The Securities and Exchange Board of India (SEBI) has fined Vistra (ITCL) India Ltd ₹6 lakh for multiple breaches of the SEBI (Debenture Trustees) Regulations, 1993, and related guidelines.
A primary issue identified was Vistra’s failure to conduct independent due diligence when preparing asset-cover certificates. SEBI’s circular dated November 3, 2020, requires debenture trustees to independently verify the adequacy of assets supporting debt securities. SEBI’s investigation revealed significant flaws in Vistra’s process.
In the process, debt securities issuers would select a chartered accountant (CA) from a list provided by Vistra. This CA prepared the asset-cover certificate, which was then sent to Vistra’s compliance team for submission to the stock exchanges. SEBI found several problems with this arrangement.
Firstly, permitting issuers to choose their own CAs introduces potential conflicts of interest. CAs might be incentivized to alter certificates for higher fees, as they are paid directly by the issuer. Secondly, since the CA submits the certificate to the issuer rather than directly to Vistra, there is a risk that the issuer might withhold unfavorable certificates or seek a different CA for a more favorable report. Thirdly, SEBI observed that Vistra was not involved in the communication between the CA and the issuer, which compromised the intended independent oversight by the debenture trustee.
Additionally, SEBI identified other regulatory violations, such as carrying out trusteeship duties before formalizing the debenture trustee agreement, not updating default information in the Centralized Database for Corporate Bonds/Debentures, and relying solely on issuer confirmations for payment status without independent verification.
The inspection also found insufficient tracking of interest payments. SEBI noted that Vistra lacked proper documentary evidence of independent verification of interest and principal payments. In some cases, like with Future Retail Limited, Vistra relied only on issuer confirmations and did not verify payment statuses from other sources.
Moreover, Vistra failed to update default histories in the centralized database for certain issuers, notably Blue Horizon Hotels Private Limited, which contravened SEBI’s guidelines.
Regulation 15(1)(t) and 15(1)(s) of the SEBI (Debenture Trustees) Regulations, 1993, along with SEBI circular SEBI/HO/MIRSD/CRADT/CIR/P/2020/218 dated November 3, 2020, mandate that debenture trustees independently assess asset adequacy for security creation. The process followed by Vistra was found lacking in due diligence.
SEBI circulars, including SEBI/HO/MIRSD/MIRSD3/CIR/P/2017/72 dated June 30, 2017, require timely and accurate tracking of interest payments. The inspection revealed that Vistra did not independently verify these payments, relying solely on issuer confirmations.
Additionally, SEBI circulars such as CIR/IMD/DF/17/2013 dated October 22, 2013, and SEBI/HO/DDHS/P/CIR/2021/613 dated August 10, 2021, stipulate that debenture trustees must accurately update default histories in the centralized database.
Posted and reproduced in Public Interest by
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