12 Debenture Trustees' Responsibilities in Maintaining Centralized Database for Defaulted Debt Securities

Key Takeaways:

- Debenture Trustees must access the database to verify default history and other relevant information.

- In case of discrepancies, Debenture Trustees must notify Stock Exchanges and update correct information within seven days of knowledge of default.

- The database aims to provide a centralized repository of default-related information, enhancing transparency and investor protection.

- Timely updates by Debenture Trustees are crucial for maintaining the accuracy and reliability of the database.

Detailed Narrative:

The Securities and Exchange Board of India (SEBI) has introduced a centralized database to maintain records of defaulted debt securities. This database serves as a comprehensive repository of information related to default history, enabling Debenture Trustees to access and verify relevant details. The circular SEBI/HO/DDHS/P/CIR/2021/613 outlines the specific responsibilities of Debenture Trustees in maintaining the integrity and accuracy of this database.

As per the circular, Debenture Trustees are required to access the database and verify the information regarding default history and other relevant details pertaining to the debt securities they oversee. In the event of any discrepancies or inaccuracies, Debenture Trustees must promptly notify the Stock Exchanges and update the correct information within seven days of becoming aware of the default.

The primary objective of this centralized database is to enhance transparency and accountability in the debt securities market. By providing a single source of truth for default-related information, the database aims to empower investors with accurate and up-to-date data, enabling them to make informed decisions.

Debenture Trustees play a crucial role in ensuring the reliability of the information contained within the database. They are responsible for conducting thorough verifications and promptly updating any changes or developments that may impact the status of default. This includes reporting on restructuring of debt securities, NCLT/NCLAT proceedings related to insolvency or bankruptcy, repayment details, or any other relevant information that could influence the default status.

The circular emphasizes the importance of timely updates by Debenture Trustees. Failure to provide accurate and timely information could undermine the effectiveness of the database and potentially mislead investors. Consequently, Debenture Trustees must establish robust internal processes and allocate dedicated resources to ensure compliance with the reporting requirements outlined in the circular.

FAQs:

Q1: What is the purpose of the centralized database for defaulted debt securities?

A1: The centralized database aims to provide a comprehensive repository of information related to default history and other relevant details of debt securities. It enhances transparency and accountability in the debt securities market, enabling investors to make informed decisions based on accurate and up-to-date data.

Q2: What are the responsibilities of Debenture Trustees regarding the centralized database?

A2: Debenture Trustees are responsible for accessing the database, verifying the information regarding default history and other relevant details, and updating any discrepancies or changes within the stipulated timelines. They must notify Stock Exchanges and update correct information within seven days of knowledge of default.

Q3: What happens if Debenture Trustees fail to update the database with accurate information?

A3: Failure to provide accurate and timely information could undermine the effectiveness of the database and potentially mislead investors. Debenture Trustees must establish robust internal processes to ensure compliance with the reporting requirements outlined in the circular.

Q4: How does the centralized database contribute to investor protection?

A4: By providing a single source of truth for default-related information, the centralized database empowers investors with accurate and up-to-date data, enabling them to make informed decisions regarding their investments in debt securities.

Key Precedents:

1. SEBI/HO/DDHS/P/CIR/2021/613:

This circular, issued by SEBI, outlines the operational framework for transactions in defaulted debt securities post maturity date/redemption date. It specifically addresses the responsibilities of Debenture Trustees in maintaining and updating the centralized database for defaulted debt securities.

The circular mandates Debenture Trustees to access the database, verify the information regarding default history and other relevant details, and update any discrepancies or changes within seven days of knowledge of default. It emphasizes the importance of timely and accurate updates to ensure the reliability and effectiveness of the database.

2. Securities and Exchange Board of India Act, 1992:

The circular SEBI/HO/DDHS/P/CIR/2021/613 is issued in exercise of the powers conferred under Section 11(1) of the Securities and Exchange Board of India Act, 1992. This section empowers SEBI to take measures and issue directions as it deems fit to protect the interests of investors in securities and to promote the development and regulation of the securities market.

By introducing the centralized database and outlining the responsibilities of Debenture Trustees, SEBI aims to enhance transparency, accountability, and investor protection in the debt securities market, aligning with its mandate under the Securities and Exchange Board of India Act, 1992.

The circular SEBI/HO/DDHS/P/CIR/2021/613 and the provisions of the Securities and Exchange Board of India Act, 1992 establish the legal framework and precedent for Debenture Trustees' responsibilities in maintaining and updating the centralized database for defaulted debt securities. Accurate and timely reporting by Debenture Trustees is crucial to uphold the integrity of the database and safeguard the interests of investors in the debt securities market.

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

Chapter XII: Centralised Database - Responsibilities of Debenture Trustee{34}

Debenture Trustee shall access the database to verify the information regarding default history and other relevant information. In case of any discrepancy, Debenture Trustee shall notify the same to Stock Exchanges and update the correct information in the database, within the time stipulated below:-

Note:-

{34}SEBI/HO/DDHS/P/CIR/2021/613 dated August 10, 2021 (as amended from time to time);