Issuers of debentures who cannot appoint directors nominated by debenture trustees have been asked to give an undertaking, for when the security becomes enforceable.
According to a circular issued by the Securities and Exchange Board of India (SEBI), issuers of certain categories “shall submit an undertaking to their Debenture Trustees that in case of events as mentioned in Regulation 15(1)(e) of SEBI (Debenture Trustees) Regulations, 1993, a non-executive / independent director / trustee / member of its governing body shall be designated as nominee director for the purposes of Regulation 23(6) of NCS Regulations, in consultation with the Debenture Trustee, or, in case of multiple Debenture Trustees, in consultation with all the Debenture Trustees”.
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Regulation 15 (1) 9e) is for events when the debenture has to be enforced.
Company-issuers are already required to ensure that its Articles of Association has the provision to appoint a nominee of debenture trustees as director in terms of Regulation 15(1)(e) of SEBI (Debenture Trustees) Regulations, 1993.
But there is no similar obligation to issuers who are not companies. The market regulator has received various representations from debenture trustees in this regard.
The representations spoke of three kinds of issuers who are not under such obligations.
First, there are issuers who are incorporated under different statutes / are also under the purview of other regulators. They have expressed inability to execute such amendments as the composition of their boards is governed by certain statutes which do not provide for appointment of nominee directors by Trustees, noted the SEBI circular.
Second comes issuers whose Board appointments are governed by certain statutes and require prior approval of the President of India.
Third is issuers who cannot appoint nominee directors as their principal document/charter does not provide for the same; “in a few cases, the absence of a statutory mandate fetters them from amending their principal document”, noted the circular.
These three categories of issuers must now give the additional undertaking.
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