SEBI Imposes ₹1 Lakh Fine On Catalyst Trusteeship For Failing In Its Duties As Debenture Trustee

SEBI's findings indicated that Catalyst Trusteeship failed to fulfill key responsibilities required by the SEBI (Debenture Trustees) Regulations, 1993.

A debenture trustee is a vital intermediary in the financial market, tasked with safeguarding the interests of debenture holders. This role is especially crucial when the issuing company breaches the terms of the debenture trust deed as in the case with SSFL. The debenture trustee is expected to take prompt action including communicating the breach to all debenture holders convening a meeting to discuss the breach, and informing the relevant credit rating agencies (CRAs). Catalyst Trusteeship, however, was found to have fallen short in these duties.

The investigation revealed that Catalyst Trusteeship did not adequately communicate the breach of covenants to all debenture holders. SEBI's order noted that while the trustee did notify some debenture holders and held a virtual meeting, there was no evidence that all holders were informed or that they attended the meeting.

Proper communication is a duty of a debenture trustee as it ensures that all stakeholders are aware of the situation and can participate in the decision-making process. SEBI highlighted that merely notifying a few debenture holders does not satisfy the requirement of proper communication.

In addition to communication failures with the debenture holders, Catalyst Trusteeship also failed to inform the relevant CRA, India Ratings, about the breach in a timely manner. The breach was observed by the trustee but no information was shared with the CRA upfront. SEBI noted that the trustee's submission lacked merit and was contrary to the regulatory requirements.

Catalyst Trusteeship's failures were in direct violation of several SEBI regulations and circulars. The key regulations breached include Clause 3 of SEBI Circular No. SEBI/HO/MIRSD/CRADT/CIR/P/2020/230 dated November 12, 2020, and Clause 13 of Schedule III read with Regulation 16 of the SEBI (Debenture Trustees) Regulations, 1993. These regulations mandate that a debenture trustee must share information with CRAs and take specific actions when a breach of covenant occurs, including convening a meeting of all debenture holders within a specified timeframe.

Consequently, SEBI imposed a monetary penalty of Rs 1 lakh on Catalyst Trusteeship for its lapses.