SEBI Master Circular for Debenture Trustees 2026: Key Compliance Requirements for Issuers 

Introduction

The Securities and Exchange Board of India (“SEBI”) issued a revised Master Circular for Debenture Trustees on September 28, 2026, consolidating the applicable regulatory requirements into a single framework and superseding the earlier Master Circular dated August 13, 2025. 

The Master Circular sets out the regulatory framework governing Debenture Trustees and also prescribes requirements relevant to issuers of listed or proposed-to-be-listed debt securities and municipal debt securities, credit rating agencies, recognised stock exchanges and depositories. 

The consolidated framework addresses several aspects of debenture trustee operations, including due diligence, security creation, security-cover monitoring, covenant compliance, action following default, disclosures, investor grievances, outsourcing and the handling of activities outside SEBI’s regulatory purview. 

1. Due Diligence and Creation of Security

Debenture Trustees are required to undertake due diligence in relation to the issue and creation of security. This includes verifying relevant documents, ensuring the creation and registration of charges and monitoring compliance with the terms of the issue. Trustees must maintain appropriate systems and infrastructure to discharge these responsibilities effectively. 

For issuers, these requirements underscore the importance of ensuring that security-related documentation is complete, the prescribed charges are created and registered, and the obligations under the issue documents are fulfilled within the applicable timelines. 

2. Monitoring of Security Cover

The Master Circular prescribes requirements for monitoring security coverThe Master Circular prescribes requirements for monitoring security cover n of periodic Security Cover Certificates and the valuation of secured assets. As set out in the regulatory summary, issuers must provide the relevant certificates to Debenture Trustees within the prescribed period following the end of each quarter. The stated timelines are 60 days after the end of each quarter and 75 days for the last quarter. The corresponding timelines for submission by the Trustee to the stock exchange are stated as 75 days and 90 days, respectively. 

Issuers and Debenture Trustees should verify the applicable reporting requirements, the relevant quarter-end dates and the precise deadlines under the Master Circular to ensure that certificates are prepared, reviewed and submitted on time. 

Effective security-cover monitoring is particularly important where the terms of the issue prescribe minimum security-cover requirements or impose continuing obligations relating to secured assets. 

3. Recovery Expense Fund

The Master Circular prescribes a Recovery Expense Fund requirement for issuers. As summarised in the regulatory update, the Fund is equivalent to 0.01% of the issue size, subject to a maximum of ₹25 lakh per issuer. 

The Fund is intended to enable the Debenture Trustee to meet expenses connected with enforcement and recovery proceedings in the event of a default. Issuers should confirm the applicable calculation, deposit and maintenance requirements under the Master Circular and ensure that the relevant arrangements are completed in accordance with the prescribed framework. 

4. Monitoring of Financial and Security-Related Covenants

The Master Circular strengthens the framework for monitoring financial and security-related covenants. Debenture Trustees are required to maintain a board-approved covenant monitoring policy, monitor breaches and take appropriate action where prescribed covenants, including minimum security-cover requirements, are not maintained. 

This places importance on systematic monitoring of the terms of the issue and the timely identification of potential breaches. Issuers should maintain appropriate internal controls and reporting arrangements to track compliance with financial covenants, security obligations and other material conditions of the issue. 

5. Procedures Following an Event of Default

The Master Circular prescribes timelines and procedures for Debenture Trustees to inform debenture holders, obtain their consent and convene meetings where required following an issuer default. For privately placed securities, the regulatory summary specifies that investors are to be notified within three days of the default. It also identifies approval thresholds of 75% by value and 60% by number at the ISIN level for specified enforcement or restructuring decisions. 

The applicable notice period, consent mechanism, voting thresholds and procedural requirements should be assessed against the relevant provisions of the Master Circular and the terms of the issue. These requirements may be material to decisions concerning enforcement, restructuring and other action following a default. 

Issuers should ensure that internal escalation procedures enable potential defaults and covenant breaches to be identified promptly, while Debenture Trustees should maintain the necessary processes for timely communication with debenture holders. 

6. Disclosures and Investor Grievance Redressal

Debenture Trustees are required to disclose specified information on their websites and to stock exchanges. This includes information concerning breaches of security cover and certain consents or permissions granted to issuers. 

The Master Circular also addresses investor grievance redressal. Debenture Trustees must address investor grievances within the applicable prescribed timelines and file Action Taken Reports through the SEBI Complaints Redress System (“SCORES”) platform, where required. These obligations reinforce the importance of maintaining accurate records, effective communication channels and appropriate grievance-handling procedures. 

Issuers and trustees should review their disclosure processes to ensure that information relating to the issue, security cover, defaults and relevant permissions is communicated in accordance with the applicable requirements. 

7. Outsourcing and Conflict-of-Interest Requirements

The Master Circular regulates outsourcing and conflicts of interest by restricting the outsourcing of core business and compliance functions. Debenture Trustees should review their existing outsourcing arrangements and internal controls to identify functions that must remain within the organisation and ensure that permitted outsourcing arrangements comply with the applicable requirements. 

Appropriate governance arrangements are also important for identifying and managing conflicts of interest in the discharge of trustee responsibilities. 

8. Anti-Money Laundering Compliance

The Master Circular addresses compliance with applicable anti-money laundering requirements, including registration or re-registration with the Financial Intelligence Unit–India’s FINNET 2.0 system, as applicable. 

Debenture Trustees should review their registration status and related compliance arrangements and ensure that the applicable reporting and anti-money laundering obligations are met. 

9. Separate Business Unit for Non-SEBI-Regulated Activities

The Master Circular also addresses activities undertaken by Debenture Trustees that fall outside SEBI’s regulatory purview. The prescribed framework requires the relevant non-SEBI-regulated activities to be handled through a Separate Business Unit under Regulation 9C. The stated implementation deadline for the prescribed arrangements is October 27, 2026. 

Debenture Trustees should review the activities undertaken by them, identify those covered by the provision and put in place the organisational and operational arrangements required by the Master Circular within the applicable timeline. The precise scope of the separation requirements and the arrangements required for implementation should be assessed against the operative text of the circular. 

10. Effect on the Earlier Master Circular

The revised Master Circular supersedes the earlier Master Circular dated August 13, 2025. The new framework also preserves specified actions taken, pending applications, accrued rights and liabilities arising under the superseded framework. 

Debenture Trustees and other affected stakeholders should therefore review the revised Master Circular as a consolidated reference for their applicable obligations rather than relying solely on the earlier circular. 

Practical Compliance Priorities for Issuers and Debenture Trustees

The revised framework highlights the need for coordinated compliance processes between issuers and Debenture Trustees. The principal areas for review include: 

• Security documentation: Confirm that the relevant security has been created and registered in accordance with the issue terms. 
• Security-cover monitoring: Review the preparation, verification and submission of Security Cover Certificates within the applicable deadlines. 
• Covenant monitoring: Maintain procedures to track financial and security-related covenants and identify breaches promptly. 
• Default management: Ensure that internal escalation and communication procedures support compliance with applicable notification, consent and meeting requirements. 
• Disclosures and grievances: Review disclosure processes and investor grievance redressal arrangements. 
• Outsourcing and governance: Assess outsourcing arrangements, conflicts of interest and the treatment of non-SEBI-regulated activities. 
• Regulatory registrations: Verify applicable anti-money laundering registrations and related compliance requirements. 

These areas should be assessed in conjunction with the full text of the Master Circular, the terms of the relevant debt issue and other applicable regulatory requirements. 

Conclusion

SEBI’s Master Circular for Debenture Trustees dated September 28, 2026, consolidates the applicable framework and addresses key aspects of security creation, ongoing monitoring, covenant compliance, default-related procedures, disclosures and trustee governance. 

Issuers and Debenture Trustees should review their existing compliance arrangements against the revised framework, with particular attention to reporting deadlines, security-cover monitoring, procedures following default and the implementation of the Separate Business Unit requirements. 

Primary regulatory instrument: SEBI, Master Circular for Debenture Trustees, dated September 28, 2026, Circular No. HO/17/11/12(2)2026-DDHS-POD1/I/22420/2026.

Last Updated on 27 October, 2026