1 Debenture Trustees: Your Guide to Online Registration, Digital Payments, and Managing Change in Control and more.

Key Takeaways:

- Debenture trustees must familiarize themselves with the online registration mechanism through the SEBI Intermediary Portal for various activities, including registration, processing applications, and granting final registration.

- SEBI has enabled digital modes of payment (RTGS/NEFT/IMPS) for fees, penalties, and other remittances, streamlining financial transactions.

- Debenture trustees are required to obtain prior approval from SEBI in case of a change in control, with specific guidelines for transfer of shareholdings among immediate relatives and transmission of shareholdings.

- Guidelines are provided for the transfer of business by SEBI-registered intermediaries to other legal entities, outlining scenarios where new registration or retention of existing registration numbers is required.

- Debenture trustees must follow prescribed procedures for the surrender of registration certificates, including obtaining necessary consents and providing undertakings.

- Maintaining a designated email ID for regulatory communication with SEBI is mandatory to facilitate the issuance of digitally signed circulars.

- Debenture trustees are advised to establish comprehensive policies and procedures for outsourcing activities, ensuring proper due diligence, risk management, and contractual agreements.

Detailed Narrative:

The Securities and Exchange Board of India (SEBI) has introduced a comprehensive regulatory framework to govern the operations of debenture trustees in India. This framework aims to streamline processes, enhance transparency, and ensure compliance with relevant laws and regulations.

One of the key initiatives is the implementation of the SEBI Intermediary Portal, an online platform designed to facilitate various activities related to debenture trustees. This portal enables online applications for registration, processing of applications, granting of final registration, application for surrender or cancellation, submission of periodical reports, and requests for changes in name, address, or other details. The portal is accessible at https://siportal.sebi.gov.in, and its link is also available on the SEBI website (www.sebi.gov.in).

To further enhance efficiency, SEBI has enabled digital modes of payment (RTGS/NEFT/IMPS) for fees, penalties, remittances, and other payments. Debenture trustees are required to provide specific information, including the date, department, name of the intermediary, type of intermediary, SEBI registration number (if any), PAN, amount, purpose of payment, bank name and account number, and UTR number, to facilitate the identification and accounting of direct credit in the SEBI account.

In the event of a change in control, debenture trustees must obtain prior approval from SEBI. To expedite this process, SEBI has adopted a 'single window clearance' approach for debenture trustees holding multiple registrations. The debenture trustee must provide relevant information, including details of any previous application rejections, actions initiated under SCRA or SEBI Act, confirmation of honoring past liabilities, pending investor complaints, details of litigation, and assurance of no changes in the Board of Directors or management team until prior approval is granted.

However, in certain scenarios, a change in shareholdings will not be construed as a change in control. These include the transfer of shareholdings among immediate relatives, as defined under Regulation 2(l) of SEBI (Substantial Acquisition of Shares and Takeovers) Regulations, 2011, and the transfer of shareholdings by way of transmission to immediate relatives or others. In such cases, incoming shareholders must satisfy the fit and proper person criteria stipulated in Schedule II of SEBI (Intermediaries) Regulations, 2008.

SEBI has also provided guidelines for the transfer of business by SEBI-registered intermediaries to other legal entities. The transferee must obtain fresh registration from SEBI in the same capacity before the transfer of business if it is not already registered in the same capacity. SEBI will issue a new registration number to the transferee in certain scenarios, such as when the business is transferred through regulatory or non-regulatory processes, or when there is a change in control.

In cases where a debenture trustee wishes to surrender its certificate of registration voluntarily, it must transfer its existing business or client accounts to another SEBI-registered debenture trustee before making such a request to SEBI. The debenture trustee must follow the prescribed format specified in Annex-IA of the Master Circular and provide necessary undertakings and confirmations, including the absence of pending complaints or disciplinary proceedings, payment of all fees, and continued liability for past violations.

Maintaining effective communication with SEBI is crucial for debenture trustees. To facilitate this, debenture trustees are required to create a designated email ID exclusively for regulatory communications. This email ID should not be person-centric and must be communicated to SEBI by emailing a file to dt@sebi.gov.in, following the specified format.

Outsourcing activities is a common practice among intermediaries, including debenture trustees. SEBI has provided comprehensive guidelines to ensure proper governance and oversight in such cases. Debenture trustees seeking to outsource activities must have a comprehensive policy approved by their Board or partners, covering aspects such as the nature of activities that can be outsourced, authorities for approval, and selection of third parties.

The guidelines emphasize the importance of risk management programs, due diligence in selecting third parties, legally binding written contracts, contingency planning, protection of confidential information, and addressing potential conflicts of interest. Debenture trustees are responsible for ensuring that outsourcing arrangements do not diminish their ability to fulfill obligations to customers and regulators or impede effective supervision by regulators.

By adhering to these regulations and guidelines, debenture trustees can navigate the complex regulatory landscape effectively, ensuring compliance, transparency, and the protection of investors' interests.

FAQs:

Q1. What is the significance of the SEBI Intermediary Portal for debenture trustees?

A1. The SEBI Intermediary Portal is a centralized online platform that streamlines various activities related to debenture trustees, including registration, processing applications, granting final registration, surrender or cancellation of registration, submission of periodical reports, and requests for changes in name, address, or other details. This portal enhances efficiency and transparency in the registration process.

Q2. Why is it important for debenture trustees to obtain prior approval from SEBI in case of a change in control?

A2. Obtaining prior approval from SEBI in case of a change in control is crucial to ensure that the new controlling entity or individuals meet the necessary fit and proper criteria and have the capability to fulfill the responsibilities of a debenture trustee. This requirement aims to protect the interests of investors and maintain the integrity of the debenture trustee's operations.

Q3. What are the guidelines for outsourcing activities by debenture trustees?

A3. Debenture trustees must establish comprehensive policies and procedures for outsourcing activities, approved by their Board or partners. These policies should cover aspects such as the nature of activities that can be outsourced, authorities for approval, selection of third parties, risk management programs, due diligence, legally binding written contracts, contingency planning, protection of confidential information, and addressing potential conflicts of interest. The guidelines aim to ensure proper governance and oversight in outsourcing arrangements.

Q4. Why is it important for debenture trustees to maintain a designated email ID for regulatory communication with SEBI?

A4. Maintaining a designated email ID for regulatory communication with SEBI is crucial for effective communication and dissemination of information. This email ID facilitates the issuance of digitally signed circulars and ensures that debenture trustees receive important regulatory updates and communications in a timely and organized manner.

Key Precedents:

1. Securities and Exchange Board of India (Debenture Trustees) Regulations, 1993 (DT Regulations):

This regulation lays down the broad framework for debenture trustees, including their registration, responsibilities, and obligations.

2. Securities and Exchange Board of India (Substantial Acquisition of Shares and Takeovers) Regulations, 2011:

Regulation 2(l) of this regulation defines the term "immediate relative," which is relevant in determining whether a transfer of shareholdings among immediate relatives constitutes a change in control for debenture trustees.

3. Securities and Exchange Board of India (Intermediaries) Regulations, 2008:

Schedule II of this regulation outlines the fit and proper person criteria that incoming shareholders must satisfy in cases where a change in shareholdings does not constitute a change in control for debenture trustees.

4. Securities and Exchange Board of India (Issue and Listing of Non-Convertible Securities) Regulations, 2021 (SEBI NCS Regulations):

Regulation 55 of these regulations empowers SEBI to issue circulars and guidelines related to debenture trustees.

5. Securities and Exchange Board of India (Issue and Listing of Municipal Debt Securities) Regulations, 2015:

Regulation 29 of these regulations also empowers SEBI to issue circulars and guidelines related to debenture trustees in the context of municipal debt securities.

6. Securities and Exchange Board of India (Listing Obligations and Disclosure Requirements) Regulations, 2015 (SEBI LODR Regulations):

Regulation 101(1) of these regulations empowers SEBI to issue circulars and guidelines related to debenture trustees in the context of listed debt securities.

These regulations and their respective sections provide the legal basis for SEBI to issue circulars and guidelines governing the operations and responsibilities of debenture trustees in India. The precedents established in these regulations are crucial for debenture trustees to understand and comply with the regulatory framework.

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Here's the SEBI's Debenture Trustees' circular's verbatim Chapter I

Chapter I: Terms of Registration

1. Online Registration Mechanism for Debenture Trustees{4}

1.1. The SEBI Intermediary Portal is available at https://siportal.sebi.gov.in for SEBI registered intermediaries including Debenture Trustees to submit registration applications online. SEBI Intermediary Portal shall inter-alia include online application for registration, processing of application, grant of final registration, application for surrender/ cancellation, submission of periodical reports, requests for change of name/ address/ other details, etc. The Link for SEBI Intermediary Portal is also available on SEBI website – www.sebi.gov.in.

1.2. All applications for registration/ surrender/ other requests will be made through SEBI Intermediary Portal only. The applicants will be separately required to submit relevant documents viz. declarations/ undertakings required as a part of application forms prescribed in relevant regulations, in physical form, only for records without impacting the online processing of applications for registration.

1.3. In case of any queries and clarifications with regard to the SEBI Intermediary Portal, Debenture Trustees may contact on 022-26449364 or may write at portalhelp@sebi.gov.in.

2. Digital Mode of Payment{5}

2.1. SEBI has enabled digital mode of payment (RTGS/ NEFT/ IMPS etc.) for fees/ penalties/ remittance/ other payments etc.

2.2. In order to identify and account for such direct credit in the SEBI account, Debenture Trustee shall provide the information to SEBI once the payment is made as per the format specified below:

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{6}

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 multiple registrations with SEBI.

3.2. Therefore, in case a Debenture Trustee holds multiple registrations with SEBI, it shall make only one application addressed to "Chief General Manager, Department of Debt and Hybrid Securities, SEBI" accompanied by the following information:

a) Whether any application was made in the past to SEBI seeking registration in any capacity but it was not granted? If yes, details thereof.

b) Whether any action has been initiated/ taken under SCRA/ SEBI Act or rules and regulations made thereunder? If yes, status thereof along with corrective action taken to avoid such violations in the future.

c) The acquirer shall also confirm that it shall honour all past liabilities/ obligations of the applicant, if any.

d) Whether any investor complaint is pending? If yes, steps taken and confirmation that the acquirer shall resolve the same.

e) Details of litigation, if any.

f) That all the fees due to SEBI have been paid.

g) That there will not be any change in the Board of Directors of incumbent or in its management team, till the time prior approval is granted.

h) That the incumbent shall inform all its existing investors/ clients in order to enable them to take informed decisions regarding their continuance or otherwise with the entity with new management.

3.3.Further, in case the incumbent is a registered stock broker and/ or depository participant, in addition to the above, it shall obtain approval/ NOC from all the Stock Exchanges/ Depositories, where the incumbent is a member/ Depository Participant and forward a self-attested copy of the same to SEBI.

3.4.The prior approval granted by SEBI shall be valid for a period of 180 days from the date of communication.

4. Effect on change in control in case of transfer of shareholdings among immediate relatives and transmission of shareholdings in case of a Debenture Trustee being an unlisted body corporate{7}

In the following scenarios, change in shareholdings of a Debenture Trustee will not be construed as change in control:

4.1.Transfer of shareholding among immediate relatives shall not be treated as resulting in change in control;

4.2.Transfer of shareholding by way of transmission to immediate relative or not, shall not be treated as resulting in change in control Immediate relative shall be construed as defined under Regulation 2(l) of SEBI (Substantial Acquisition of Shares and Takeovers) Regulations, 2011 which interalia 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{8}

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 from transferor’s registration number in the following scenario:

a) “Business is transferred through regulatory process (pursuant to merger/ amalgamation/ corporate restructuring by way of order of primary regulator/ govt./ NCLT, etc.) or non-regulatory process (as per private agreement/ MOU pursuant to commercial dealing/ private arrangement) irrespective of transferor continues to exist or ceases to exist after the said transfer.

b) In case of change in control pursuant to both regulatory process and non-regulatory process, prior approval and fresh registration shall be obtained. While granting fresh registration to same legal entity pursuant to change in control, same registration number shall be retained.

c) If the transferor ceases to exist, its certificate of registration shall be surrendered.

d) In case of complete transfer of business by transferor, it shall surrender its certificate of registration.

e) In case of partial transfer of business by transferor, it can continue to hold certificate of registration.

6. Surrender of Certificate of Registration{9}

6.1.If a Debenture Trustee wishes to surrender the certificate of registration voluntarily, it shall transfer, wherever relevant, its existing business/ client accounts to another SEBI registered Debenture Trustee, before making such request to SEBI in the format specified in Annex-IA of this Master Circular.

6.2.The Debenture Trustee may, if it so desires, make a representation for dispensing with the procedure, along with the application, for surrender in terms of the first proviso to Regulation 33B of SEBI (Intermediaries) Regulations, 2008.

6.3.In all cases of transfer of business or client accounts to another registered Debenture Trustee, the clients shall not be subjected to any additional cost.

7. Designated e-mail ID for regulatory communication with SEBI{10}

7.1.In order to facilitate the issuance of digitally signed circulars, Debenture Trustees are required to create a designated email-id for regulatory communications. This email-id shall be exclusively for the above purpose and should not be person centric.

7.2.The designated email-id shall be communicated to SEBI by emailing a file to dt@sebi.gov.in, as prescribed below:

a) The file should be an excel file;

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:

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/ inquiry by SEBI is pending against us with respect to our activities as a Debenture Trustee;

c. as on date of application, we have paid all fees;

d. we shall continue to be liable for all liabilities/ obligations (including monetary penalties, if any) for violations, if any, of the provisions of the SEBI Act, Rules and the SEBI (Debenture Trustee) Regulations, 1993 that have taken place before our surrender of certificate of registration;

e. all our current assignments as a Debenture Trustee have been either duly terminated or transferred to another registered Debenture Trustee _____ with registration no.___;

f. we have issued a public notice in a widely circulated national and a regional daily dated___ informing surrender of our registration as Debenture Trustee (Please enclose a clipping of the said public notice);

g. We have notified the Depositories and all the Stock Exchanges where our client companies are listed about the surrender of our registration.

4. *We hereby request SEBI to dispense with the procedure laid down in Regulation 33B of Securities and Exchange Board of India (Intermediaries) Regulations, 2008 while processing our request for surrender of certificate of registration.

Thanking you,

Yours faithfully,

Name:

(Whole time/ Managing Director/ Principal Officer)

*Please strike off, if not applicable.

Note:-

{4}SEBI/HO/MIRSD/MIRSD1/CIR/P/2017/38 dated May 02, 2017

{5}SEBI/HO/GSD/T&A/CIR/P/2017/42 dated May 16, 2017;

{6}CIR/MIRSD/14/2011 dated August 02, 2011

{7}SEBI/HO/MIRSD/DOR/CIR/P/2021/42 dated March 25, 2021

{8}SEBI/HO/MIRSD/DOR/CIR/P/2021/46 dated March 26, 2021;

{9}SEBI/MIRSD/DR-2/SRP/Cir - 2/ 2005 dated January 4, 2005;

{10}MIRSD/ DPSIII/ Cir-21/ 08 dated July 7, 2008;