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2022 (3) TMI 1113 - HC - SEBISEBI Circular applicability - whether or not SEBI would qualify as Any person aggrieved ? - Retrospective applicability of circular - Standardisation of procedure to be followed by Debenture Trustee(s) in case of Default by Issuers of listed debt securities - Plaint came to be amended now seeking an injunction restraining RCFL and BoB from acting upon, implementing or taking any steps for diluting, extinguishing or creating third party rights in respect of the security provided under the DTD - HELD THAT - In our view, if SEBI has a statutory right to file an Appeal, such right cannot be divested by virtue of certain remarks passed by the Ld. Single Judge in the Impugned Orders to the effect that the order would not constitute a precedent against SEBI. There is no mention whatsoever in the SEBI Circular suggesting its retrospective applicability, we are unable to rule that the SEBI Circular would also apply to defaults committed prior to 13th October, 2020. As a consequence, it follows that the SEBI Circular cannot be applied retrospectively to the present case in view of the admitted fact that RCFL committed defaults prior to 13th October, 2020 and the ICA was executed on 6th July, 2019 which are dates prior to the coming into force of the SEBI Circular and prior to the Supplementary DTD incorporating reference to the SEBI Circular. Having held that the SEBI Circular cannot be applied retrospectively on settled principles of statutory interpretation, we are unable to appreciate SEBI s submission that the SEBI Circular being beneficial in nature ought to be applied nonetheless. We cannot also accept the submission that it must also apply in view of the fact that the SEBI Circular does not take away or impair the voting rights of debenture holders. We are therefore unable to apply the SEBI Circular to the defaults and DTDs which admittedly predate the SEBI Circular. We are also guided by the overall structure of the SEBI Circular. Chapter A thereof provides for an Event of Default, Chapter B provides for seeking consent of investors for (i) enforcement of security; and (ii) signing an Inter-Creditor Agreement and lastly; Chapter C provides for the conditions for signing of the Inter-Creditor Agreement by Debenture Trustee(s) on behalf of investors. The structure itself puts in place a chronological mechanism starting with the event of default and consequences thereafter. We fail to understand how this structure can be applied in a piecemeal manner to prior defaults and Inter-Creditor Agreements entered into post such defaults and prior to the SEBI Circular having come into force or even prior to the Supplementary DTD being executed. We cannot accept SEBI s submission that the most recent of its resolutions / circulars must govern meetings irrespective of the original contract between the parties. SEBI argues that the SEBI Circular is incorporated into the DTDs by virtue of the Supplementary Debenture Trust Deed(s) executed on 11th March, 2021. In order to deal with this submission, we note that the DTDs were executed on 3rd May, 2017, 23rd May, 2017 and February 5, 2018. As stated hereinabove, defaults were committed prior to, 13th October, 2020 and the ICA was executed on, 6th July, 2019. We have already held that the SEBI Circular cannot be applied to defaults committed prior to 13th October, 2020. This being so, the subsequent incorporation of the SEBI Circular to the DTDs by virtue of the Supplementary Debenture Trust Deed(s) executed on 11th March, 2021 could only logically apply the SEBI Circular to defaults occurring post such incorporation or at best, to defaults post 13th October, 2020. We are informed that in so far as the Debenture Trust Deed dated May 23, 2017 is concerned, YBL has no voting share. Therefore, unless the 32 Debenture Holders under the Debenture Trust Deed dated May 23, 2017, approve the settlement / compromise, the settlement / compromise cannot go through. This is irrespective and independent of YBL, considering that YBL does not have any voting rights under this Debenture Trust Deed dated May 23, 2017. In so far as the Debenture Trust Deed dated May 3, 2017 is concerned, YBL holds 68% of the Debentures in value. The majority required to approve the Resolution Plan under the DTDs is 75%. Therefore, YBL would still require an additional 7% positive vote for approval of the Resolution Plan. Therefore, we do not see how YBL can in fact single handedly determine the faith of the vote. We do not see how the interest of retail investors is not protected should 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 3/4th after taking into consideration the votes cast by the Debenture Holders. This mechanism, is in our opinion, fair, just, equitable and in keeping with the interest of all stakeholders.
Issues Involved:
1. Maintainability of SEBI’s Appeal. 2. Applicability of SEBI Circular. 3. Retrospective application of SEBI Circular. 4. Voting mechanism for Debenture Holders. 5. Protection of retail investors' interests. Detailed Analysis: 1. Maintainability of SEBI’s Appeal: The court considered whether SEBI had the locus to file the appeal. SEBI was not a party to the original suit but was a respondent to the interim application. SEBI participated extensively before the single judge and was impleaded in the interim application. The court concluded that SEBI had the right to approach the Commercial Appellate Division under Section 13 of the Commercial Courts Act, 2015. The decision in IKISAN Limited (2015) SCC OnLine Bom 6358 was distinguished based on different facts and circumstances. 2. Applicability of SEBI Circular: The SEBI Circular dated October 13, 2020, prescribes the process to be followed by Debenture Trustees in case of default by issuers of listed debt securities, including seeking consent for enforcement of security and/or entering into an Inter-Creditor Agreement (ICA). The court noted that the SEBI Circular came into force with immediate effect from October 13, 2020, and prescribes the process for defaults occurring after this date. The court held that the SEBI Circular is not applicable to defaults committed prior to its coming into force. 3. Retrospective Application of SEBI Circular: The court emphasized that legislation is presumed to be prospective unless expressly stated otherwise. The SEBI Circular does not contain any provision suggesting its retrospective applicability. The court cited Supreme Court decisions, including ITO vs. M.C. Ponnoose (1969) 2 SCC 351 and M.D. University vs. Jahan Singh (2007) 5 SCC 77, to support the principle that delegated legislation cannot operate retrospectively unless explicitly stated. Therefore, the SEBI Circular cannot apply to defaults that occurred before October 13, 2020. 4. Voting Mechanism for Debenture Holders: The court analyzed the voting mechanism prescribed in the SEBI Circular, which requires a 75% majority by value and 60% by number at the ISIN level. However, the court found that the SEBI Circular applies specifically to the enforcement of security and entering into an ICA, and not to the approval of a resolution plan. Since the ICA was already executed on July 6, 2019, before the SEBI Circular came into force, the circular's voting mechanism was deemed inapplicable. The court upheld the voting mechanism as per the Debenture Trust Deeds (DTDs), which required a 3/4th majority. 5. Protection of Retail Investors' Interests: The court noted that the resolution plan provided 100% recovery for retail Debenture Holders with an exposure of up to ?10,00,000, while larger holders and secured lenders were receiving significantly less. The court found that insisting on ISIN-wise voting could potentially harm retail investors, as a single investor could veto the resolution plan, leading to its failure. The court concluded that the voting mechanism under the DTDs was fair, just, and equitable, protecting the interests of all stakeholders, including retail investors. Conclusion: The appeal was dismissed, and the court upheld the single judge's order, emphasizing the prospective application of the SEBI Circular and the appropriateness of the voting mechanism under the DTDs. The court ensured that the interests of retail investors were adequately protected.
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