SEBI Unifies Rules for Debenture Trustees with New Master Circular: A Complete Guide for Compliance and Investor Protection 

On August 13, 2025, SEBI consolidated its scattered rules for debenture trustees into a single comprehensive Master Circular (SEBI/HO/DDHS‑PoD‑1/P/CIR/2025/117). If you’re a trustee, issuer, or even a close observer of the debt market, this is the new bible. Debenture trustees serve as watchdogs for people who hold listed debt, corporate bonds, municipal debt, and the rest. Over time, SEBI has published a stack of circulars about how trustees should operate, what they should disclose, and when. Now, all those bits and pieces live together in one place. The earlier circulars got replaced, but anything done under them still stands. SEBI draws its powers under every major regulation that affects trustees, including the Debenture Trustees Regulations, Non-Convertible Securities, Municipal Debt, and Listing Obligations, among others. 

This article cuts through the legalese, focusing on the main ideas SEBI wants debenture trustees, issuers, and market players to grasp. 

Four Core Responsibilities 

SEBI split the Master Circular into 17 chapters, let’s briefly zoom in on the four main themes that define a debenture trustee’s job: 

1. Registration and Staying Eligible

Trustees must sign up through SEBI’s Intermediary Portal and meet the eligibility requirements, including capital requirements, the right infrastructure, and sufficient experience. Everything is now filed electronically: applications, reports, and updates. Trustees need solid systems and tech, which their own board has to keep an eye on. 

2. Due Diligence and Ongoing Monitoring

Trustees don’t just sign off and walk away. They need to dig into issuers’ creditworthiness before accepting any issue. This means checking that asset security is real and properly registered, and that issuers follow all their covenants. Once the debentures are out, trustees track security cover, review compliance certificates, and make sure issuers pay interest and redeem on time. SEBI’s digital monitoring system gives them the tools for this. 

In practice, trustees go through offer documents to make sure issuers get all needed approvals and that the proposed security works. For secured debentures, they have to double-check that charges over assets are real and registered, and that those assets truly cover the debt. Throughout, they review compliance reports and security cover certificates, and if anything falls short, such as the cover not meeting requirements, they must warn investors immediately. 

3. Protecting Investors 

Investor protection gets a boost with this circular. There’s now a Recovery Expenses Fund to cover enforcement costs, regular security cover certificates from auditors, and a clear grievance redress system. Trustees must keep a dedicated spot on their websites for all the key documents, trust deeds, offer docs, payment status, credit ratings, and complaints. They must also flag defaults, rating drops, and any covenant breaches. Quick disclosure means investors can act fast and maintain trust in the market. 

Issuers have to chip in to the Recovery Expenses Fund. Trustees must have a Grievance Officer, keep electronic records, and resolve complaints on time. Regular security cover updates and transparent website disclosures help investors make informed choices. 

4. Default and Enforcement

When things go wrong, trustees are on the front line for debenture holders. They need to send out default notices, call meetings, and, if necessary, enforce security or go to court. The rules emphasize fairness when multiple debenture series share the same security, and they outline the procedures for trading in defaulted securities. The Recovery Expenses Fund gives trustees the financial muscle to act without delay. 

When a debenture defaults, trustees must act promptly. They need to mark it as defaulted security on the stock exchanges, help manage its transfer, and enforce the security, always following the specific procedures outlined in the law. They also call meetings with debenture holders to figure out whether to accept a compromise or extend the timeline. If there are several series backed by the same security, trustees must make sure everyone gets fair treatment. 

Regulatory reporting takes up a big part of a trustee’s job. SEBI and the stock exchanges expect a steady flow of compliance certificates, half-yearly reports, and prompt disclosure of any breaches. The Master Circular pulls these requirements together, laying out standard forms and timelines. Trustees can outsource some tasks, but they can’t offload responsibility. Due diligence on any service provider is a must. The same goes for conflict-of-interest policies; these can’t be an afterthought. Trustees also need to register with FINNET 2.0 so they’re ready for anti-money-laundering reporting. 

There’s no avoiding the paperwork. Trustees have to upload debenture issue details to SEBI’s central database, file compliance certificates with the stock exchanges, and keep regulators in the loop about any defaults. Outsourcing helps with routine admin, but trustees still have to supervise and check the work. A solid conflict-of-interest policy isn’t optional. And reporting suspicious transactions under anti-money-laundering rules? That’s non-negotiable. 

All these requirements send a clear signal: SEBI expects trustees to act independently, stay diligent, and be fully transparent. It’s not enough to tick boxes or follow rules blindly. Trustees have to use their judgement, especially when they’re monitoring issuers and enforcing rights. The Master Circular doesn’t let Board off the hook either. The board of directors carries the ultimate responsibility for compliance. They have to put policies and controls in place to close any gaps and make sure regulations stick. Even if SEBI has withdrawn some older circulars, any action taken under them still stands. By bringing all these scattered instructions into one document, SEBI makes it easier for everyone to follow the rules and helps build trust among investors. A unified approach cuts down confusion and keeps all trustees on the same page. 

The broader context matters. India’s corporate bond market has exploded in recent years. Companies have been raising money for roads, homes, and even municipal projects. Investors want debt securities with strong protections and trustees who watch out for their interests. But there have been problems like late payments, weak security cover, and misleading disclosures, that shake confidence. SEBI aims to address these issues by establishing strict due diligence, clear rules for handling defaults, and transparent reporting. The idea is to make trustees real watchdogs, not just document keepers. Trustees need to train their teams, appoint compliance officers to stay in touch with SEBI, and make sure everyone knows what’s expected, both technically and ethically. 

Conclusion

SEBI’s Master Circular for Debenture Trustees brings together years of regulatory guidance in one place. Grouping obligations by theme makes life easier for trustees, issuers, rating agencies, and investors. The main takeaways being thorough due diligence, ongoing checks on security and covenants, honest disclosure, solid enforcement, and real solutions for grievances.  

The circular also pushes for modernization, online portals, central databases, integration with FIU-India. Trustees must ensure their systems, policies, and teams are up to standard, or risk facing regulatory penalties. At its core, the Master Circular demonstrates SEBI’s commitment to strengthening the bond market and protecting investors.