On February 12, 2025, the Securities Exchange Board of India (SEBI), issued a consultation paper on the introduction of format for No Objection Certificate (“NOC”)/ consent letter to be submitted by existing charge holders, when a further creation of charge is proposed on encumbered assets (“Consultation Paper”)[1]. The Consultation Paper invites public comments and suggestions, to be submitted at the latest by March 05, 2025.
The key features of the Consultation Paper include:
I. Due Diligence Requirement for Secured Debt Securities: Para 2.1(c) of the Master Circular for Debenture Trustees (“DTs”), dated May 16, 2024 (“Master Circular”), emphasizes on the due diligence process that DTs are required to undertake when creating security over assets, including the necessity for obtaining consents from existing charge holders.
II. NOC/ Consent from Existing Charge Holders: As per the provisions outlined in the Master Circular, when further charge creation is proposed over encumbered assets, the issuer must submit a NOC/ Consent from existing charge holders. The NOC must also specify the terms of any conditional consent or permission granted by the existing charge holders for the creation of further charge, if applicable.
III. Standardization of the Format: It has been observed that the absence of a specified format for the NOC/ Consent from existing charge holders has led to inconsistencies in the submission process. To address this and recommendations from the associations of DTs (Trustees Association of India (TAI) and United Trustee Association of India (UTAI)), a standardized format for such NOC/ Consent has been proposed to be introduced and specified in the Master Circular.
IV. Action Points for Issuers: Issuers must ensure compliance with the updated due diligence requirements. Further, issuers are advised to review and adopt the NOC/ Consent format provided in the Consultation Paper for all future submissions.
In the cases of conditional consent from existing charge holders, issuers shall ensure that the terms of such consent are clearly outlined, as per the revised format.
[1]https://www.sebi.gov.in/reports-and-statistics/reports/feb-2025/consultation-paper-on-introduction-of-format-for-no-objection-certificate-noc-consent-letter-to-be-submitted-by-existing-charge-holders-to-issuer_91866.html