SEBI Updates Permissible Uses of the Recovery Expense Fund for Debenture Trustees

Circular No. HO/17/11/12(3)2025-DDHS-POD1/I/145/2025; Dated 25.11.2025

1. Overview

SEBI has issued modifications to Chapter IV of the Master Circular for Debenture Trustees, originally dated August 13, 2025, which sets out the framework for the Recovery Expense Fund (REF).

The changes aim to provide greater clarity and operational flexibility to Debenture Trustees (DTs) in using the REF for recovery and enforcement-related activities in the event of a default.

2. Revised Scope of Reimbursement from REF

Reimbursement Allowed Upon Default

SEBI has clarified that, in the event of a default, a Debenture Trustee may be reimbursed from the REF for all activities undertaken for:

• Enforcement of security, and
• Legal proceedings connected to recovery.

This ensures that DTs have access to necessary funds to take swift and effective enforcement action.

3. Activities Eligible for Reimbursement

The modified provisions enumerate the types of expenses that may be drawn from the REF, including but not limited to:

3.1 Obtaining Consents from Debenture Holders

Expenses relating to:

• Convening meetings,
• Conducting e-voting,
• Soliciting approvals or instructions from debenture holders.

3.2 Filing Court or Tribunal Applications

Costs incurred in:

• Initiating legal proceedings,
• Filing petitions or applications before courts, NCLT, or other authorities.

3.3 Legal Fees

Professional charges paid towards:

• Advocates
• Legal counsel
• Law firms

engaged for enforcement or recovery actions.

3.4 Appointment of Legal Consultants or Enforcement Professionals

Fees for:

• Enforcement consultants,
• Security enforcement agencies,
• Advisors assisting in repossession or enforcement proceedings.

These inclusions ensure that DTs have clarity on permissible reimbursements and can undertake recovery steps without financial constraints.

4. Significance

The modification strengthens the debenture trustee framework by:

• Enhancing the operational capacity of DTs to act quickly in case of default,
• Reducing financial bottlenecks for enforcement,
• Improving the protection of debenture holders’ interests, and
• Ensuring that recovery actions are not delayed due to lack of upfront funds.

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