and it is reiterated that Debenture Trustees shall have necessary systems and infrastructure in place for implementation of this circular. The Board of Directors of the Debenture Trustee shall be responsible for ensuring compliance with these provisions 5. This Circular is issued in exercise of powers conferred under: 5.1 Section 11(1) of Securities and Exchange Board of India Act, 1992 ; 5.2 Regulation 2A of the Securities and Exchange Board of India (Debenture Trustees) Regulations, 1993 5.3 Regulation 55 of the Securities and Exchange Board of India (Issue and Listing of Non-Convertible Securities) Regulations, 2021 ; ( SEBI NCS Regulations ) 5.4 Regulation 29 of Securities and Exchange Board of India (Issue and Listing of Municipal Debt Securities) Regulations 2015 ; 5.5 Regulation 101 (1) of Securities and Exchange Board of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Department of SEBI Name of Intermediary/ Other Entities Type of Intermediary SEBI Registration Number (if any) PAN Amount (INR) Purpose of Payment (including the period for which payment was made e.g. quarterly, annually) Bank name and Account number from which payment is remitted UTR No 2.3. The above information should be emailed to the respective department(s) as well as to the Treasury Accounts division at tad@sebi.gov.in. 3. Grant of prior approval to Debenture Trustee for change in control [ CIR/MIRSD/14/2011 dated August 02, 2011; ] 3.1. Debenture Trustee is required to obtain prior approval of SEBI in case of change in control. With a view to expedite the process of granting prior approval, SEBI has adopted a single window clearance at SEBI , for the Debenture Trustees in case of their having mu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ative shall be construed as defined under Regulation 2(l) of SEBI (Substantial Acquisition of Shares and Takeovers) Regulations, 2011 which inter-alia includes any spouse of that person, or any parent, brother, sister or child of the person or of the spouse 4.3. Incoming shareholders in the Debenture Trustee, pursuant to transfer of shares from immediate relative/ transmission of shares (immediate relative or not), need to satisfy the fit and proper person criteria stipulated in Schedule II of SEBI (Intermediaries) Regulations, 2008. 5. Transfer of business by SEBI registered intermediaries to other legal entity [ SEBI/HO/MIRSD/DOR/CIR/P/2021/46 dated March 26, 2021 ] SEBI has been receiving registration applications pursuant to transfer of business (SEBI regulated business activity) from one legal entity which is a SEBI registered Intermediary (transferor) to other legal entity (transferee). In this regard, following is clarified: 5.1. The transferee shall obtain fresh registration from SEBI in the same capacity before the transfer of business if it is not registered with SEBI in the same capacity. SEBI shall issue new registration number to transferee different f ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... b) The name of the file and the subject of the email shall specify the type of Debenture Trustee and the name of the Debenture Trustee. For example Debenture Trustee ABC co. Ltd communication of designated email-id. c) The file shall contain the following details: Name Address Category Registration No. Designated email id Name of compliance officer Annex-IA Application form for surrender of certificate of registration by Debenture Trustee To Securities and Exchange Board of India Sir/Ma am, Sub: Surrender of Certificate of Registration as Debenture Trustee, Registration No. __ . 1. We hereby surrender our certificate of registration as Debenture Trustee. 2. We enclose the original certificate of registration (or indemnity in case the certificate is lost or stolen) for cancellation. 3. We hereby confirm that: a. no complaint/ disciplinary proceeding is pending against us; b. no investigation ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e: a) Details of assets, movable property and immovable property on which charge is proposed to be created including title deeds (original/ certified true copy by issuers/ certified true copy by existing charge holders, as available) or title reports issued by a legal counsel/ advocates, copies of the relevant agreements/ Memorandum of Understanding, copy of evidence of registration with Sub-registrar, Registrar of Companies, Central Registry of Securitization Asset Reconstruction and Security Interest (CERSAI) etc. b) For unencumbered assets, an undertaking that the assets on which charge is proposed to be created are free from any encumbrances. c) For encumbered assets, on which charge is proposed to be created, the following consents along-with their validity as on date of their submission: i. Details of existing charge over the assets along with details of charge holders, value/ amount, copy of evidence of registration with Sub-registrar, Registrar of Companies, CERSAI, Information Utility (IU) registered with Insolvency and Bankruptcy Board of India (IBBI) etc. as applicable; and ii. Consent/ No-objection certificate (NOC) from existing charge holders for furthe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... her than those provided in the list, if any. f) In case of any other contractual comforts/ credit enhancements provided for or on behalf of the issuer, it shall be required to be legal, valid and enforceable at all times, as affirmed by the issuer. In all other respects, it shall be dealt with as specified above with respect to guarantees. g) In case securities (equity shares, etc.) are being offered as security then a holding statement from the depository participant along with due pledge of such securities in favour of Debenture Trustee in the depository system shall be ensured. h) Details of any other form of security being offered viz. Debt Service Reserve Account, etc. i) Any other information, documents or records required by the Debenture Trustee with regard to creation of security and perfection of security. 2.2. Due diligence by a Debenture Trustee for creation of security 2.2.1. Regulation 15(6) of DT Regulations inter-alia requires a Debenture Trustee, to exercise independent due diligence to ensure that security is free from encumbrances, adequate consent has been taken from existing charge holders, if any, etc. Regulation 15(1)(i) of DT Regulations ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... bt securities. 2.2.4. A Debenture trustee shall issue due-diligence certificate to the Issuer, as per format specified in Annex-IIA , subject to the following: (a) Information on consents/ permissions required for creation of further charge on assets is adequately disclosed in Offer Document ( OD )/ Placement Memorandum ( PM ). (b) All disclosures made in the OD/PM with respect to creation of security are in conformity with the clauses of debenture trustee agreement. (c) All covenants proposed to be included in debenture trust deed (including any side letter, accelerated payment clause etc.) are disclosed in OD/PM. 2.2.5. A Debenture Trustee shall maintain records and documents pertaining to due diligence exercised for a period of five years from redemption of the debt securities unless required by law, or on account of any enquiries or proceedings to retain such records. 2.3. Due Diligence Certificate in case of Shelf Prospectus/ Placement Memorandum: 2.3.1. In case security details have not been finalized at the time of filing of a draft shelf prospectus/ placement memorandum by an issuer, then the Debenture Trustee shall undertake due diligence as unde ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to make an issue of debt securities by way of a public issue or offer debt securities by way of a private placement, shall submit to the Stock Exchange, a due diligence certificate from the Debenture Trustee as per the format specified in Annex-IIA and update the same into the Security and Covenant Monitoring System operated by a recognised Depository, which the Debenture Trustee shall validate/ confirm on such system as detailed in Chapter III of this circular. 2.6. Creation and registration of charge of security by the Issuer 2.6.1. Before making the application for listing of debt securities, the Issuer shall create charge as specified in the OD/ PM, in favour of the Debenture Trustee and also execute a debenture trust deed [Form SH 12 of Companies (Share Capital and Debentures) Rules, 2014 ] with the Debenture Trustee. 2.6.2. The Stock Exchange shall list the debt securities only upon receipt of a due diligence certificate as per format specified in Annex-IIB from the Debenture Trustee confirming creation of charge and execution of the debenture trust deed. 2.6.3. The charge created by Issuer shall be registered with Sub-registrar, Registrar of Companies, C ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... enture Trustee that the security has been created and registered. iv. Other documents/ consents required to be submitted to Stock Exchanges and Depositories in terms of Regulation 59 of SEBI LODR Regulations, circulars issued thereunder and bye-laws of Stock Exchanges and Depository, as applicable. f) The Depository shall assign a new ISIN to the listed debt securities pursuant to submission of documents mentioned above only and shall share the information with respect to change in ISIN of listed debt securities, with the recognized Stock Exchanges. g) It may be noted that none of the cases mentioned in para 2.7.1 would constitute a change in the structure of the listed debt securities, provided there are no other changes to the terms/ nature of issue of the listed debt securities such as maturity date, coupon rate, face value, redemption schedule, nature of the debt securities (secured/ unsecured), etc. Accordingly, the Depository shall not assign a new ISIN in such cases. However, where there is a change in the underlying security, the Debenture Trustee shall ensure compliance with the provisions of Regulation 15(1)(i) of DT Regulations. 2.8. Engagement of Independen ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... um with respect to creation of security are in confirmation with the clauses of debenture trustee agreement. e) Issuer has disclosed all covenants proposed to be included in debenture trust deed (including any side letter, accelerated payment clause etc.), offer document/ placement memorandum. f) Issuer has given an undertaking that charge shall be created in favour of debenture trustee as per terms of issue before filing of listing application. We have satisfied ourselves about the ability of the Issuer to service the debt securities. PLACE: DATE: DEBENTURE TRUSTEE TO THE ISSUE WITH HIS STAMP Annex-IIB FORMAT OF DUE DILIGENCE CERTIFICATE TO BE GIVEN BY THE DEBENTURE TRUSTEE AT THE TIME OF FILING OF LISTING APPLICATION BY ISSUER To, Stock Exchange Dear Sir / Madam, SUB.: ISSUE OF ____________________ BY _______________LTD. We, the debenture trustee(s) to the above mentioned forthcoming issue state as follows: 1) We have examined documents pertaining to the creation of charge over assets of Issuer. 2) On the basis of such examination and of the discussions with the Issuer, its directors and other officers, other agencies ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... acceptance and rejection of information, and alerts for periodic and event based compliances. 3.5. Wherever necessary, provide the feature of document upload by the various stakeholders on the system. 3.6. Provide functionality of maintaining a trail/ log of all the communication/ interaction amongst various stakeholders viz. CRAs, Debenture Trustees, Issuers, Depositories etc. and also in the system on account of recording and/or verification and/or viewing of information by the stakeholders. 3.7. Provide functionality in the system to make changes in already recorded information by stakeholders (in case a change is required to be made for rectifying any discrepancy or recording additional information) and verification of same by responsible stakeholder (as applicable) and due logs/trail and prior versions of such changes. 3.8. Be responsible for the effective and smooth functioning of the system and shall develop a mechanism to establish accountability/ responsibility for the rectification of various issues and glitches that may hamper the effective functioning of the system. 3.9. Have in place operational guidelines for the system after consultation with various s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ge created on the system as per Annex-IIIB . The Issuer shall also upload all the relevant documents supporting the charge such as Pledge Master Report etc. b) The Debenture Trustee shall then validate the details of the charge entered in the system from Sub Registrar, ROC, CERSAI, Information Utility of IBBI or any other independently verifiable source and shall confirm the same on the system and update any subsequent changes, in case of any discrepancy. c) Pursuant to the issuance of due diligence certificate by the Debenture Trustee to the Stock exchange as per Annex-IIB of this circular, the same shall be uploaded on the system by the Issuer. 5.3. Modification in the information recorded on the system: Any change in already recorded information on the system related to charge creation, registration details etc. due to any discrepancy or any modification in the value or details of the security provided on account of provision of additional security by the Issuer or reduction or substitution of existing security provided by the Issuer, shall be made after verification and validation by Debenture Trustee and information regarding requisite documents and permission/ ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ms of provisions of Chapter II of this operational circular d) The Debenture Trustee shall release charges in case any debt is repaid and update/ validate the same in the platform. C. Interest and redemption payment 5.8. Interest and principal payment: a) The Issuer shall record information pertaining to payment of interest and repayment of principal on the system at the time of creation of ISIN/ temporary ISIN. The issuer shall also record the status of such payment/ repayment within one working day of payment/ redemption due date after taking requisite details from Registrar and Transfer Agent. The format for the same is as specified in Annex-IIIC. b) Once such information is recorded on the system, the Debenture Trustee shall validate the status of such payment/ repayment in the system after receiving the requisite details from the Registrar and Transfer Agent including file prepared for payment of interest and repayment of principal, Bank confirmation etc. Such status shall be validated within two working days on the basis of the documentary evidence submitted by the Issuer and the Registrar and Transfer Agent. 5.9. Non-receipt of information on the syst ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the debt securities. For data exchange and verification across Depositories, format for unique Asset ID shall be a 12-digit alphanumeric string, which will be generated as provided in Annex-IIID . 6.2. To ensure that there is only one unique asset ID assigned to an asset of the issuer for effective asset creation as well as tracking, the system will provide an alert to the Issuer and the Debenture Trustee by having appropriate validation/ duplicate checks in the system for identifying possible duplicate entries for assets of an issuer and this validation/ duplication check shall be based on the parameters as per Annex-IIIE. Issuers shall ensure that the entry of the asset is made only once in the system for generation of the unique Asset ID, which shall be verified by the Debenture Trustee. 7. The following assets shall be tracked at portfolio level and no specific parameters for the underlying assets would be captured: 7.1. movable assets viz furniture, equipment, inventory etc. 7.2. current assets viz portfolio of advances/ receivables, etc. 7.3. any other asset of similar nature. 8. On detection of a duplicate asset, an alert shall be generated and sent to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... gee Instrument ID) iii. Asset Location (including address of the asset) iv. Asset ownership details b. Value of security offered: Issuer shall submit documents as required under Chapter II of this operational circular and other documents given by Issuer for ascertaining the existence, veracity and value of assets. c. Documents related to existing encumbrance on assets/ security offered: Issuer shall record following details in the system and/or submit documents: i. For unencumbered assets, an undertaking that the assets on which charge is proposed to be created are free from any encumbrances. ii. For encumbered assets, on which charge is proposed to be created, the Issuer shall submit documents in system as per para 2.1. (c) of Chapter II of this operational circular and any other document required to be given by the Issuer to the Debenture Trustee. Annex-IIIB Manner of updation of charge creation details on System: 1. Issuer shall enter the following details related to charge created on system as and when applicable: 1.1. Asset details 1.2. Type of Charge Creation 1.3. Charge holder 1.4. Amount 1.5. Date on which charge is creat ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... or a change in the due date of interest payment/ redemption payment as under: Updation by Issue on continuous basis Payment of Interest Actual Date for Interest Payment Amount of interest paid Date of last Interest Payment Reason for non-payment/ delay in payment Change in Frequency of payment (if any) Date of Change Details of such change Change in Record Date Updation by Issue on continuous basis Redemption payment Actual Date for Redemption Amount Redeemed Outstanding Amount (Rs.) Reason for non-payment/ delay in payment Date of previous redemption (part redemption), if applicable Change in Record Date Annex-IIID Asset ID = System Code + Asset Type + Asset Sub Type + Unique Number + Check Digit System Code 2 characters ( IN for all asset types and sub-types) Asset type 2 character Alphanumeric Asset sub-type 2 character Alphanumeric Unique N ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Guarantees a. Issuing Authority b. Government order number c. Government order date d. Guarantee Amount Corporate a. Guarantor details such as Name of company, address, net worth etc. b. PAN/CIN No. for guarantors in India c. For guarantors outside India i. Unique Identification Number provided by Regulator/ Authority of the host country ii. Issuing Regulator/ Authority d. Guarantee Amount Personal a. Guarantor details such as Name of company, address, net worth etc. b. PAN No for guarantors in India c. For guarantors outside India i. Passport Number ii. Passport Issuing Country Any other Unique Number provided by regulator of the host country along with name of the regulator. d. Guarantee Amount Chapter IV: Recovery Expenses Fund [ SEBI/HO/MIRSD/CRADT/CIR/P/2020/207 dated October 22, 2020 and SEBI/HO/MIRSD/MIRSD_CRADT/CIR/P/2022/67 dated May 19, 2022 ] In order to enable the Debenture Trustee to take p ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... her Debenture Trustees; or 2. A Debenture Trustee who represents holders of more than 50% of the outstanding value of debt securities. 2.3. The Debenture Trustee shall keep a proper account of all expenses incurred out of the funds received from REF towards Legal expenses, cost for hosting meetings etc. towards enforcement/ legal proceedings in relation to the Debt securities. 3. Refund of REF to the Issuer 3.1. The balance in the REF shall be refunded to the issuer on repayment to holders of debt securities on their maturity or at the time of the exercise of call or put option, upon a No Objection Certificate (NOC) being issued by the Debenture Trustee to the Designated Stock Exchange. 3.2. The Debenture Trustee shall satisfy that there is no default on any other listed debt securities of the issuer before issuing the NOC. 4. Verification of creation of REF 4.1. In order to ensure independent verification by a Debenture Trustee regarding creation of REF by issuer, Debenture Trustee shall take confirmation from Designated Stock Exchange or any other independent source in writing regarding the creation of REF by the issuer and shall not rely solely upo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s the assets of the Issuer only, the security cover shall be prepared on standalone basis. 1.7 In case debt securities are secured by creation of charge on the assets of a third party/ subsidiary/ group/ holding company; or assets of the Issuer are offered for securing the debt securities issued by a third party/ subsidiary/ group/ holding company; or assets of the Issuer are offered for securing the other liabilities of third party/ subsidiary/ group/ holding company, the Issuer shall make disclosure in two separate tables on security cover as follows: a) Table for security cover on standalone basis for the Issuer and; b) Table on net summary basis on consolidated level in order to provide the overall/ holistic picture of the borrowings and security cover provided by the Issuer. 1.8 Obligations of the Issuer in case of third party/ subsidiary/ group/ holding company assets being offered as underlying security: a) The book value for security cover shall be certified by the statutory auditor of the third party/ subsidiary/ group/ holding company with respect to third party/ subsidiary/ group/ holding company assets being offered as underlying security. b) In case, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 19905;𝑦 𝐶𝑜𝑣𝑒𝑟 = Value of assets having 𝐸𝑥𝑐𝑙𝑢𝑠𝑖𝑣𝑒 charge outstanding value of corresponding debt + Interest accrued 3.2 Pari-passu security cover shall be calculated in the following manner: Pari-passu 𝑆𝑒𝑐𝑢𝑟𝑖𝑡𝑦 𝐶𝑜𝑣𝑒𝑟 = Value of assets having pari passu charge outstanding value of corresponding debt + Interest accrued 4. Affixing Unique Document Identification Number (UDIN) to the security cover certificates: The security cover certificates as required under the provisions of this operational circular shall contain, as applicable, the UDIN generated in the manner prescribed by the relevant regulatory authority. 5. Qualifications/ disclaimers in security cover certificates : The Debenture Trustee shall ensure that the qualifications/ disclaimer (by whatever name called), does not impair the rights of holders of debt se ..... X X X X Extracts X X X X X X X X Extracts X X X X
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