# Disqualification of a Debenture Trustee (DT)

A Debenture Trustee (DT) safeguards the interests of debenture holders (DH). To preserve independence, the law disqualifies certain persons from being appointed as DT.

## Who Cannot Be Appointed as a Debenture Trustee

A person shall not be appointed as a DT if he/she:

1. Beneficially holds shares in the company.

2. Is a promoter, director, KMP (Key Managerial Personnel), or officer/employee of:

The company (CASH — Company Assigning Securities/Holdings), OR
Its holding, subsidiary, or associate company.

3. Is a relative of any:

Promoter
Director
KMP
Officer/employee of the company or its group.

4. Is indebted to the company (CASH) or its subsidiary or holding company.

5. Is beneficially entitled to moneys to be paid by the company (other than DT remuneration).

6. Has any pecuniary relationship with the company amounting to:

2% or more of its Gross Turnover, OR
2% or more of its Total Income, OR
₹50 lakh, whichever is lower.

7. Has furnished a guarantee in respect of the principal debt secured by the debentures, or interest thereon.

## Key Idea

The disqualification rules ensure that the DT has no conflict of interest — financial, personal, or managerial — with the issuing company or its group.

Worked example

### Example 1

Example 1: Mr. X, brother of the Managing Director of ABC Ltd., is proposed to be appointed as DT for debentures issued by ABC Ltd. — Disqualified, as he is a relative of a director.

### Example 2

Example 2: Mr. Y has an outstanding loan of ₹5 lakh from the subsidiary of the issuing company. He is proposed as DT — Disqualified, since he is indebted to the subsidiary.

### Example 3

Example 3: A firm receives consultancy fee from the company equal to 3% of its gross turnover. The partner is proposed as DT — Disqualified (pecuniary relationship exceeds 2%).

⚠️ Common exam mistakes

Forgetting that the disqualification also extends to holding, subsidiary, and associate companies — not just the issuing company.
Treating 2% of turnover and ₹50 lakh as cumulative thresholds; the test is met if ANY of the limits is crossed.
Ignoring 'relatives' as a disqualified category — many students wrongly think only direct association disqualifies.
Confusing DT remuneration with 'moneys to be paid by the company'; DT remuneration is specifically excluded.

Bare-Act text Section 71 & Rule 18 · Companies Act, 2013 · click to expand

Rule 18 of Companies (Share Capital and Debentures) Rules, 2014 read with Section 71 of the Companies Act, 2013 — Conditions for appointment of debenture trustee.

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Disqualification of Debenture Trustee (DT)

Worked example

⚠️ Common exam mistakes