Sebi made these inferences in a special examination report that it had to submit to the Bombay High Court. The matter would be heard by a division bench of Justice GS Patel and Justice SG Dige on January 4.
ReutersThe Bombay High Court had asked CCI to hold the probe until Sebi submitted its findings. Post this report is submitted by Sebi, the high court will render its judgement on whether CCI can go ahead with the investigation.
Mumbai: The Securities and Exchange Board of India (Sebi) has defended the fee structure adopted by debenture trustees, saying that fees being charged by these entities "may not be construed as cartelisation".
The market regulator also concluded that the complaint filed by Muthoot Finance does not warrant any further action at this point.
Sebi made these inferences in a special examination report that it had to submit to the Bombay High Court. The matter would be heard by a division bench of Justice GS Patel and Justice SG Dige on January 4.
Debenture trustees are Sebi-registered entities that act as intermediaries in debt market issuances. They keep regular track of the debenture and interest payments. They are also responsible for enforcing security contracts on behalf of the bondholders in case of default.
In 2021, Muthoot Finance complained to the Competition Commission of India (CCI) alleging cartelisation in the debenture trustee sub-segment. It also alleged that the trustees were charging exorbitant fees.
CCI ordered its director general (DG) to conduct a probe into the matter in December 2021. However, the Trustees Association of India (TAI), an industry body of debenture trustees, moved the Bombay High Court in April 2022, challenging the jurisdiction of CCI to conduct such a probe since the entities are regulated by Sebi. The High Court sought Sebi's opinion on the matter.
An email sent to Sebi remained unanswered.
In its examination report, Sebi argued if debenture trustees charge a low fee, "the interest of debenture holder is adversely affected" since the trustees may not have adequate financial resources to carry out due diligence for protecting the interest of bondholders.
"In the financial sector, stability considerations may override competition concerns. Financial intermediaries that are operating in the said sector are subject to significant risk of instability," said Sebi in the examination report. "Currently, there are only a limited number of SEBI-registered DTs who undertake trusteeship business for listed debt securities. Therefore, undoing of any of these trustees over these reasons may create possible systemic risks for the financial market."
In its report, Sebi also emphasised there has been an overhaul in the roles and responsibilities of debenture trustees. Prior to the new rules, debenture trustees needed to undertake due diligence only once - during the launch of the debt issue. But now, they are required to conduct periodical monitoring.
"Further, multiple defaults in the recent past have also resulted into exceptionally high costs for DTs, especially in cases where public holding is large. The fee charged in such cases was a fraction of what DTs had to incur in terms of legal costs. This would make business of trusteeship unviable."
Sebi also did not agree with the cartelisation argument made by the complainant. Sebi's report said debenture trustees do not offer any services to issuers, rather they act on behalf of debenture holders. Also, the debenture trustees hold the properties on behalf of the debenture holders for protecting their interests.
The Bombay High Court had asked CCI to hold the probe until Sebi submitted its findings. Post this report is submitted by Sebi, the high court will render its judgement on whether CCI can go ahead with the investigation.
Reuters
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