The Role Of A Debenture Trustee In Bond Issuances

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A debenture trustee is an “independent organisation” appointed to protect the interests of people who invest in a company’s debentures. The trustee acts as a neutral link between:

• The company that raises money

and

• The investors who lend that money

Realise that the appointment of a debenture trustee is not optional. As per Section 71(5) of the Companies Act, 2013, a company issuing debentures to more than 500 investors must appoint one or more debenture trustees (before the prospectus is issued). 

Okay, but what does a debenture trustee do? Read this article to check out the several roles and duties of a debenture trustee. But first, let’s see who can become a debenture trustee in India. 

Who Can Be a Debenture Trustee in India?

Under the Debenture Trustee Regulations, 1993, a debenture trustee can be a:

• Scheduled commercial bank
• Public financial institution recognised under the Companies Act
• Insurance company
• Any other body corporate

Note that individuals are not permitted to act as debenture trustees. Apart from the type of entity, there is also a financial requirement. The entity must have a minimum net worth of ₹10 crore. 

Additionally, a debenture trustee cannot be closely connected to the company issuing the debentures. It cannot be an:

• Associate of the issuer, which includes situations where the trustee controls the company
• Shares common directors with it
• Has strong financial links with it

The trustee also cannot be a promoter or part of the company’s key management. What do these restrictions ensure? The trustee acts only in the interest of debenture holders and not under the influence of the issuing company.

4 Major Roles of Debenture Trustees in Bond Issuances

Realise that a debenture is not just a borrowing instrument! Instead, it is a long-term legal relationship between an issuer and its investors. Thus, the duties of a debenture trustee:

• Begin from the moment a debenture is planned

and

• Run until the stage where repayment is completed, or default arises.

These responsibilities span pre-issue checks, ongoing supervision, and enforcement action during default. For more clarity, let’s understand the four primary roles of a debenture trustee in detail:

Role 1: Checks Before Debentures Are Issued

The work of a debenture trustee starts before investors are invited to invest. At this stage, the trustee must independently verify whether the information given by the company is 100% complete + reliable.

Okay, but where is this information present? It usually appears in documents such as the:

• Offer Document 

or

• Placement Memorandum

The trustee’s responsibility is to ensure that these documents do not hide risks or present misleading facts. Be aware that a major part of this role is related to examining the “security offered” for the debentures. 

The company must share details of the assets proposed as security, along with proof of ownership such as title deeds and legal title reports. The trustee checks whether:

• The assets are legally owned by the company 

and

• Charges over them are properly registered with authorities like the Registrar of Companies and CERSAI (Central Registry of Securitisation Asset Reconstruction and Security Interest of India).

Additionally, the trustee also verifies “guarantees” (both personal and corporate). This includes:

• Checking the guarantor’s financial strength 

and

• Confirming that the company’s board has approved the guarantees

Now, after completing these checks, the trustee issues a “Due Diligence Certificate” to the stock exchange.

Role 2: Ongoing Watch Over Security and Company Promises

After the debentures are issued, the trustee’s role is related to continuous monitoring. For this purpose, SEBI has introduced a “Security and Covenant Monitoring System”. This system is operated by depositories and serves as a single digital record of all important information related to debentures.

Through this system, the following details may be recorded:

• Information related to secured assets
• Creation of charges
• Payment of interest and principal
• Compliance with agreed conditions

This system replaces older paper-based reporting, which usually led to delays and gaps in information. By using a central platform, the debenture trustee can easily identify breaches such as missed payments or failure to maintain security cover. 

The primary benefit? A debenture trustee can act in time to protect investor interests and enforce corrective measures when required.

Role 3: Ongoing Surveillance After Debentures Are Issued

A debenture trustee’s responsibility continues for as long as the debentures remain outstanding. After issuance and listing, the trustee must regularly monitor the financial and legal position of the issuer. 

But how? The Debenture Trust Deed sets out how this continuous monitoring will take place. Let’s check out the various areas of responsibility covered by a debenture trustee in this role:

Role 4: Action and Enforcement When a Default Occurs

Lastly, when a company fails to pay interest or principal on the agreed date, such a failure is treated as a “default”. Now, once a default occurs, the trustee must:

• Promptly inform investors within three days 

and

• Call a meeting of debenture holders within 30 days to discuss the next course of action.

For those unaware, SEBI requires the creation of a “Recovery Expenses Fund” to support enforcement actions. This fund is pre-funded by the issuer and kept with the stock exchange. During such times, the trustee can initiate legal or recovery proceedings from this fund (without delay or dependence on investor contributions).

Additionally, for resolving stressed situations, the trustee may also enter into an “Inter Creditor Agreement” with other lenders. However, this can be done only after obtaining consent from a majority of debenture holders.

In Summary, A Debenture Trustee Acts as a Legal Guardian of the Investor’s Interests

So now you are aware of the role of a debenture trustee during bond issuances. Their role begins at the pre-issue stage and continues through ongoing supervision and taking enforcement action in case of default. A trustee ensures that:

• Disclosures are accurate
• Security is properly created
• Covenants are followed
• Investor rights are enforced when a company fails to meet its obligations

In this way, a debenture trustee increases investor confidence and makes the bond market more transparent. If you are looking to invest in bonds or apply to the latest NCD IPOs, you may visit the GoldenPi platform. 

Here you can find multiple bond options along with key details such as yield, credit rating, issuer name, and other important information. Also, investing is 100% digital, and the entire investment process can be completed online. 

Role of a Debenture Trustee FAQs

1. When is appointing a debenture trustee mandatory in India?

As per Section 71(5) of the Companies Act, 2013, when a company issues debentures to more than 500 investors or to the public, it must appoint a debenture trustee. This entity will maintain an “independent oversight” and enforce investor rights (when the issuer defaults).

2. What laws and regulations govern debenture trustees in India?

Debenture trustees are governed by the SEBI (Debenture Trustees) Regulations, 1993, along with provisions of the Companies Act, 2013. Additionally, the SEBI Master Circular (effective August 2025) consolidates all earlier circulars and sets detailed rules on duties, disclosures, monitoring, and default handling.

3. What checks does a debenture trustee perform before the issue of debentures?

Before debentures are issued, the trustee conducts due diligence on disclosures, security, and guarantees. They may check asset ownership, charge registration, guarantor financials, and board approvals. Lastly, the trustee issues a due diligence certificate to the stock exchange.

4. How does a debenture trustee monitor debentures after issuance?

After issuance, the trustee monitors security cover, covenant compliance, interest and principal payments, and disclosures. Also, issuers submit quarterly “security cover certificates”, which the trustee verifies and reports to the stock exchange.

5. What happens if a company defaults on debenture payments?

If a company misses interest or principal payments, the trustee must inform investors within three days and call a meeting within 30 days. The trustee can enforce security, use the Recovery Expenses Fund for legal action, and appoint a nominee director to protect investor interests.

Citations

1. SEBI | Master Circulars
2. Role of Debenture Trustees in India: Legal Analysis of SEBI Master Circular – Agrud Partners
3. Section 71(5) in The Companies Act, 2013

Disclaimer:

This information is for general information purposes only. GoldenPi makes no guarantee on the accuracy of the data provided here; the information displayed is subject to change and is provided on an as-is basis. Nothing contained herein is intended to or shall be deemed to be investment advice, implied or otherwise. Investments in the securities market are subject to market risks. Read all the offer-related documents carefully before investing.

Bonds or non-convertible debentures (NCDs) are regulated by the Securities and Exchange Board of India and other government authorities. GoldenPi Securities Private Limited is a registered debt broker and acts as a distributor and not as a manufacturer of the product.