Debenture Trust Deed — Overview
Under Section 71(5) of the Companies Act, 2013: every company issuing secured debentures must appoint a debenture trustee and execute a debenture trust deed within 60 days of allotment. The trustee acts as a FIDUCIARY — protecting the interests of debenture holders collectively. The trust deed is the master document governing: (a) the trustee's powers and duties, (b) the security created for debenture holders, (c) the company's covenants and obligations, (d) events of default and enforcement mechanisms, (e) meetings of debenture holders.
Eligible Trustees
Under Rule 18(2) of Companies (Share Capital and Debentures) Rules, 2014: eligible trustees include: (a) a scheduled bank, (b) a public financial institution, (c) an insurance company, (d) a body corporate registered as debenture trustee with SEBI (for listed debentures). The trustee must NOT be: (a) associated with or interested in the issuer company, (b) a director/employee of the company, (c) a beneficiary under the trust. For LISTED debentures: the trustee must be registered with SEBI under SEBI (Debenture Trustees) Regulations, 1993.
Key Clauses of the Trust Deed
1. Appointment of Trustee: "The Company hereby appoints [Trustee Name] as the Debenture Trustee for the benefit of the debenture holders, pursuant to Section 71(5) of the Companies Act, 2013."
2. Security: "The debentures are secured by a [first/second] charge on [describe assets]. The Company hereby creates and confirms the charge in favor of the Trustee for the benefit of the debenture holders."
3. Trustee's Duties (Section 71(6)): The Trustee shall: (a) protect the interests of debenture holders, (b) redress their grievances, (c) ensure the company creates the security as agreed, (d) ensure the security is maintained and the asset coverage ratio is preserved, (e) take action on behalf of debenture holders in case of default, (f) call meetings of debenture holders when necessary, (g) monitor compliance with the trust deed covenants.
4. Company's Covenants: The Company covenants to: (a) pay interest and principal punctually, (b) maintain the DRR as required, (c) maintain asset coverage ratio of at least [1.25x], (d) provide quarterly financial statements and annual audited accounts to the Trustee, (e) not create any prior or pari passu charge without the Trustee's consent, (f) insure the charged assets, (g) comply with all applicable laws.
5. Events of Default: (a) non-payment of interest for [30] days, (b) non-payment of principal on due date, (c) breach of any covenant not cured within [30] days of notice, (d) the Company becomes insolvent/is wound up, (e) the charged assets are materially damaged without insurance recovery, (f) cross-default — default under any other loan/debenture.
6. Enforcement: On default: the Trustee may: (a) declare ALL debentures immediately due (acceleration), (b) take possession of the charged assets, (c) sell the assets (by auction or private sale), (d) appoint a receiver, (e) institute legal proceedings on behalf of debenture holders, (f) file an insolvency application under IBC.
7. Meetings of Debenture Holders: The Trustee may convene meetings of debenture holders to: (a) approve modifications to the trust deed, (b) waive defaults, (c) approve enforcement actions. Quorum and voting: as specified in the trust deed (typically 75% by value for special matters).
8. Trustee's Fee: The Company shall pay the Trustee an annual fee of Rs. [Amount] plus GST — payable [quarterly/annually]. The fee covers: ongoing monitoring, compliance review, and administrative services. Enforcement costs: borne by the Company (recovered from enforcement proceeds).
SEBI Requirements for Listed Debentures
SEBI (Issue and Listing of Non-Convertible Securities) Regulations, 2021: (a) trustee must be SEBI-registered, (b) trust deed executed BEFORE listing, (c) trustee must submit half-yearly compliance certificates, (d) trustee must ensure the company maintains asset coverage, (e) trustee must inform SEBI/stock exchange of any default immediately, (f) trustee has the power to inspect company books and records.
Disclaimer: This article is for informational purposes only and does not constitute legal or professional advice. While every effort has been made to ensure accuracy based on the latest laws and amendments, readers should consult a qualified professional before acting on any information provided. For expert assistance, contact us.