SEBI Shake-Up: New Rules Proposed for Debenture Trustee Appointments to Boost Transparency

The Securities and Exchange Board of India (Sebi) has suggested changes to the current process for appointing debenture trustees to improve transparency and legal clarity. The key proposal involves replacing the existing “consent letter” with a “debenture trustee agreement” (DTA).

The Shift from Consent Letter

Sebi’s proposal aims to enhance the rules for issuing and listing non-convertible securities. By replacing the “consent letter” with a legally binding “debenture trustee agreement” (DTA), Sebi seeks to ensure that the appointment of debenture trustees is both transparent and legally valid. The DTA is seen as a crucial document in formalizing the appointment process, making it more significant than the previously used consent letter.

Legal Significance of the Debenture Trustee Agreement

The working group that reviewed the existing process highlighted that while issuers previously obtained consent letters from trustees before starting the appointment, these letters lacked legal standing. In contrast, the DTA is recognized as the legal document that officially confirms a debenture trustee’s appointment.

Making Information More Accessible to Investors

To improve investor awareness and ease of access to critical information, Sebi has proposed that the DTA be made available through a QR code in the offer documents. This will allow investors to review the agreement digitally, ensuring they are fully informed of the trustee’s role and obligations.

Invitation for Public Feedback

Sebi has released a consultation paper on these proposed changes and is inviting public comments and suggestions until September 6. This move aligns with the government’s objectives for improving the financial sector, as outlined in the FY 2023-24 Budget.