Debenture holder consent for enforcing security

Debenture holder consent for enforcement of security runs on two different consent mechanics in the same notice. Enforcing the security uses negative consent, where silence counts as agreement. Signing an inter-creditor agreement uses positive consent, where silence counts as nothing. This guide covers the notice, the two consent types, the 15 day window, the 75 percent threshold, and the carve-out for public issues. It is not investment advice.

What must the default notice contain?

Five things, and the drafting of the first two is the whole design. Paragraph 3.3.2 of Chapter X of SEBI's Master Circular for Debenture Trustees, SEBI/HO/DDHS-PoD-1/P/CIR/2025/117 dated August 13, 2025, requires the notice to contain:

• A provision for negative consent for proceeding with the enforcement of security
• A provision for positive consent for signing the inter-creditor agreement, where the trustee has been approached by other lenders to sign or join it
• The time period within which consent needs to be provided, being 15 days from the date of notice
• The date of the meeting to be convened
• A disclosure that if requisite consents are not received for either action, the trustee will act as decided in the meeting of holders

The notice itself goes out within three days of the event of default under paragraph 3.3.1, by post or courier or hand delivery with proof, and also by email with a read receipt, with proof of dispatch retained.

Why is enforcement negative consent and the ICA positive consent?

Because the two actions have opposite defaults if holders stay silent. Negative consent on enforcement means a holder who does not reply has not objected, so an unresponsive holder base does not block the trustee from acting on the security. Positive consent on the inter-creditor agreement means a holder who does not reply has not agreed, so an unresponsive holder base does block the trustee from binding them into a resolution plan alongside banks.

The asymmetry follows the consequence. Enforcement pursues the security the holders already have. Signing an ICA subjects them to a resolution plan negotiated under the Reserve Bank of India's Prudential Framework for Resolution of Stressed Assets Directions 2019, issued by circular dated June 7, 2019, which may restructure or roll over what they hold.

What is the majority threshold?

Two tests at once, both at the ISIN level. Under paragraph 3.3.6, consent of the majority of holders of listed debt securities means approval of not less than 75 percent of holders by value of the outstanding debt and 60 percent of holders by number.

A block of large holders cannot carry a decision on value alone, and a crowd of small holders cannot carry one on headcount alone. Because the measurement is at the ISIN level, the same issuer can produce different outcomes on different lines.

What does the trustee do with the result?

Paragraph 3.3.5 sets out four outcomes:

1. Where the majority of holders express dissent against enforcement of the security, the debenture trustee shall not enforce the security.
2. Where the majority express consent to enter into the ICA, the trustee shall enter into the ICA.
3. Where requisite consents are not received for either action, the trustee takes further action as decided in the meeting of holders.
4. The trustee may form a representative committee of holders to participate in the ICA, to enforce the security, or as decided in the meeting.

The meeting is convened within 30 days of the event of default under paragraph 3.3.3, and its proviso matters: if the default is cured between the date of the notice and the date of the meeting, convening the meeting may be dispensed with.

The same steps apply to a breach that is not a payment default. Paragraph 5 of Chapter X says that on a breach of covenants or terms of the issue, the trustee takes the steps in paragraphs 3.3.1 and 3.3.3, being the notice and the meeting, and then acts as decided in that meeting.

What changes for a public issue?

The enforcement half of the machinery drops away. Paragraph 3.3.4 provides that, in view of Regulation 15(2)(b) of the SEBI (Debenture Trustees) Regulations, 1993, for debt securities issued by way of public issue the notice shall not contain the negative consent for enforcement described in paragraph 3.3.2(a), and the requirement to convene a meeting for enforcement under paragraph 3.3.3 does not apply.

The parent regulation says the same thing from the other side. The second proviso to Regulation 15(2) provides that the requirement to convene a meeting of all debenture holders on a default in payment obligation by the issuer does not apply to debentures issued by way of public issue. The first proviso allows the trustee to seek consent through e-voting wherever applicable.

Regulation 15(2) also carries the route holders can use themselves: the trustee shall call a meeting on a requisition in writing signed by at least one-tenth of the debenture holders in value for the time being outstanding.

Related reading

The definition and timing of the trigger are covered in what is an event of default on a debt security. The agreement the positive consent unlocks is explained in what is an inter-creditor agreement. The trustee's wider obligations are in duties of a debenture trustee, the money that funds an enforcement is in what is a Recovery Expense Fund, and the pre-default monitoring layer is in what happens when a bond covenant is breached.

Debenture holder consent for enforcement of security is a defined process with fixed windows and two different consent rules running in one notice. Flock reports what issuers and trustees disclose, with the source and the date attached. It is not investment advice.