Due diligence certificate: Annex IIA vs IIB

A due diligence certificate in an Indian listed debt issue is not one document. SEBI prescribes two, they carry the same name, and they certify different facts at different moments. One is about what the offer document says. The other is about whether the charge actually exists, and no exchange can list the paper without it. This guide sets out both formats, what each confirms, and the two stage route for shelf issues. It is not investment advice.

What does a due diligence certificate confirm?

It depends which of the two you are looking at. Chapter II of SEBI's Master Circular for Debenture Trustees, SEBI/HO/DDHS-PoD-1/P/CIR/2025/117 dated August 13, 2025, prescribes both, and the split runs along a clean line: disclosure adequacy versus charge existence.

Treating them as one document is the common error, and it matters because a valid Annex IIA tells you nothing about whether the charge was ever created.

What does the Annex IIA certificate cover?

Under paragraph 2.2.4, the debenture trustee issues a due diligence certificate to the issuer in the Annex IIA format, subject to three conditions being satisfied:

• Information on consents or permissions required for creation of a further charge on the assets is adequately disclosed in the offer document or placement memorandum
• All disclosures made in that document with respect to creation of security conform with the clauses of the debenture trustee agreement
• All covenants proposed to be included in the debenture trust deed, including any side letter and any accelerated payment clause, are disclosed in the offer document or placement memorandum

That third condition is the one with teeth for anyone reading an offer document. Side letters and accelerated payment clauses are exactly the terms that tend not to surface, and the certificate is conditioned on their disclosure.

The Annex IIA certificate then travels. Paragraph 2.5.1(c) requires it to be disclosed in the offer document or placement memorandum itself. Paragraph 2.5.2 requires an issuer making a public issue or private placement of debt securities to submit the Annex IIA certificate to the stock exchange, and to update it into the Security and Covenant Monitoring System operated by a recognised depository, which the debenture trustee then validates or confirms on that system.

How does Annex IIB gate listing?

Paragraph 2.6.2 is one sentence and it is the operative control. The stock exchange shall list the debt securities only upon receipt of a due diligence certificate in the Annex IIB format from the debenture trustee, confirming creation of charge and execution of the debenture trust deed.

The sequence around it is set by paragraph 2.6.1: before making the listing application, the issuer creates the charge specified in the offer document in favour of the debenture trustee and executes the debenture trust deed with it. Annex IIB is the trustee's confirmation that both of those things happened, which is why it is a listing precondition rather than a disclosure item.

Once issued, it is recorded too. Under Chapter III paragraph 5.2(c), following issuance of the due diligence certificate by the trustee to the stock exchange in the Annex IIB format, the issuer uploads that certificate on the Security and Covenant Monitoring System.

What happens when security is not finalised yet?

Shelf issues create a timing problem. The draft shelf prospectus or placement memorandum gets filed before the terms of any particular tranche exist, so there may be no security to diligence. Paragraph 2.3.1 solves it by splitting the certificate in two.

At the draft stage, where security details have not been finalised, the debenture trustee may furnish a due diligence certificate confirming that it carried out due diligence for the clauses other than those relating to security creation. The clauses are those specified in the formats prescribed under Regulations 40(1)(a) and 44(3)(a) of the NCS Regulations and Annex IIA of the master circular.

At the tranche stage, when the issue structure including the terms related to security has been determined and finalised, the trustee shall issue a due diligence certificate covering all clauses of those same formats and Annex IIA. The permissive may becomes a mandatory shall, and the partial scope becomes full scope.

So a due diligence certificate attached to a draft shelf document may be silent on security by design. The date and the stage tell you which version you are reading.

What sits behind the certificate

The certificate is a conclusion, and the work supporting it is prescribed separately. The registry searches, guarantor document requirements and the professionals engaged to carry them out are covered in how does a debenture trustee do due diligence. The platform where both certificates and the underlying reports get recorded and validated is described in what is the Security and Covenant Monitoring System. The document whose execution Annex IIB confirms is covered in what is a debenture trust deed.

A due diligence certificate records that a defined verification was carried out on a stated date. It is not a credit opinion or an assurance of recovery. Flock reports what issuers and trustees disclose, with the source and the date attached. It is not investment advice.