Security Trustee is normally appointed when Lenders / Financers are extending the finance to Borrower on Multiple Arrangement basis or on syndication basis. Normally in such arrangement, the Terms and Conditions of sanction of each individual Bank / Institution may differ except common security. Therefore, Security Trustee is appointed, whose role is to create and hold the security on behalf of all the lenders till the time, the loan is settled. It may be stated that Security Trustee cannot precipitate any action on its own unless it is specifically instructed by all lenders or by Facility Agent as per arrangement.
Pursuant to the execution of the Security Trustee Agreement (STA), the Borrower, Lenders (who are NBFCs, Banks & Financial Institutions), and the Security Trustee, come into a contractual arrangement amongst themselves which is legal, valid, binding, and enforceable. The Security Trustee holds a charge on Borrower’s assets including interest in underlying security on behalf of the multiple lenders. Thus under the arrangement, Hypothecation/Mortgage and any other charge on other securities is created by the Borrower in favor of a single entity called “Security Trustee” for the benefit of lenders. In other words, lenders are represented through Security Trustee as their sole representative.