CCI Finds Debenture Trustees Enforced Fee Floor

The Competition Commission of India has found that three major debenture trustees and their industry association coordinated and enforced minimum fees for trusteeship services, curbing price competition in the market.

The CCI said the Trustees Association of India, IDBI Trusteeship Services, Axis Trustee Services and SBI CAP Trustee Company had engaged in conduct that amounted to fixing prices and limiting or controlling the supply of debenture trusteeship services, in violation of competition law. 

The order relates to the period 2020-21 and 2021-22, when TAI and its members adopted a benchmark pricing structure for debenture trusteeship services. CCI found that the arrangement was not merely a recommendation but was actively monitored and enforced, with members being discouraged from quoting fees below the benchmark.  

Fee floor extended beyond association members

According to the order, TAI had discussed minimum pricing for trusteeship services from 2018, before finalising benchmark pricing at its March 23, 2021 meeting. Members agreed not to offer services below the benchmark rates. 

CCI found that TAI subsequently monitored compliance with the pricing arrangement and warned members against deviations. The association also sought to extend the benchmark to trustees that were not its members, according to the order. 

In one instance cited by CCI, MITCON, a non-member trustee, had quoted a lower fee for an issue by HUDCO. The order said TAI intervened and the trustee subsequently withdrew the lower bid and submitted a revised quotation at a higher fee consistent with the benchmark. 

Muthoot complaint triggered proceedings

The proceedings originated from a complaint by Muthoot Finance, which had a non-convertible debenture book of around ₹134.78 billion as of June 2021.

Muthoot alleged that IDBI Trusteeship had increased its fees following the pricing decision taken by TAI. CCI examined the association's communications, meeting records and other evidence relating to the pricing arrangement. 

The order also records a specific case involving a ₹98.2-billion NCD issue, where IDBI Trusteeship initially quoted a fee of about ₹982,000 and an annual fee of ₹1.47 million under the revised pricing structure. 

CCI said the evidence showed that the benchmark pricing had the effect of eliminating price competition among trustees, with trustees prevented from competing by offering lower fees.

Despite finding a contravention of competition law, CCI decided not to impose a monetary penalty on TAI, IDBI Trusteeship, Axis Trustee Services and SBI CAP Trustee Company.

The Commission cited mitigating factors while deciding against imposing a financial penalty. However, the finding of contravention and the directions contained in the order remain significant for the debenture trusteeship market. 

The case also involved regulatory overlap. SEBI had formed a prima facie view on the matter in July 2022, while CCI subsequently examined whether the conduct fell within its jurisdiction under competition law. SEBI later informed CCI that the competition regulator was the competent authority to pass an order on the matter. 

The CCI order therefore puts the focus on how trusteeship fees are determined in India's corporate debt market, particularly whether industry-wide fee benchmarks can operate as a floor that prevents trustees from competing on price.