Okay, by now we all know about the TruCap default. The company missed making their payment on 16th July, and now investors are left wondering what will happen next.
As a debenture holder (especially a retail investor) in any bond that has defaulted, it’s crucial to understand the process that unfolds in such situations.
Today, we write this to walk you through what steps to take, how the voting process will work, and the impact of different voting outcomes governing these scenarios. This information is intended as a general guide applicable to any ISIN/bond series facing a default, so you can be well-informed no matter which specific bond issue you hold. Please do not construe this as any form of advice.
So what’s happening right now?
As of the date of writing this article (12th Aug 2025), TruCap has already made 70% of the payment that was due to investors in different tranches:
18 July: 5%
21 July: 10%
31 July: 5%
8 August: 20% and 30%
Note: Catalyst’s report indicates that 15% was paid on July 31, but it seems to be an error.
Now, Debenture holders are supposed to vote for or against enforcement of security. The voting date was 8th August 2025; however, the Debenture Trustee has extended it till 14th August 2025.
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Note: As per the latest update sent by Catalyst to the debenture holders, the deadline for voting for certain ISINs has been extended to 21st August, 2025 based on requests sent by the ISIN holders
What does enforcement of security mean?
Well, TruCap would have pledged certain collateral against the NCDs that were issued. If you as an investor vote for enforcing the security, that means that the Trustee will take legal actions to seize, sell or realize this collateral, and use the proceeds from the sale to repay you and other investors.
Enforcing security has its own pros and cons. Let’s look at them.
Pros of enforcing security
If you suspect that the company’s position will worsen with time, enforcement of security can give you a better outcome
Enforcement of security ensures that all ISIN holders get equal treatment
It could be a relatively faster recovery mode provided the collateral is strong
Cons of enforcing security
It’s a lengthy and uncertain process that could take months or even years
Legal proceedings may deviate the issuer’s focus from repayment since there will be a lot more compliances and issues to handle
Once legal action starts, it’s harder to go back to a cooperative repayment plan. Courts/insolvency processes have their own rigid timelines and priorities.
In most cases, it’s a costly affair, because if the cost of enforcing security is more than the Recovery Expense Fund (REF), the additional amount needs to be paid by the debenture holders. Catalyst, for example, has estimated this cost to be around INR 15 lakhs for one ISIN – which will have to be paid by Debenture holders if they choose to proceed with enforcement of security
If the company genuinely has the ability to repay given a bit more time or minor restructuring, it is better to not go ahead with enforcement of security.
In the case of TruCap, for example, the company has already paid 70% of the principal due, and is expecting a round of funding by Marwadi Chandarana Group. They have also shared a revised repayment plan, which they have already started paying ahead of schedule. In such cases, debenture holders should take an informed decision on whether they want to enforce security or not.
How does enforcement of security happen?
Well, the voting process is slightly complex. Here’s how it works:
Any major action by the trustee (like enforcing security) requires approval of a super-majority of investors. SEBI defines “majority of investors” as not less than 75% of the outstanding debt by value and 60% by number of investors (at the ISIN level). In other words, for the trustee to proceed:
at least 75% of the total outstanding principal amount (of that ISIN) held by those voting must be in favor, and
those in favor must also constitute at least 60% of the number of debenture holders
There’s a catch here though - According to SEBI’s master circular (para 3.3.6) The majority has to be at an ISIN level. This means:
Each ISIN is treated as its own, separate decision-making unit.
For a trustee to proceed with enforcement for a particular ISIN, that ISIN alone must cross the super-majority threshold:
Now, where are investors stuck?
From ALT Investor’s interactions with debenture holders, and meetings with TruCap and Catalyst, it is clear that most of the investors don’t want the enforcement of security to happen right now. However, the challenge is that there is a concept of negative consent when it comes to voting.
This means that the default action is to enforce security, unless the majority votes against enforcement. So unless the super-majority of debenture holders (75% by value AND 60% by number) don’t vote against it (dissent), Catalyst will go ahead with enforcing security.
This is a tricky situation, because in most of the meetings we attended, there were only between 20 and 45 debenture holders present, out of the hundreds of debenture holders of TruCap. The remaining, people are doubting, may not even cast a vote – this may mean no negative consent, which may further lead to Catalyst enforcing the security.
We tried contacting Catalyst to understand how it would work if different ISINs had a different outcome. However, they were unable for comments.
Is there light at the end of the tunnel?
In one of the meetings held on 11th August with Catalyst, debenture holders brought up the point of not being able to get enough votes to avoid enforcement of security. To this, the trustee’s representatives mentioned that even after the voting ends, no action would be taken without a discussion with the debenture holders, and that they would call for a meeting to discuss the next steps.
SEBI’s circular also mentions that if consent is not received, then “the Debenture Trustee shall take further action, if any, as per the decision taken in the meeting of the holders of listed debt securities”
However, this clause is mentioned with regards to consent for enforcement of security AND signing of ICA (Inter-Creditor Agreement), and does not talk about enforcement of security in isolation.
How much the meeting will benefit the debenture holders, only time would tell. But we can assume that the meeting, along with SEBI’s clause, should at least pave the way for a conversation to happen.
What can you do as a debenture holder?
At ALT Investor, we are trying our best to get debenture holders from all ISINs on a common platform. There is a WhatsApp group you can join here so that you can stay updated with everything that is going on. In case you have any questions, please feel free to reach out to us there - our team is part of the group and is working to disseminate information in the best way possible.
Disclaimer: This blog is intended solely for educational purposes and should not be construed as advice. While every effort has been made to ensure factual accuracy, occasional errors or omissions may occur. Readers are encouraged to conduct their own research, and in case of any differences in interpretation, you are welcome to share corrections.
