2023 (3) TMI 246 - SC - Insolvency and Bankruptcy

Approval of the Resolution Plan pertaining to its dissolution - dissenting debenture holders - power to mould relief and approve the RP - HELD THAT - A Bench of three Judges of this Court, in the case of SECURITIES AND EXCHANGE BOARD OF INDIA VERSUS RAJKUMAR NAGPAL ORS. 2022 (9) TMI 110 - SUPREME COURT , allowed the appeal, insofar as it held that the SEBI Circular would have retrospective application. However, this Court noted that the RCFL RP was extremely beneficial to debenture holders in as much that, for those with exposure upto Rs. 10 lakhs would receive 100% of their principal amount, whereas those with exposure of more than Rs. 10 lakhs would receive 29.96% of the principal amount, which is greater than the amount of recovery made by secured lenders, who would receive 24.96% of the principal amount. In the present case also, small investors, whose exposure is up to Rs. 5 lakhs, are benefiting to the extent of 100% of their principal amount. Even debenture holders whose exposure is more than Rs. 5 lakhs are receiving 23.24% of their principal amount, similar to the case of Rajkumar Nagpal. The facts in the present case are identical to the facts in the case of Rajkumar Nagpal. In the present case also, we find that a different voting mechanism proposed under the SEBI Circular will further delay the resolution process and potentially disrupt the efforts undertaken by the stakeholders, including the retail debenture holders. In the present case also, such unscrambling of the resolution process will not only prove time consuming but may also adversely affect the agreed realized gains to the retail debenture holders, who have already consented to the negotiated settlement before the High Court. We find that in the present case also, we should extend the benefit under Article 142 of the Constitution of India to the retail debenture holders. We are inclined to issue such directions to mould the relief in view of the particular facts and circumstances in the present case, which are similar to that in the case of Rajkumar Nagpal. In exercise of the powers under Article 142 of the Constitution of India, the RP preferred by AIIL qua the debenture holders allowed, except the dissenting debenture holders.

Issues Involved:
1. Approval of the Resolution Plan (RP) for Reliance Home Finance Limited (RHFL).
2. Application of SEBI Circular and its retrospective effect.
3. Voting mechanism for debenture holders.
4. Rights of dissenting debenture holders.

Issue-wise Detailed Analysis:

1. Approval of the Resolution Plan (RP) for Reliance Home Finance Limited (RHFL):
The appeals challenge the High Court's dismissal of an Interim Application seeking approval of the RP for RHFL under Section 151 of the Civil Procedure Code, 1908. The RP was proposed by Authum Investment and Infrastructure Limited (AIIL) and approved by 96% of the ICA lenders. The RP provided that 19,353 small debenture holders, with exposure up to Rs. 5 lakhs, would receive 100% of their principal dues. The Supreme Court, in exercise of its powers under Article 142 of the Constitution of India, allowed the RP, noting that it was beneficial to the small investors and similar to the RP approved for Reliance Commercial Finance Limited (RCFL) in a previous case (Rajkumar Nagpal).

2. Application of SEBI Circular and its retrospective effect:
The SEBI Circular dated 13th October 2020, titled 'Standardisation of procedure to be followed by Debenture Trustee(s) in case of 'Default' by Issuers of listed debt securities,' was a point of contention. The Circular mandates a specific voting mechanism for debenture holders. The Supreme Court had previously ruled in the Rajkumar Nagpal case that the SEBI Circular would have retrospective application. However, the Court also noted that applying the Circular retrospectively in the case of RCFL would lead to unjust outcomes for retail debenture holders. Similarly, in the present case, the Court found that applying the SEBI Circular retrospectively would delay the resolution process and adversely affect the gains realized by the retail debenture holders.

3. Voting mechanism for debenture holders:
The SEBI Circular prescribes that voting by debenture holders should achieve an approval of not less than 75% of investors by value and 60% by number at ISIN level. In the present case, 94.55% of the debenture holders who participated in the meeting voted in favor of the RP. However, the requirement of 60% approval at the ISIN level was not satisfied. The Supreme Court noted that the different voting mechanism proposed under the SEBI Circular would further delay the resolution process and potentially disrupt the efforts undertaken by the stakeholders. Therefore, the Court decided to extend the benefit under Article 142 to the retail debenture holders, similar to the Rajkumar Nagpal case.

4. Rights of dissenting debenture holders:
The Supreme Court acknowledged the concerns raised by the SEBI regarding the rights of dissenting debenture holders and those who abstained from voting. The Court directed that dissenting debenture holders should be provided an option to accept the terms of the RP or stand outside the proposed RP framed under the lender's ICA and pursue other legal remedies to recover their entitled dues. This direction aligns with the precedent set in the Rajkumar Nagpal case, ensuring that the rights of dissenting debenture holders are protected.

Conclusion:
The Supreme Court, exercising its powers under Article 142 of the Constitution of India, allowed the RP preferred by AIIL for RHFL, except for the dissenting debenture holders. The dissenting debenture holders were given an option to accept the RP terms or pursue other legal remedies. The Court directed AIIL to make the payments prior to 31st March 2023. The appeals were disposed of in these terms, and any pending applications were also disposed of.

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