Q.Justify the following statement:
Debenture trustees are appointed by a company issuing debentures.

Yes — the Companies Act, 2013 (Section 71) requires a company issuing debentures to the public to appoint debenture trustees to protect the widely-scattered debenture holders.

The statement 'Debenture trustees are appointed by a company issuing debentures' is justified for the following reasons.

• Legal requirement — Under Section 71 of the Companies Act, 2013, a company that issues a prospectus or an offer inviting more than five hundred persons to subscribe to its debentures must appoint one or more debenture trustees before the issue.
• Protection of debenture holders — Debenture holders are creditors of the company and are usually large in number and scattered. They cannot individually watch over the company's use of their money, so a trustee acts on their behalf.
• Custodian of security — Where debentures are secured by a charge on the company's assets, the trustee holds the security and can enforce it if the company defaults in payment of interest or repayment of principal.
• Monitoring the company — The trustee ensures that the company complies with the terms of the debenture trust deed, maintains the debenture redemption reserve and pays interest and principal on time.
• Who can be a trustee — A scheduled bank, an insurance company, a body corporate or other eligible person registered with SEBI can be appointed, and a person having a conflict of interest with the company cannot be appointed. …