SEBI guidelines of the protection of the interest of debenture holders are as follows:-
- For protecting the interest of debenture holders, the trustee to the debenture issue shall be vested with the required power such as a right to appoint a nominee director on Board of the company is consultation with institutional debenture holder.
- For the proper utilization of the funds the institutional debenture holder should obtain a certificate from the company’s auditor.
- Supervision of the trustee and the debenture redemption reserve and for the creation of security.
- Investment institution will look after the progress in respect of debentures for project finance, modification etc. Debentures raised for working capital funds will be monitored by the lead bank.
- Debenture issued by companies belonging to the groups for financing/replenishing funds or acquired share holding in other company will not be permitted.
- Along with the application the company has to file with SEBI, certificate from the bankers or the solicitors that the assets on which security is to be created are free from any charge, or no objection has been taken making second charge where assets are already encumbered.
- The security is to be created in 6 months or up to 12 months for any special reason. If it is failed to do so 2% per month interest is payable.
- A meeting of debenture holder is to be called if security is not created after 18 months and the reason for the delay is to be explained.
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