SEBI aligns Issue and Listing of Debt Securities Regulations with the provisions of the Companies Act, 2013; gains immediate effect

In a Gazette Notification dated 8th October, 2020 the Securities and Exchange Board of India has issued the Securities and Exchange Board of India (Issue and Listing of Debt Securities) (Amendment) Regulations, 2020 (“Amendment”) in order to further amend the Securities and Exchange Board of India (Issue and Listing of Debt Securities) Regulations, 2008 (“Principal Regulations”).

The amendment has gained effect immediately.

We would like to draw your attention to the key implications of these amendments. Primarily, this amendment has been given effect to streamline the existing provisions in the Securities and Exchange Board of India (Issue and Listing of Debt Securities) Regulations, 2008 with the provisions as mentioned in the Companies Act, 2013.

 

Principal Rules Amendment

 

Implication
Section 2 Definitions:

 

(1) (h) private placement means an offer or invitation to less than fifty persons to subscribe to the debt securities in terms of sub-section (3) of section 67 of the Companies Act, 1956 (1 of 1956)

Section 2 Definitions:

 

(1) (h) Private placement means an offer or invitation to subscribe or issue of securities to a select group of persons by a company (other than by way of public offer) through private placement offer-cum application, which satisfies the conditions specified in section 42 of the Companies Act, 2013

 

The definition of the term “private placement” has been aligned to the definition/ explanation provided in Section 42 of the Companies Act, 2013.

 

 

 

____________________

*Section 42 deals with “Offer or invitation for subscription of securities on private placement”

 

Regulation 4: General Conditions-

 

(…)

 

(4) The issuer shall appoint one or more debenture trustees in accordance with the provisions of Section 117B of the Companies Act, 1956 (1 of 1956) and Securities and Exchange Board of India (Debenture Trustees) Regulations, 1993

Regulation 4: General Conditions-

 

 

(…)

 

(4) The issuer shall appoint one or more debenture trustees in accordance with the provisions of Section 71 of the Companies Act, 2013 and Securities and Exchange Board of India (Debenture Trustees) Regulations, 1993

The appointment of one or more debenture trustee will now have to be done as per **Section 71 of the Companies Act, 2013 instead of the previous position of Section 117B of the Companies Act, 1956.

 

This change is with a view to make the reference to the corresponding provisions of the Companies Act, 2013 (Act, 2013) instead of the erstwhile reference of Companies Act, 1956 (Act, 1956).

 

 

_________

**Section 71 deals with “Debentures”

Regulation 15: Trust Deed-

 

(…)

 

(2) The trust deed shall contain such clauses as may be prescribed under section 117A of the Companies Act, 1956 and those mentioned in Schedule IV of the Securities and Exchange Board of India (Debenture Trustees) Regulations, 1993

Regulation 15: Trust Deed-

 

(…)

 

Every debenture trustee shall amongst other matters, accept the trust deeds which shall contain the matters as prescribed under section 71 of Companies Act, 2013 and Form No. SH.12 of the Companies (Share Capital and Debentures) Rules, 2014. Such trust deed shall consist of two parts:

 

a. Part A containing statutory/standard information pertaining to the debt issue.

 

b. Part B containing details specific to the particular debt issue.

 

With the amendment coming into force, debenture trustees can only accept those trust deeds which deal with matters listed in Section 71 of the Companies Act, 2013 and Form SH12 of the Companies (Share Capital and Debentures) Rules, 2014.

 

Further, debenture trustees have to ensure that the trust deeds they are accepting have the following information-

 

i. Statutory / standard information pertaining to the debt issue

 

ii. Details specific to the particular debt issue.

 

This change is with a view to make the reference to the corresponding provisions of the Companies Act, 2013 (Act, 2013) instead of the erstwhile reference of Companies Act, 1956 (Act, 1956).

 

Regulation 18: Redemption and Roll-over

 

 

(…)

 

 

(2) Where the issuer desires to roll-over the debt securities issued by it, it shall do so only upon passing of a special resolution of holders of such securities and give twenty one days notice of the proposed roll over to them.

Regulation 18: Redemption and Roll-over

 

 

(…)

 

 

(2) Where the issuer desires to roll-over the debt securities issued by it, it shall do so only upon passing of a special resolution of holders of such securities and give fifteen days notice of the proposed roll over to them.

The time period for giving notice of proposed roll over when the issuer desires to roll over debt securities has been reduced from 21 days to 15 days.

 

 

Regulation 26: Obligations of the Issuer , Lead Merchant Banker, etc-

 

(…)

 

(2) The Merchant Banker shall verify and confirm that the disclosures made in the offer documents are true, fair and adequate and ensure that the issuer is in compliance with these regulations as well as all transaction specific disclosures required in Schedule I of these regulations and Schedule II of the Companies Act, 1956.

 

 

(…)

 

[Not present]

Regulation 26: Obligations of the Issuer , Lead Merchant Banker, etc-

 

 

(…)

 

(2) The Merchant Banker shall verify and confirm that the disclosures made in the offer documents are true, fair and adequate and ensure that the issuer is in compliance with these regulations as well as all transaction specific disclosures required in Schedule I of these regulations and Companies Act, 2013 and the Rules made thereunder.

 

 

 

 

 

(…)

 

(7) The issuer shall create a recovery expense fund in the manner as maybe specified by the Board from time to time and inform the Debenture Trustee about the same.

The disclosures made  by the merchant banker has to be as per the Companies Act, 2013 and its Rules as against the earlier position wherein disclosures had to be made as per Schedule II of the Companies Act, 1956 .

 

The status of the disclosures as per Schedule I of the Principal Regulations remain unchanged.

 

Furthermore, with a newly inserted sub clause, the issuer has been directed to create a recovery expense fund in the manner which will be specified by the Board from time to time and ensure to inform the Debenture Trustee about the same.

 

This change is with a view to make the reference to the corresponding provisions of the Companies Act, 2013 (Act, 2013) instead of the erstwhile reference of Companies Act, 1956 (Act, 1956).

 

A new provision (Regulation 21B) has been inserted which deals with the Creation of Security.

Under the newly inserted provision, the issuer has to give an undertaking in the Information Memorandum stating that the assets on which charge is created are free from any encumbrances and in cases where the assets are already charged to secure a debt, the permission or consent to create a second or pari-passu charge on the assets of the issuer has been obtained from the earlier creditor.

 

 

Source: Securities and Exchange Board of India

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