Authored by Aishwarya Lakshmi VM

Date of Order: 12th February 2021.

Forum: Hon’ble Kerala Court.

Purported contravention committed:

a) Provisions applicable to issue of debentures to more than 50 persons not complied with;

b) Chartered Accountant(s) (not registered with SEBI) were appointed as the Debenture Trustee in respect of the debentures issued by an NBFC.


1. Sometime in the year 2017, in the awareness programme conducted by the regional office of SEBI in Cochin, few shareholders had complained about one BRD Securities Limited, RBI registered NBFC that it has stopped buying back it shares from its investors.

2. On enquiry by SEBI, it has come to know that the said NBFC has been making debenture issue by way of private placement from the year 2001 till 2010, and such private placement has resulted in allotment being made to more than 50 persons [under erstwhile Companies Act, 1956, issue of securities to 50 or more persons was construed to be public issue. Under Companies Act, 2013, this number is 200.]

3. SEBI had sought for certain information from the NBFC, and wasn’t satisfied with its responses, and hence sought for further information, which were not provided.

4. Also, it was noticed that two chartered accountants, were appointed as a Debenture Trustee for the debentures issued by the NBFC.

5. Since, the NBFC did not provide further information, SEBI issued show-cause notice which inter alia included

(a) non-compliance of public issue provisions for the issue of debentures to more than 50 persons;

(b) non-appointment of debenture trustee as per the SEBI (Issue and Listing of Debt Securities) Guidelines; and

(c) Appointment of unregistered Debenture Trustees thereby violating SEBI Act and SEBI (Debenture Trustee) Regulations.

The NBFC and the two chartered accountants who acted as the debenture trustees and the NBFC (in a separate writ petitions) challenged the show cause notice.


The SCN issued by SEBI was challenged on the following grounds:

1. SEBI does not have jurisdiction in the matter since supervisory powers over NBFCs is vested with the RBI.

2. The SCN has been issued on the presumption that it has supervisory powers under Ss. 55A, 117B and 67 of Companies Act, 1956, and with the repeal of Companies Act, 1956 by Companies Act, 2013, the SCN is unsustainable.

The SCN issued in 2019, covers a period beginning in 2001 and ending in 2010, and after expiry of nine years, that pertain to events that happened 19 year back. Hence, the SCN has been issued after inordinate delay and laches.


The Court dismissed all the three writs and

1. With respect to the delay in the issue of the SCN, the court said that the information sought for are those that are statutorily maintained by the NBFC, and that there was no prejudice caused to the company, and that if it has been incapacitated in providing the information, the same can be stated to SEBI. The court while observing that the NBFC wasn’t questioning the jurisdiction of SEBI in issuing the SCN, observed that since the matter was only in the show cause stage, it would be inappropriate of it to interfere in the proceedings.

2. The Court rejected the contention of the Petitioner that the jurisdiction over an NBFC vested only with RBI and that SEBI did not have any role to play. Categorically it was laid down that, “Even though the company is an NBFC, as far as regulation of issue of Debentures and Non-Current Bonds is concerned, it is the bounden duty of SEBI to protect the interest of the investors in securities”.

3. Since NBFCs are not specifically excluded from the purview of SEBI, they will continue to be regulated by RBI and SEBI.

4. With respect to the two Chartered Accountants who acted as debenture trustees, the court observed the existence of prima facie violation of S. 12 of SEBI Act, read with regulations pertaining to debenture trustees.