Summary
Reliance Commercial Finance defaulted on its debentures in 2019. Its lenders formed an inter-creditor agreement under RBI's 2019 Prudential Framework and in 2021 approved a resolution plan. The Bombay High Court, on a negotiated settlement in a debenture holders' suit, had debenture holders vote under the trust deeds instead of the ISIN-level voting required by SEBI's circular of 13 October 2020, holding that circular inapplicable to earlier defaults. On SEBI's appeal, the Supreme Court held that the civil court had jurisdiction. Debenture holders who join a lenders' resolution plan must do so through the ICA under SEBI's procedure, which binds dissenters and applies retroactively. Under Article 142 it let the plan stand, giving dissenting debenture holders the option to accept it or pursue other remedies.
Issues
- Whether the civil court's jurisdiction was barred by Section 15Y of the SEBI Act, 1992 or Section 430 of the Companies Act, 2013
- Whether debenture holders may accept a lenders' resolution plan without following the ICA and ISIN-level voting procedure of the SEBI Circular dated 13 October 2020
- Whether the SEBI Circular applies to an issuer whose default and trust deeds predate it, and how dissenting debenture holders are to be treated
Provisions considered
- Section 15Y, Securities and Exchange Board of India Act, 1992The bar covers only matters an adjudicating officer may decide. It does not reach a suit challenging the RBI Circular. (¶¶ 65, 67)
- Sections 230 and 430, Companies Act, 2013Section 430 did not bar the suit because the NCLT cannot decide a challenge to the RBI Circular. Section 230 remains an alternative route that binds dissenting creditors. (¶¶ 34, 66, 95)
- Regulation 15(7), SEBI (Debenture Trustees) Regulations, 1993Read with the SEBI Circular, it governs how debenture trustees may enter a lenders' ICA. Clause 59 of the trust deeds made conflicting deed clauses give way. (¶¶ 44, 45, 76, 85, 86)
- Article 142, Constitution of IndiaIt was used to let a resolution plan already agreed under the RBI framework stand, protecting retail debenture holders. (¶¶ 90, 93, 94)
Held
- The civil court had jurisdiction. Section 15Y of the SEBI Act and Section 430 of the Companies Act bar suits only on matters the adjudicating officer or the NCLT may decide, and neither can decide a challenge to the RBI Circular. (¶¶ 65, 66, 67)
- Debenture holders need not take the ICA route, but if they choose to join a resolution plan with the lenders they must enter through the ICA under the SEBI Circular. The ICA and the resolution plan are inseparable, and the procedure cannot be bypassed by consenting after the plan is formulated. (¶¶ 68, 72, 73, 74, 76)
- The SEBI Circular's special majority of 75% by value and 60% by number at the ISIN level binds dissenting debenture holders, as Section 230 and the RBI framework bind dissenters. The concern that one ISIN holder could block a plan does not make the circular inapplicable and is a matter for SEBI. (¶¶ 56, 77, 78, 79)
- The SEBI Circular applies retroactively to defaults before 13 October 2020, because no compromise or vested right to a particular resolution existed when it came into force. Under Clause 59 of the trust deeds, the voting clauses in their Fifth Schedule give way to it. (¶¶ 83, 84, 85, 86)
- To avoid unscrambling a plan validly agreed under the RBI framework, which repaid small investors in full, the Court allowed the plan under Article 142. Dissenting debenture holders are not bound by the trust-deed-level compromise and may accept the plan's terms or stand outside it and pursue other remedies. (¶¶ 88, 93, 94, 97, 98)
Result
Appeal partly allowed; SEBI's interpretation was accepted and the Division Bench's reading of the SEBI Circular disapproved, but under Article 142 the resolution plan was allowed to proceed, with dissenting debenture holders free to accept it or pursue other remedies.