To give this effect, Sebi has amended debenture trustee norms and ILDS (Issue and Listing of Debt Securities Regulations), the regulator said in two separate notifications on Thursday.
Under the new norms, debenture trustees (DTs) would exercise independent due diligence of the assets on which charge is being created.
Before creating a charge on the security for the debentures, DTs will exercise independent due diligence to ensure that such security is free from any encumbrance or that it has obtained the necessary consent from other charge-holders if the security has an existing charge, Securities and Exchange Board of India (Sebi) said.
Also, DT would carry out monitoring of the asset cover and obtain mandatory certificate from the statutory auditor on a half-yearly basis.
In addition, they will take required action by convening the meeting of debenture holders for enforcement of security, joining the inter-creditor agreement under the framework specified by the Reserve Bank of India (RBI).
Further, the issuer company will create a recovery expense fund at the time of issuance of debt securities that may be utilised by DT in the event of default for taking appropriate legal action to enforce the security.
While the debt securities are secured to the tune of 100 per cent of the principal and interest, or as per the terms of offer document, in favour of DT, Sebi said it is the duty of the DT to monitor that the security is maintained.
“However, the recovery of 100 per cent of the amount shall depend on the market scenario prevalent at the time of enforcement of the security,” the regulator said.
With regard to creation of security, Sebi said the issuer will give an undertaking in the information memorandum that the assets on which charge is created are free from any encumbrances in cases where the assets are already charged to secure a debt, the permission to create a second charge on the assets of the issuer has been obtained from the earlier creditor.
Every debenture trustee will amongst other matters, accept the trust deeds consisting of two parts — Part A containing standard information pertaining to the debt issue and Part B containing details specific to the particular debt issue.
Last month, the board of Sebi approved a proposal with regard to empowering debenture trustees.