Sebi provides clarity on director nomination by debenture trustees

After receiving representations, markets regulator Sebi on Tuesday provided clarity on the requirements for appointment of directors by entities that have listed their debt securities.

Under Sebi norms pertaining to listing of non-convertible securities, an entity registered under the Companies Act, 2013 has to ensure that a person nominated by the debenture trustee is appointed as a director.

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While this obligation exists for issuers that are companies under the Companies Act, 2013, there is no similar obligation for issuers that are not companies. In this regard, representations have been received from debenture trustees, the regulator said in a circular.

Against this backdrop, Sebi noted that the appointment of a director including nominee director is driven by the provisions of the principal document of the entity (Articles of association, in case of companies under the Companies Act, 2013).

"A nominee director is a director, and therefore, except for specific provisions of law, articles or the terms of the agreement under which the right of nomination comes, the position, appointment process, responsibilities, etc., of the nominee director are the same as that of any other director on the board," it said.

Citing issues raised by the debenture trustees and the role of a nominee director, Sebi said that issuers coming under certain categories can submit an undertaking to the debenture trustees instead of nominating a director.

"... a non-executive/ independent director/ trustee/ member of its governing body shall be designated as nominee director... in consultation with the debenture trustee, or, in case of multiple debenture trustees, in consultation with all the debenture trustees," the circular said.