Escrow Agent vs Debenture Trustee vs Security Trustee

By Gradivus Corp · 26 October 2026 · Insights

An escrow agent holds funds, securities or documents and releases them only when agreed conditions are met, while a debenture trustee acts for the holders of debentures under SEBI's regulatory framework. A security trustee holds security, such as a mortgage or charge, on behalf of a group of lenders, and a facility agent administers a loan for its lenders. Of the four, only the debenture trustee's core role is regulated by SEBI. The other three are contractual, and their duties come from the agreement that appoints them.

The four roles side by side

Escrow agent

The escrow agent is a neutral party. It is appointed under an escrow agreement that sets out what is deposited, the conditions for release, and what happens on default or dispute. It takes no commercial decisions. It acts when the documents say it must, and not otherwise. Typical uses are holding sale consideration until closing, ring-fencing collections for debt servicing, and holding securities in a demat escrow.

In practice, the clause that deserves the most drafting time is the release condition. If the agent cannot tell from the document whether a condition has been met, the agreement has not done its job.

Debenture trustee

A debenture trustee is registered with SEBI and acts for debenture holders. Its duties come from two places: SEBI's regulations and circulars, consolidated in the master circular for debenture trustees, and the debenture trust deed. Under Regulation 9C, from 27 October 2026 debenture trustees carry on their non-SEBI activities, such as escrow or facility agency, through separate business units.

Security trustee

When several lenders share the same security, one security trustee usually holds it for all of them, so that each lender does not need its own charge. The security trustee holds the security, keeps the documents in order and, if enforcement is needed, acts on the lenders' instructions. For External Commercial Borrowings, RBI's 2026 regulations expressly allow security to be created in favour of the non-resident lender or a security trustee (RBI).

Facility agent

Where a loan has more than one lender, the facility agent is the single point of administration. It processes drawdown requests, calculates and distributes payments, carries information between the borrower and the lenders, and circulates requests for waivers or amendments. It acts on lender instructions. It does not decide for them.

Can one firm play more than one role?

Often, yes, provided the documents allow it and conflicts are managed. A firm may act as both facility agent and security trustee on the same loan. Where the roles could pull against each other (holding funds as a neutral escrow agent while acting for one side in another capacity, for example), the documents should deal with it in terms.

How to choose who to appoint

1. Start with the requirement. Does regulation require a debenture trustee for the instrument, or is the need contractual (escrow, agency, security)?
2. Write duties that can be tested. Release conditions, payment mechanics and reporting should be specific enough to check.
3. Check capability. Ask about maker-checker controls, reconciliation, reporting and audit trails, and ask to see them rather than hear them described.
4. Understand where protection comes from. For contractual roles it comes from the agreement and the agent's processes, not from a regulator.
5. Plan for change. Include replacement and resignation mechanics. They are easy to leave out at signing and awkward to add later.

Frequently asked questions

Is an escrow agent the same as a debenture trustee? No. A debenture trustee acts for debenture holders under SEBI's framework. An escrow agent is a neutral party under a contract, holding and releasing assets against agreed conditions.

Does a security trustee need to be registered with SEBI? Acting as security trustee for lenders is a contractual role, not a SEBI-regulated debenture-trustee activity. The security documents govern it.

What is the difference between a facility agent and a security trustee? The facility agent administers the loan: drawdowns, payments and information. The security trustee holds the security for the lenders. One firm can do both if the documents allow it.

Who appoints the escrow agent? The parties to the transaction. They agree on the escrow agent between themselves and sign the escrow agreement with it.

How Gradivus can help

Gradivus is an independent capital markets services firm, not a debenture trustee. Where appointed, we structure and administer escrow mechanisms and act as monitoring agent for lenders, with defined release conditions, waterfalls, reporting and a complete audit trail. See our Escrow Services and Debt Monitoring & Compliance pages, or contact us for a consultation. Agency roles apply only where Gradivus is specifically appointed.

This article is general information, not legal, tax or investment advice.