Sebi fines debenture trustee Vistra ITCL for various violations including lack of independence in preparing asset-cover certificate

It involved the DT asking the debt securities' issuer to select an empaneled chartered accountant (CA) from a list. Once the issuer selects the CA and the certificate is received from this CA, the certificate is forwaded to the DT's compliance team for submission to the stock exchanges.

The Sebi order pointed out the various problems in this process.

One, the issuer has the option of selecting the empanelled CA of its own choice. This may lead to potential conflict of interest where the manipulation in the certificate may be done as a quid pro quo for higher fee since the fee is also directly paid by the issuer to the empaneled agency/CA.

Two, the certificate is submitted by the CA to the issuer rather than directly to the DT. The order noted that the issuer may withhold the certificate if it is not favourable and in turn may coordinate with another CA from the DT's list for certification of asset coverage.

Three, the DT may not be involved in the information or queries sought by the CA from issuer while preparing the certificate which in itself defeats the purpose of independent monitoring of the asset cover by the DT.

The other violations noted in the order included the DT carrying out the activities associated with trusteeship before the execution of the written agreement or DT Agreement (DRA); not updating default history information about an instrument or issuer on the Centralized Database for Corporate Bonds/Debentures; and relying solely on the issuer confirmation for ascertaining the status of payment and not confirming the same from other independent sources.