SEBI Proposes Reforms Oriented Amendments to Secure the Interest of Debenture Holders

A spate of defaults by some NBFCs has forced capital markets regulator Sebi to come out with a new set of measures to secure the interest of debenture holders and shore up their confidence in the regulatory mechanism to check any wrongdoings. According to SEBI, creation of an identified charge by NBFCs will enable liquidation of asset and return of debt quickly to the investors in the event of any default.

In a new consultation paper, the Securities and Exchange Board of India (Sebi) has proposed a detailed review of the regulatory framework for Corporate Bonds and Debenture Trustees (DTs).

As per the consultation paper, non-banking financial companies (NBFCs) will now be required to create an identified charge on the assets, as the pari-passu floating charge in case of recent defaults of NBFCs in secured loans has created confusion as to whether the debentures are really secured.

Recently, in the case of Reliance Capital, two trustees representing secured lenders had moved the court claiming rights on the same assets. The assets were charged to one trustee as part of the balance sheet and pledged to other trustee also.

"Sebi's new proposal will help avoid such situations in future and also help identify the charge, especially in case of default or liquidation. This would also expedite further borrowings by NBFCs by obviating the need of obtaining NOCs from existing lender," said an official with a debenture trustee.