# Debenture Trustee (DT)

A Debenture Trustee acts as a fiduciary representing the interests of all debenture holders collectively. The DT protects DH interests against any default or breach by the company.

## When must a Debenture Trustee be Appointed?

A company shall appoint one or more Debenture Trustees before the issue of prospectus or letter of offer for subscription of its debentures, where the company issues prospectus/letter of offer to more than 500 persons (including members).

The name of the DT must be stated in the prospectus.

Before appointment, the written consent of the proposed DT must be obtained.

## Debenture Trust Deed (DTD)

The DTD shall be executed in Form SH.12.
The DTD shall be executed within 3 months from the closure of the issue/subscription list.
The DTD secures the issue of debentures and contains all terms relating to security, redemption, etc.

## Disqualifications of a Debenture Trustee (Rule 18(2))

A person shall NOT be appointed as Debenture Trustee if such person:

1. Beneficially holds shares of the company.

2. Is a promoter, director, KMP, or any other officer or employee of the company OR of its holding, subsidiary, or associate company.

3. Is a relative of a promoter, director, KMP, or officer/employee of the company / its holding, subsidiary or associate company.

4. Is indebted to the company OR to its subsidiary, holding or associate company, or any of its directors/promoters.

5. Is beneficially entitled to moneys to be paid by the company (otherwise than as remuneration payable to the debenture trustee).

6. Has any pecuniary relationship with the company exceeding:

2% of its gross turnover or total income, OR
₹50 lakhs, whichever is LOWER, during the two immediately preceding financial years or during the current financial year.

7. Has furnished any guarantee in respect of the principal debts secured by the debentures or interest thereon.

## Casual Vacancy in Office of DT

The Board of Directors shall fill any casual vacancy in the office of DT.
If the vacancy arises by resignation, the DT shall continue until a new DT is appointed and obtains written consent. Filling such vacancy requires consent of the majority of DH in number.

## Removal of DT

A DT may be removed before expiry of his term only if 3/4th of debenture holders in VALUE consent to such removal.

## Meeting of Debenture Holders

The Debenture Trustee shall call a meeting of all the debenture holders:

1. On a requisition in writing signed by debenture holders holding at least 1/10th in value of debentures for the time being outstanding; OR

2. On the happening of any event which constitutes a breach/default OR which, in the opinion of the DT, affects the interest of the debenture holders.

Worked example

### Example 1

Example 1 — Disqualification (Shareholding)

Mr. X has been proposed as the Debenture Trustee for an issue by Sigma Ltd. Mr. X beneficially holds 100 equity shares of Sigma Ltd. (less than 0.1% of total capital).

Answer: Mr. X is disqualified. The Rule does not provide any threshold — beneficial holding of ANY shares, however small, disqualifies a person from being appointed as Debenture Trustee.

### Example 2

Example 2 — Pecuniary Relationship

Lambda Bank Ltd. proposes to be appointed as DT for an issue by Pi Ltd. Pi Ltd.'s gross turnover for the preceding two financial years averaged ₹100 crores. Lambda Bank has provided banking services to Pi Ltd. amounting to ₹40 lakhs in the current FY.

Answer: Lambda Bank can be appointed.

2% of ₹100 crore turnover = ₹2 crore
₹50 lakhs
Lower of the two = ₹50 lakhs
Lambda Bank's pecuniary relationship is ₹40 lakhs, which is below ₹50 lakhs.

Hence, no disqualification on this ground.

### Example 3

Example 3 — Meeting of DH

Debenture holders of ABC Ltd. holding 12% in value of outstanding debentures submit a written requisition demanding a meeting.

Answer: The DT MUST call the meeting. The threshold under the Rules is 1/10th (10%) in value, and the requisitionists hold 12%.

### Example 4

Example 4 — Removal of DT

Out of total ₹100 crore debentures outstanding, debenture holders holding ₹70 crore in value want to remove the existing DT.

Answer: The DT cannot be removed. Removal requires consent of debenture holders holding 3/4th in VALUE (₹75 crore). ₹70 crore (70%) is below the 75% threshold. To proceed with removal, debenture holders holding at least ₹75 crore in value must consent.

⚠️ Common exam mistakes

Confusing the threshold for calling DH meeting (1/10th in VALUE) with the threshold for removal of DT (3/4th in VALUE).
Forgetting that even ONE share beneficially held by a person disqualifies him from being appointed as DT — there is no minimum percentage threshold.
Computing the pecuniary-relationship limit as 'higher of 2% turnover OR ₹50 lakhs' — it is actually the LOWER of the two.
Treating filing of DTD as required at the time of issue — it must actually be executed within 3 MONTHS from closure of the issue.
Believing the Tribunal fills a casual vacancy in the office of DT — it is the BOARD that fills it.
Forgetting that DT must be appointed only if the offer is to more than 500 persons, not on every debenture issue.

Bare-Act text Section 71 & Rule 18 · Companies Act, 2013 & Companies (Share Capital and Debentures) Rules, 2014 · click to expand

Section 71(5): No company shall issue a prospectus or make an offer or invitation to the public or to its members exceeding five hundred for the subscription of its debentures, unless the company has, before such issue or offer, appointed one or more debenture trustees. Rule 18(2): A person shall not be appointed as a debenture trustee, if he— (a) beneficially holds shares in the company; (b) is a promoter, director or key managerial personnel or any other officer or an employee of the company or its holding, subsidiary or associate company; (c) is beneficially entitled to moneys which are to be paid by the company otherwise than as remuneration payable to the debenture trustee; (d) is indebted to the company, or its subsidiary or its holding or associate company or a subsidiary of such holding company; (e) has furnished any guarantee in respect of the principal debts secured by the debentures or interest thereon; (f) has any pecuniary relationship with the company amounting to two per cent. or more of its gross turnover or total income or fifty lakh rupees or such higher amount as may be prescribed, whichever is lower, during the two immediately preceding financial years or during the current financial year; (g) is relative of any promoter or any person who is in the employment of the company as a director or key managerial personnel.

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Debenture Trustee — Appointment, Debenture Trust Deed, Disqualifications, Casual Vacancy, Removal & Meetings of Debenture Holders

Worked example

⚠️ Common exam mistakes