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The Supreme Court has upheld the voting on debentures of Reliance Commercial Finance Ltd (RCFL) and paved way for the resolution of over ₹9,000-crore loan default by the company.
Last July, lenders to Anil Ambani-led RCFL, subsidiary of Reliance Capital, had approved the Authum Infrastructure and Investment bid of ₹1,629 crore under the Reserve Bank of India (Prudential Framework for Resolution of Stressed Assets) Directions, 2019. Debenture holders also voted in favour of the resolution plan, which provided 100 per cent recovery to retail debenture holders.
SEBI’s contention
However, SEBI moved the Bombay High Court against the voting outcome as it was governed by the Debenture Trust Deed that mandates approval from 75 per cent of debt-holders. On the contrary, SEBI norms mandate voting at ISIN (International Securities Identification Number) level, which needs 100 per cent approval.
The Bombay High Court upheld the debenture voting result which was conducted as per RBI regulation, but stayed implementation of the resolution plan as SEBI moved the Supreme Court.
On Thursday, the Supreme Court bench led by Justice Dhananjaya Y Chandrachud ruled that application of the SEBI norms will lead to a scenario where a Resolution Plan, validly agreed upon by the ICA (inter-creditor agreement) lenders under the RBI Framework, will have to be unscrambled.
SC raises concerns
Such unscrambling of the resolution process will not only prove time-consuming, but may also adversely affect the agreed realised gains to the retail debenture holders, who have already consented to the negotiated settlement before the High Court.
“For this reason, it is necessary to extend the benefit under Article 142 to the retail debenture holders by allowing the Resolution Plan to pass muster,” he said in the 65-page judgement.
The different voting mechanism proposed under the SEBI norms will further delay the resolution process and potentially disrupt the efforts undertaken by the stakeholders, including the retail debenture holders.
The compromise presently arrived at, which is in the interests of all the parties, will be disturbed if a new process is directed to be commenced in accordance with the SEBI Circular at the present stage, he added.
Not binding on dissenters
However, the judgement said it agrees with SEBI’s submission that the compromise arrived at the Debenture Trust Deed level among the consenting debenture holders should not bind the dissenting debenture holders.
The apex court said the dissenting debenture holders should be provided an option to accept the terms of the Resolution Plan or alternatively they have the right to stand outside the proposed Resolution Plan framed under the lenders’ ICA and pursue other legal means to recover their entitled dues, he added.
It is also important to highlight that none of the debenture holders have raised any grievance with regard to the proposed compromise. In such a situation, application of the SEBI norms, though right in law, may lead to unjust outcomes for the retail debenture holders if this court were to reverse the entire course of action which has occurred in the present case, said.
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