Notice Issued by Supreme Court on SEBI Appeal


Supreme Court issued a notice appeal on Monday issued filed by the Securities and Exchange Board of India (SEBI) against a Bombay High Court decision which 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.

Justice DY Chandrachud headed a bench on April 11 and directed that the results of the voting shall be produced before the top court in a sealed cover and gives the next date of hearing on May 4, 2022.

A division bench of the Bombay High Court in its judgment held on March 21, protected the interest of the retail debenture holders while voting for the takeover of RCFL by /Authum Investments & Infrastructure.

In its Judgement, the HC held that “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 75% 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,” 

The dispute in the present case arose out of the applicability of the two circulars issued by RBI and the Securities Exchange Board of India (SEBI). RBI said in its circular that voting by the lenders has to be 75% in value and 60% of the total number of lenders. On the other hand, the circular by SEBI stipulated that all the debenture holders are required to participate.

Following approval of the Resolution Plan, 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 contentions raised pointing out the consequences of the application of the SEBI circular was that a single investor, not voting could result in failure of the resolution plan.

“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 Respondents, SEBI, whose role is to protect the interest of small investors, would in fact be defeating their rights by submitting that the meeting of debenture holders should be held as per their circular,” the Court observed.

A single judge of the High Court had ruled that the voting could take place as per the DTDs executed. SEBI then appealed to the division bench which upheld the single-judge decision, leading to the present appeal before the top court.

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