Supreme Court notice on SEBI appeal against Bombay High Court

Supreme Court notice on SEBI appeal against Bombay High Court

The apex court will hear the case on May 4.

The Supreme Court has issued a notice in an appeal filed by the Securities and Exchange Board of India (SEBI) against a Bombay High Court decision.

The high court had permitted the shareholders of Reliance Commercial Finance Ltd (RCFL) to carry out a voting process based on a Debenture Trust Deeds signed by the shareholders in compliance with a Reserve Bank of India (RBI) circular.

A bench headed by Justice DY Chandrachud directed that the results of the voting should be produced before the top court in a sealed cover.

Earlier, the division bench of the Bombay High Court had ruled to protect the interest of the retail debenture holders while voting for the takeover of RCFL by Authum Investments & Infrastructure.

The court had stated, "We do not see how the interest of the retail investors is not protected should the voting be carried out in terms of the DTDs. Under this procedure, the decision-making power still vests with each individual debenture holder. Every debenture holder will have the right to vote and the faith of the vote shall be decided by a majority of 75 percent after taking into consideration the votes cast by the debenture holders. This mechanism is fair, just, equitable and in keeping with the interest of all stakeholders."

However, it stayed its judgment till 28 March so that SEBI could appeal to the Supreme Court.

The case pertained to the applicability of the two circulars issued by the lenders - RBI and SEBI. While the RBI circular provided that voting by the lenders had to be 75 percent in value and 60 percent of the total number of lenders, SEBI stipulated that participation of all debenture holders was required.

The stakeholders to RCFL had approved the resolution plan of Authum in July 2021. RCFL owed over Rs.9,000 crores to its creditors. Accepting the resolution plan of Authum, which offered Rs.1,240 crores, meant an 86 percent write-off for the creditors.

Following the approval of the Resolution Plan (RP), SEBI sought an order from the high court to restrain RCFL and the lead bank amongst the consortium of creditors from acting upon or creating third party rights in respect of the security under the DTDs.

The Supreme Court pointed out, "This would lead to an incongruous situation wherein even if one single investor either votes against or worse, abstains from voting, the entire resolution plan would fail. In such a situation, it would be the retail debenture holders who would suffer the most. Therefore, according to the respondent, SEBI, whose role is to protect the interest of the small investors, would in fact be defeating their rights by submitting that the meeting of debenture holders should be held as per their circular."

A single judge of the high court had ruled that the voting could take place as per the DTDs executed. SEBI had, therefore, appealed before the top court.