NEW DELHI: Markets regulator Sebi today imposed a penalty of Rs 2 lakh on Indian Overseas Bank (IOB) for violating debenture trustee regulations.
The regulator had conducted inspection of books of accounts of Indian Overseas Bank, also a Sebi registered debenture trustee, on December 17–18, 2014 for the period from October 2007 till the date of examination.
According to a Sebi order, non-convertible debentures were issued by Power Grid Corporation of India Ltd (PGCIL) during the period from 1997 to 2004 and IOB had started accepting debenture issues of the firm from 1997.
The regulator observed that while acting as a debenture trustee, IOB granted loans to PGCIL in the years 1998 and 1999.
In its 17-page order, Sebi said loans extended to PGCIL by IOB were not fully paid up when it had acted as a debenture trustee for the debentures issued by PGCIL.
DT (Debenture Trustees) Regulations prohibit a debenture trustee to act as such in case it has lent money to the issuer company and the loan is yet to be fully repaid.
"... the very purpose of the said prohibition was to specifically avoid a situation wherein the lender of loan to a corporate body should not extend debenture trustee services to the said entity so that there does not arise any issue of conflict of interest and the debenture trustee exercises as an independent professional while performing its duties," the regulator said.
IOB had also admitted to Sebi that only because of its interpretation of the DT Regulations, it had acted in the said manner, which according to the regulator "is nothing but an admission that it did act as a debenture trustee to PGCIL even when the loan extended to it was not fully repaid".
Noting that IOB is in violation of the provisions of the DT Regulations, Sebi said the debenture trustee is liable for monetary penalty.
For the violation, the Securities and Exchange Board of India (Sebi) has imposed a penalty of Rs 2 lakh on IOB.