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JC - Legal Updates - SEBI tightens norms for due diligence by debenture trustee

Legal Updates

08 Aug 2022

SEBI tightens norms for due diligence by debenture trustee

Norms for security creation and due diligence by debenture trustee’s for listed non-convertible debentures (“NCDs”) have been amended. Following are the key changes introduced:

1.   Change of Security post listing:

(a)  A provision for the following has been introduced:

(i)   creating security for unsecured NCDs;

(ii)  changing security for a secured NCD; and

(iii) creating additional security for a secured NCD.

The above will be treated as a change in the structure of the NCD and require compliance with the provisions of Regulation 59 of SEBI (Listing Obligations and Disclosure Requirements) Regulations, 2015.

(b)  Debenture Trustees are required to conduct due diligence post listing and prior to security creation with respect to such new / additional security and issue a no-objection certificate.

(c)  Debenture trustees and issuers are required to execute an amendment to the debenture trustee agreement prior to conducting due diligence and a supplemental debenture trust deed post the security creation.

(d)  Issuer is required to obtain a new ISIN from the depository.

2.   Where security structure is not crystallized at the time of issue of shelf prospectus/ placement memorandum:

In case of issuance of NCDs in tranches where security structure is not crystallised during the filing of shelf placement memorandum, the debenture trustee shall furnish a due diligence certificate for provisions other than security creation at the time of filing the shelf placement memorandum with the stock exchange. Subsequently, at the time of issuance of any tranche NCDs, the debenture trustee shall issue a due diligence certificate covering all provisions including those related to security.

3.  Encumbrance over securities in the form of (i) pledge, (ii) hypothecation, (iii) lien, (iv) negative lien, and (v) non-disposal undertakings/agreements must be only through the depository system.

The above amendments have been introduced by the Securities and Exchange Board of India vide its circular dated 4th August 2022 titled “Enhanced Guidelines for Debenture Trustees and Listed Issuer Companies on Security Creation and initial due-diligence”.


For any further information, please contact Ms. Apurva Kanvinde (apurva.kanvinde@jclex.com), Mr. Sumitava Basu (sumitava.basu@jclex.com) or Mr. Smit Parekh (smit.parekh@jclex.com).