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SUPREME COURT OF INDIA
DHANANJAYA Y. CHANDRACHUD, SURYA KANT, A.S. BOPANNA, JJ.
Securities and Exchange Board Of India – Appellant
Versus
Rajkumar Nagpal & Ors. – Respondents
Civil Appeal No. 5247 of 2022
Decided On : 30-08-2022
| Table of Content |
|---|
| 1. timeline of debt and legal actions (Para 1 , 2 , 3) |
| 2. high court proceedings for debenture holders' rights (Para 4 , 5 , 6) |
| 3. arguments for sebi circular applicability (Para 16 , 17 , 18) |
| 4. counterarguments against sebi circular applicability (Para 19 , 20) |
| 5. jurisdiction and implications of sebi circular (Para 63 , 64 , 68) |
| 6. interdependence of ica and resolution plan (Para 70 , 72 , 73) |
| 7. final ruling and implications for dissenters (Para 96 , 98 , 99) |
JUDGMENT
D.Y. Chandrachud, J.
Table of Contents
| A. Facts | |
| i. The dispute | |
| ii. The suit before the Bombay High Court | |
| iii. The impugned judgment | |
| B. Issues | |
| C. Submissions | |
| D. Overview of contractual arrangements | |
| i. The Debenture Trust Deeds | |
| ii. Steps taken by the Debenture/Trustee (Vistra) | |
| E. Evolution of the law surrounding the resolution of debts | |
| i. The framework for the resolution of debt under the COMPANIES ACT 1956 | |
| ii. The RBI Circular dated 6 July 2019 and the legal framework thereafter | |
| iii. SEBI (Debenture Trustees) Regulations 1993 | |
| iv. The SEBI Circular dated 13 October 2020 and the legal framework thereafter | |
| a. The SEBI Circular: Overview and Implications | |
| b. Voting at the ISIN level | |
| c. The SEBI Circular has a statutory character | |
| F. Analysis | |
| a. The SEBI Circular: Overview and Implications | |
| b. Voting at the ISIN level | |
| c. The SEBI Circular has a statutory character | |
| iv. The SEBI Circular has retroactive application | |
| v. Exercise of this Court’s power under Article 142 of the Constitution | |
| vi. Dissenting debenture holders in the present case | |
A. Facts
i. The dispute
1. Reliance Commercial Finance Limited, “RCFL”, issued Non-Convertible Debentures to various persons, “debenture holders”. Vistra ITCL (India) Limited was the Debenture Trustee, “Vistra”, under three Debenture Trust Deeds dated 3 May 2017, 23 May 2017 and 5 February 2018, “Debenture Trust Deeds” or “Debenture Trust Deed”. RCFL committed its first default under the Debenture Trust Deeds in March 2019.
2. On 7 June 2019, RBI issued the Reserve Bank of India (Prudential Framework for the Resolution of Stressed Assets), “RBI Circular”, Directions 2019, with “a view to providing a framework for early recognition, reporting and time bound resolution of stressed assets”, Clause 4, RBI Circular. The RBI Circular provided that certain lenders may opt for a resolution strategy available to them under the existing legal framework, including entering into a resolution plan, “Resolution Plan”, or initiating legal proceedings for recovery or insolvency. If the lenders chose to implement a Resolution Plan, they were required to enter into an inter-creditor agreement, “ICA”. Bank of Baroda and other lenders of RCFL entered into an ICA on 6 July 2019, pursuant to the RBI Circular. Bank of Baroda was later appointed as the lead bank under the ICA.
3. The RBI Circular applied to banks and specified categories of lenders. Other investors were outside its purview. SEBI issued a circular on 13 October 2020. The subject was the ‘Standardisation of procedure to be followed by Debenture Trustee(s) in case of ‘default’ by issuers of listed debt securities’, “SEBI Circular”. On 11 March 2021, RCFL and Vistra amended the Debenture Trust Deeds by executing a Supplementary Debenture Trust Deed which took note of the SEBI circular. On 15 July 2021, the Resolution Plan submitted by Authum Investment and Infrastructure Limited, “Authum”, was approved by RCFL’s lenders.
ii. The suit before the Bombay High Court
4. Seventeen debenture holders instituted a suit on the Original Side of the Bombay High Court on 1 July 2021. The debenture holders instituted the suit for the protection of their interests with respect to
The court emphasized that a corporate debtor's restructuring proposal must receive proper written approval from all debenture holders as stipulated in the Debenture Trust Deed, failing which the init....
The commercial wisdom of the Committee of Creditors prevails in approving resolution plans, and dissenting creditors cannot claim preferential treatment beyond statutory provisions.
Requirement of “not less than seventy five percent of voting share of the financial creditors” is mandatory.NCLT and NCLAT not empowered to enquire into wisdom of dissenting creditors in voting again....
The Adjudicating Authority's judicial review of a resolution plan is circumscribed by Section 30(2) of the Code. Once the Committee of Creditors has exercised its commercial wisdom to approve a plan ....
A secured creditor cannot claim preference over another secured creditor at stage of distribution on the ground of a dissent or assent, otherwise distribution would be arbitrary and discriminative.
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