Full Judgment Text
NON-REPORTABLE
IN THE SUPREME COURT OF INDIA
CIVIL APPELLATE JURISDICTION
CIVIL APPEAL NO. OF 2023
(Arising out of SLP(C) No. 411 of 2023)
AUTHUM INVESTMENT AND
INFRASTRUCTURE LIMITED ...APPELLANT(S)
VERSUS
R.K. MOHATTA FAMILY TRUST
AND OTHERS ...RESPONDENT(S)
WITH
CIVIL APPEAL NO. OF 2023
(Arising out of SLP(C) No. 1078 of 2023)
J U D G M E N T
B.R. GAVAI, J.
1. Leave granted.
2. These appeals challenge the order of the High Court
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of Judicature at Bombay, dated 16 December 2022, vide
which the High Court dismissed the Interim Application (L)
No. 33514 of 2022 in Commercial Suit (L) No. 162 of 2022
filed by Reliance Home Finance Limited (hereinafter referred
Signature Not Verified
Digitally signed by
Narendra Prasad
Date: 2023.03.03
12:45:10 IST
Reason:
to as ‘RHFL’), respondent No. 2 herein, under Section 151 of
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the Civil Procedure Code, 1908 (for short, “CPC”), seeking
approval of the Resolution Plan (for short, “RP”) pertaining to
its dissolution, in light of the judgment of this Court in the
case of Securities and Exchange Board of India v.
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Rajkumar Nagpal and Others . The appeal arising out of
SLP(C) No. 1078 of 2023 is filed by RHFL and appeal arising
out of SLP(C) No. 411 of 2023 is filed by Authum Investment
and Infrastructure Limited (hereinafter referred to as “AIIL”),
a non-banking financial corporation, which had originally
proposed the RP for RHFL.
3. The facts herein are taken from the appeal arising
out of SLP(C) No. 411 of 2023 filed by AIIL, which, in brief,
are as follows:
3.1 RHFL executed a number of Debenture Trust Deeds,
of which nine were executed with the IDBI Trusteeship
Services Limited, respondent No. 3 herein, for issuance of
debentures on a private placement basis, having face value of
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Rs. 5 lakhs. These debentures were issued on 30 August
2018. It is pertinent to note that RHFL had, previously, taken
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upon itself substantial debt through loans from several
banks and financial institutions.
3.2 In May 2019, RHFL defaulted on its loan obligations
to various lenders. The outstanding debt was quantified to
around Rs. 11,540 crore. It is important to note that its
sister concern, Reliance Commercial Finance Limited
(hereinafter referred to as ‘RCFL’), had previously defaulted
on its loan obligations in March 2019.
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3.3 On 6 July 2019, a consortium of lenders led by the
lead bank, i.e., Bank of Baroda, respondent No. 4 herein,
entered into an Inter-Creditor Agreement (hereinafter referred
to as ‘ICA’) in terms of clause 10 of the Reserve Bank of India
(Prudential Framework for Resolution of Stressed Assets)
Directions, 2019 (hereinafter referred to as ‘RBI Circular’).
As per clause 10 of the RBI Circular, the lenders may enter
into an ICA for implementation of a RP.
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3.4 On 26 August 2019, RHFL committed default in
relation to the Debenture Trust Deeds issued as well.
3.5 In January 2020, IDBI Trusteeship Services Ltd.,
respondent No. 3 herein, filed a company petition bearing No.
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138 of 2020 before National Company Law Tribunal, Mumbai
(NCLT) under Section 71 (10) of the Companies Act, 2013
against RHFL and its holding company Reliance Capital Ltd.,
to make payment of Rs. 2,850 crore with interest due and
payable to the debenture holders of RHFL, which includes
the appellant herein.
3.6 During the pendency of the aforesaid petition, a RP
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for RHFL was submitted by AIIL on 19 June 2021, which,
thereafter, was approved by the consortium of lenders who
had entered into an ICA. Pertinently, 96% of the ICA lenders
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approved the RP. On 21 June 2021, a press note to that
effect was published. On the same date, the NCLT, in the
aforementioned company petition, directed RHFL to repay the
debt owed to the debenture holders within five months. An
appeal being Company Appeal (AT) No. 73 of 2021 against
this order is pending before the National Company Law
Appellate Tribunal, New Delhi (NCLAT).
3.7 It is pertinent to note that the RHFL RP, as
submitted by AIIL and approved by the ICA lenders, provided
that 19,353 small debenture holders, comprising of
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individuals and HUFs having an exposure up to Rs. 5 lakhs,
would get 100% of their principal dues under the RP.
3.8 Since the RBI Circular only regulated the debts owed
to Banks/Financial Institutions, the consent of the
debenture holders had to be taken as per a SEBI Circular
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dated 13 October, 2020, titled ‘Standardisation of procedure
to be followed by Debenture Trustee(s) in case of ‘Default’ by
Issuers of listed debt securities’.
3.9 The SEBI Circular prescribes that the voting by the
debenture holders, before entering into an ICA, shall mean
an approval of not less than 75% of investors by value and
60% by number at ISIN level. An ISIN is a 12-digit
alphanumeric code that uniquely identifies a specific
security. The numbers are allocated by a country’s respective
national numbering agency, which, in India, is the NSDL.
3.10 In pursuance of the requirement prescribed by the
SEBI Circular, a commercial suit bearing No. 162 of 2022
was originally filed by R.K. Mohatta Family Trust, respondent
No.1 herein and one of the debenture holders of RHFL, before
the High Court of Bombay in 2021, seeking voting by the
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debenture holders on the RP. The High Court, vide its order
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dated 31 March 2022, directed for a meeting of the
debenture holders to be convened to allow the debenture
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holders to vote on the RP. Vide another order dated 12 May
2022, the High Court further directed that the results of the
voting would be placed in a sealed envelope before the High
Court.
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3.11 The voting on the RHFL RP took place on 13 May
2022, and the results thereof were submitted before the High
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Court on 10 August 2022.
3.12
Thereafter, an Interim Application being IA No. 3928
of 2022 in Commercial Suit (L) No. 27568 of 2021 was filed
by RHFL seeking disclosure of the voting result, which was
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allowed by the High Court vide order dated 28 September
2022, in order to assist the Court as to whether the requisite
majority, as prescribed by the SEBI Circular, had been
achieved or not.
3.13 A perusal of the result would reveal that 869 of the
919 debenture holders who had participated in the meeting
voted in favour of the RP, i.e., 94.55%.
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3.14 While the above proceedings in relation to RHFL
continued, a RP for the sister concern RCFL was also
submitted by AIIL, which too was approved by the
consortium of lenders who had entered into an ICA. The two
RPs are substantially similar in so far that the debenture
holders of both entities, up to a certain exposure threshold,
would get 100% of their principal dues.
3.15 For RCFL too, the High Court, in separate
proceedings, had ordered for a meeting of debenture holders
to be convened. SEBI, respondent No. 5 herein, filed an
appeal before the Division Bench of the High Court against
convening of the meeting on the ground that voting
procedure was not as per the SEBI Circular but as per the
process provided under the Debenture Trust Deeds entered
into by the parties therein. The appeal was dismissed, with
the Division Bench noting that the SEBI Circular could not
be applied retrospectively and that the voting process would
be governed by the Debenture Trust Deed. Aggrieved thereby,
SEBI preferred an appeal before this Court.
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3.16 A Bench of three Judges of this Court, in the case of
Rajkumar Nagpal (supra), 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.
3.17
This Court, therefore, in exercise of its power under
Article 142 of the Constitution of India, approved the RCFL
RP with the caveat that the dissenting debenture holders
would be provided an option to either accept the plan or
stand outside the plan and pursue other legal means to
recover their entitled dues.
3.18 In light of the decision in the case of Rajkumar
Nagpal (supra), RHFL filed an Interim Application being
Interim Application (L) No. 33514 of 2022 in Commercial Suit
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No. 162 of 2022, under Section 151 of the CPC, seeking
approval of the RP pertaining to it on the same terms as
ordered by this Court in respect of RCFL in Rajkumar
Nagpal (supra), for the two cases were nearly identical and
any unscrambling of the RHFL RP would prove time
consuming and inimical to the interests of the debenture
holders.
3.19 The High Court, vide the impugned order, dismissed
the Interim Application, holding that the power to mould
relief and approve the RP, as had been done by this Court
under Article 142 of the Constitution of India in the case of
Rajkumar Nagpal (supra) could not be done by the High
Court in exercise of its inherent powers under Section 151 of
the CPC. Hence, these appeals.
4. We have heard Shri K.K. Venugopal and Shri Dhruv
Mehta, learned Senior Counsel appearing on behalf of both
the appellants, Shri K.V. Viswanathan, learned Senior
Counsel appearing on behalf of Bank of Baroda and Canara
Bank, and Shri Venkatraman, learned Additional Solicitor
General (ASG) appearing on behalf of SEBI.
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5. Shri Venugopal and Shri Mehta submitted that the
High Court itself has observed that this Court had found that
the RP in the case of RCFL was beneficial to the debenture
holders upto the exposure threshold of Rs. 10 lakhs. It is
submitted that if the RP in the case of RHFL, which is a
sister concern of RCFL, is accepted, 19,353 debenture
holders out of 20,843 debenture holders, having an exposure
of upto Rs.5 lakhs, would receive 100% of the principal
amount. It is submitted that, even as per Bank of Baroda,
which is the lead bank in the ICA, the total percentage of ICA
lenders who have accepted the RP is 96%. It is further
submitted that if the RP is not accepted, RHFL would be
driven into liquidation. In such a situation, 19,353
debenture holders, who are getting 100% of the principal
amount under the RP, would not, in any case, get that
amount. In such a situation, it is difficult to ascertain as to
when and to what extent, the secured and unsecured
creditors would recover their portion of the amounts
indicated in the RP.
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6. Shri Viswanathan has also submitted that they have
no objection if the RP is accepted, provided that the amount
should be paid prior to the end of the Financial Year 2022-
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23, i.e., 31 March 2023.
7. Shri Venkatraman, on the contrary, submitted that
there are three types of debenture holders. The first are
those who have accepted the RP, the second are the ones
who have dissented against the RP, and the third are the
ones who have abstained from voting on the RP or were
present but had not voted. He submitted that the option of
opting out of RP, which has been given by this Court in the
Rajkumar Nagpal
case of (supra), should be given to both
the dissenting as well as the debenture holders who have
abstained or were present but not voted, i.e., types 2 and 3 of
debenture holders. The learned ASG submitted that the
claims of many of the debenture holders are pending before
the NCLAT. In the event that the RP is accepted, it will
prejudicially affect the rights of such debenture holders. He
submitted that the SEBI Circular, particularly in paragraphs
6.2 and 6.6 thereof, specifically requires that there has to be
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a negative consent or positive consent. He further submitted
that as per the said SEBI Circular, the consent of majority of
investors would mean an approval of not less than 75% of
investors by value of outstanding debt and 60% of investors
by number at ISIN level. He submitted that the condition
with regard to approval of 60% of investors by ISIN level is
not satisfied in the present case. He submitted that,
undisputedly, this requirement is not satisfied and as such,
if the RP is to be accepted, the option should be given to type
2 and 3 debenture holders to either accept the RP or for a
right to stand outside and pursue other legal means to
recover their entitled dues.
8. In this respect, we may gainfully refer to paragraphs
108 and 109 of the judgment in the case of Rajkumar
Nagpal (supra), which read thus:
“ 108. The above table highlights that small
investors, especially those whose exposure is up
to INR 10 lakhs, are benefiting to the extent of
100% of their principal amount. Even debenture
holders whose exposure is more than 10 lakhs
are receiving 29.96% of their principal amount. In
comparison, the secured ICA lenders would
receive 24.96% of their principal amount, which
is lower than the recovery made by the debenture
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holders. 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 Circular, 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.
109. The 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. 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.”
9. 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 (supra).
10. We find that the facts in the present case are
Rajkumar Nagpal
identical to the facts in the case of
(supra). In the present case also, we find that a different
voting mechanism proposed under the SEBI Circular will
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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 (supra). In
any case, we also propose to protect the rights of the
dissenting debenture holders who stand outside the
proposed RP framed under the lender’s ICA and seek to
pursue other legal remedies.
11. We, therefore, in exercise of the powers under Article
142 of the Constitution of India, allow the RP preferred by
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AIIL qua the debenture holders, except the dissenting
debenture holders.
12. On the same lines as in the case of Rajkumar
Nagpal (supra), we direct that the dissenting debenture
holders should be provided an option to accept the terms of
the RP. Alternatively, the dissenting debenture holders will
have a right to stand outside the proposed RP framed under
the lender’s ICA and pursue other legal remedies to recover
their entitled dues.
13. In the result, the appeals stand disposed of in the
above terms. Pending application(s), if any, shall stand
disposed of.
14. The AIIL is directed to make the payments prior to
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31 March 2023.
…..….......................J.
[B.R. GAVAI]
…….........................J.
[ARAVIND KUMAR]
NEW DELHI;
MARCH 03, 2023.
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