Debenture Trustee — Role, Appointment and Compliance Under Companies Act 2013

When a company raises debt by issuing debentures to the public or to more than 500 debenture holders, it must appoint a Debenture Trustee — an independent entity that protects the interests of debenture holders. The Companies Act 2013 and SEBI (Debenture Trustees) Regulations 1993 govern debenture trustee requirements. Here is the complete guide.

When is a Debenture Trustee Mandatory?

Under Section 71(5) of the Companies Act 2013, a company must appoint a debenture trustee before issuing a prospectus or letter of offer for subscription of debentures — if the debentures are:

• Offered to the public (listed debentures)
• Issued to more than 500 persons

Private placements to fewer than 500 persons generally do not require a trustee — though banks and institutions often require it for large private debt transactions.

Who Can Be a Debenture Trustee?

A debenture trustee must be:

• Registered with SEBI as a Debenture Trustee under SEBI (Debenture Trustees) Regulations 1993
• A scheduled bank, public financial institution, insurance company, or a body corporate eligible under SEBI regulations
• Not the company's subsidiary or related party — must be independent

Debenture Trust Deed

Within 60 days of allotment of debentures, the company must execute a Debenture Trust Deed in Form SH-12. This deed contains:

• Terms and conditions of the debentures (interest rate, maturity, payment schedule)
• Security created (if secured debentures) — mortgage or charge on assets
• Trustee's powers and responsibilities
• Events of default and trustee's remedies
• Redemption procedures

Functions of Debenture Trustee

• Monitor compliance with the trust deed covenants
• Ensure the company maintains the Debenture Redemption Reserve (DRR)
• Inspect assets created as security
• Call a meeting of debenture holders if required
• Enforce security on behalf of debenture holders in case of default
• File a complaint with SEBI or NCLT if the company defaults on its obligations

Debenture Redemption Reserve (DRR)

Listed companies that issue debentures to the public must create a DRR — accumulating at least 25% of the debenture issue amount from profits, before redemption. This reserve cannot be used for other purposes, ensuring funds are available for repayment at maturity.

Conclusion

Debenture trustees play a critical protective role in public debenture offerings — ensuring the company fulfills its obligations and debenture holders' rights are protected. SPOTON provides advisory on debenture structuring, trust deed review and Companies Act compliance for debt-issuing companies. Contact us for expert corporate finance and compliance services.