TMI Blog2022 (3) TMI 1113X X X X Extracts X X X X X X X X Extracts X X X X ..... ders 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 preda ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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. - COMMERCIAL APPEAL (L) NO. 27370 OF 2021 IN INTERIM APPLICATION (L) NO. 14224 OF 2021 IN COMMERCIAL SUIT (L) NO. 14223 OF 2021 WITH INTERIM APPLICATION (L) NO. 855 OF 2022 AND INTERIM APPLICATION (L) NO. 27373 OF 2021 - - - Dated:- 21-3-2022 - S.J. KATHAWALLA AND MILIND N. JADHAV, JJ. Mr. Arvind Datar, Senior Advocate alongwith Mr. Mustafa Doctor, Mr. Suraj Choudhary, Mr. Mihir Mody, Mr. Dhaval Patil and Mr. Arnav Misra instructed by K. As ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... vember, 2019, Vistra wrote to SEBI informing them about the steps taken by it as Debenture Trustee and sought guidance in respect of the ICA and mechanism thereunder. 2.8 On 13th October, 2020, SEBI issued a Circular in relation to Standardisation of procedure to be followed by Debenture Trustee(s) in case of Default by Issuers of listed debt securities ( SEBI Circular ). 2.9 On 11th March, 2021, a Supplementary Debenture Trust Deed was entered into between RCFL and Vistra amending the DTDs ( Supplementary DTD ). 2.10 On 1st July, 2021, the Plaintiffs, being 17 Debenture Holders, filed a Suit before this Court seeking an injunction restraining RCFL, BoB and RBI from implementing the RBI Circular. 2.11 On 15th July, 2021, the Resolution Plan submitted by Authum Investment and Infrastructure Limited / the Intervenor ( Authum ) came to be approved by RCFL s lenders with a majority of over 75% in value and 60% in number ( Resolution Plan ). 2.12 Following approval of the Resolution Plan, the 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 part ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... gust, 2021. 2.16 On 20th August, 2021, the Ld. Single Judge passed the following order : 1. Mr Ankhad appears pursuant to the previous orders on behalf of the 3rd Respondent Vistra (ITCL) India Limited ( Vistra ). Vistra is the Debenture Trustee for a number of Debenture Holders under different Debenture Trust Deeds. The Plaintiffs are among the Debenture Holders under a Debenture Trust Deed and of which Vistra is a Debenture Trustee. 2. The lenders have an Inter Creditor Arrangement ( ICA ). This is what is broadly challenged by the Plaintiffs in the Suit. They say that their rights as Debenture Holders (and specifically their rights as Debenture Holders of high value n on-convertible debentures) will be compromised by the terms of this ICA. 3. Prima facie, it is clear that a meeting or possibly meetings of Debenture Holders are required. The question presently that Vistra faces relates to the terms on which such a meeting is to be called. Mr Ankhad explains that one option is to proceed according to the ISIN series. The second is to proceed according to the Debenture Trust Deeds. There are three different Debenture Trust Deeds. The first option does not commend ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 17th September, 2021, the Ld. Single Judge granted leave to the Plaintiffs to join SEBI as a Respondent to their Interim Application and continued the ad-interim protection. 2.20 SEBI entered appearance before the Ld. Single Judge on 24th September, 2021 and sought for time to take complete instructions from SEBI. Accordingly, the matter was adjourned to 4th October, 2021 whilst continuing the ad-interim protection. 2.21 On 4th October, 2021, the matter came to be adjourned to 7th October, 2021 whilst continuing the ad-interim protection with a direction to SEBI to file its Affidavit with this Court s Registry. 2.22 Arguments were concluded before the Ld. Single Judge on 8th October, 2021 and the matter was stood over to 14th October, 2021. 2.23 On 14th October, 2021, the Ld. Single Judge passed the following order: 1. The matter is placed for orders today. I have made a suggestion to all concerned. Counsel have agreed to consider it. 2. List the matter for orders on 20th October 2021. 3. Previous orders, if any, to continue until the next date. 2.24 On 20th October, 2021, the Ld. Single Judge passed the following order: 1. Negotiations do not ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... fs agree and undertakes that upon payment of the amount of ₹ 91,00,000/-, each of the Plaintiffs shall forthwith transfer or assign their debentures and all rights therein in favour of the Resolution Applicant/its nominee, and shall execute all such forms and documents as may be necessary for an effective transfer. 8. In view of the above, the Plaintiffs accept that the present terms are in full and final satisfaction of all their claims against the parties hereto and the Resolution Applicant, and they shall not raise any further claims or dispute or any legal proceedings directly or indirectly. 9. The Plaintiffs unconditionally withdraw all objections, complaints or any grievances made before this Court or any other authority against the Company, Debenture Trustee, Lenders and the Resolution Applicant. 10. The Company, the lenders, and the Resolution Applicant and their advisors have agreed that in view of the Plaintiffs (individual nonICA lenders having principal value of more than ₹ 10,00,000/-) having been offered a compromise or settlement and thus an exit at a value which is 5% higher than the amount proposed under the resolution plan, the same term ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ing/s, the 3rd Defendant will place for consideration and approval of the beneficial owners or debenture holders the settlement offer/compromise/ arrangement as envisaged in the approved resolution plan and as modified to the extent provided herein above. 14. If there is any further or later or supplementary trust deed, then the provisions of that supplementary trust deed will also be taken into account. 15. All parties agree and undertake to maintain confidentiality of the settlement and/or compromise and/or arrangement arrived hereto. 16. In view of the above compromise arrived at between the parties, the suit stands disposed off in these terms. 17. It is made clear that the aforesaid order is passed considering the peculiar facts and circumstances of the present case. It also has consent of all the parties. 18. As regards SEBI, I am making it clear that this order will constitute no precedent against SEBI nor will SEBI be held to the terms of this order for other cases. This order is made on the peculiar facts and circumstances of this case. 19. The demand drafts in question are handed over to the Advocates for the Plaintiffs. 20. Mr. Khandepar ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... was represented before the Learned Single Judge at the time of hearing, SEBI disputes all the other statements/ submissions made on behalf of Respondent Nos. 1 to 10, 11 and 12. In view of the above, before we proceed further, we allow SEBI to seek a clarification from the Learned Single Judge qua the allegation that SEBI has consented to the impugned Order being passed. 3. In view of the urgency, parties may move the Learned Single Judge today itself and obtain necessary clarification. 4. We make it clear that the Appeal is not disposed off and shall be taken up for Admission on 6th December, 2021, first on board. 2.28 Further to the aforesaid order, on 3rd December, 2021, the Ld. Single Judge passed the following order: 1. The matter is placed before me. By an order passed today by the Division Bench for an urgent clarification of my order of 28th October 2021, and which is challenged in Appeal. I have already once clarified that order at the instance of some of the parties on 15th November 2021. 2. The present clarification is sought at the instance of SEBI. The Appeal Court specifically asks for a clarification as to whether the compromise recorded in that o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... further consideration/hearing on 4th January, 2022. Accordingly, post the appeal along with application for further consideration on 4th January, 2022, at 2.30 p.m. 2. The results be submitted to the Court in sealed envelope on/or before 23rd December, 2021. 2.31 On 14th February, 2022, we reserved the Appeal for orders after hearing the Appeal finally. SUBMISSIONS : 3. Appearing for SEBI, we have heard Ld. Senior Advocate Mr. Arvind Datar. Mr. Datar s submissions can be summarized as under: (i) The SEBI Circular is wholly applicable in the present case. The DTDs and Resolution Plan within themselves contemplate the requirement of compliance with securities laws which would include compliance with the SEBI Circular as also the clarificatory letter dated 23rd August, 2021; (ii) The SEBI Circular has the force of law; (iii) In the event of a conflict between the SEBI Circular and the DTDs, the SEBI Circular must prevail owing to Clause 59 of the DTDs; (iv) For the ICA to be implemented, consent of the Debenture Holders at the ISIN level is necessary; (v) Approval at the ISIN level is necessary to protect the interest of small debenture hold ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... undertaken by all stakeholders for restructuring and reorganizing RCFL. 6. Appearing for Authum / the Intervenor, we have heard Ld. Senior Advocate Mr. Janak Dwarkadas. Mr. Dwarkadas submissions can be summarized as under: (i) Authum has locus to intervene in these proceedings considering that it has already acted on the basis of and in pursuance of the suggestions for settlement made by the Ld. Single Judge in the Suit and has altered its position by paying a sum of ₹ 91,00,000/-. Therefore, it is not open to SEBI to contend that Authum has no locus to intervene and/or be joined as a Respondent to the Appeal; (ii) If ISIN-wise voting is permitted, the common security available for the benefit of the Debenture Holders will not be released. If voting is to be conducted ISIN-wise as submitted by SEBI, if any one of the ISIN Debenture holder(s) were not to approve the settlement at the meeting of the secured debenture holders, the common security held by the secured Debenture holders would not be released to the resolution applicant; (iii) The classification of Debenture Holders ISIN-wise will be inequitable, invidious, discriminatory and arbitrary; (iv) ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... his Commercial Appellate Division under Section 13. 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. As we understand SEBI s Appeal, it inter alia impugns paragraph nos. 11 13 of the Impugned Order dated 28th October, 2021 which provides for the mechanism of voting which per SEBI, is in contravention of applicable law and more particularly, the SEBI Circular. The decision in IKISAN Limited (2015) SCC OnLine Bom 6358 cannot certainly come to the aid of the Respondents considering that the facts of the present case and the circumstances such as the Ld. Single Judge calling upon SEBI to provide a clarification, SEBI being impleaded to the Interim Application, SEBI filing a detailed Affidavit and SEBI s submissions being taken into account, put the present case on a completely different footing than that of IKISAN. 11. For the reasons aforesaid, we reject the Respondents arguments on maintainability of the Appeal. THE DTDs : 12. As stated hereinabove, there are in quest ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Trustee to concur in and execute any Supplemental Deed embodying any such modification. vi Power to remove the existing Trustee and to appoint new Trustee in respect of the Trust Securities. vii Power to authorize the Trustee or any Receiver appointed by them where they or he shall have entered into or taken possession of the Mortgaged Premises or any part thereof to give up possession of such premises to the Company either unconditionally or upon any condition. viii Power to give any direction, sanction, request or approval which under any provision of the Trust Deed is required to be given by a Special Resolution. 17. As can be seen from the aforesaid Clause 22(ii), the Debenture Holders may, at a meeting, sanction any compromise or arrangement proposed to be made between RCFL and the Debenture Holders. Clause 25 reads thus: Clause 25 The powers set out in Clause 22 hereof shall be exercisable by a Special Resolution passed at a meeting of the Beneficial Owner(s)/Debenture holder(s) as the case may be duly convened and held in accordance with provisions herein contained and carried by a majority consisting of not less than three-fourth of the per ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... According to SEBI, the DTDs have an aggregate of 19 ISIN(s). THE RBI CIRCULAR : 24. The RBI Circular came to be published on 7th June, 2019 with a view to providing a framework for early recognition, reporting and time bound resolution of stressed assets . The RBI Circular was issued under powers conferred by the Reserve Bank of India Act, 1934 and the Banking Regulation Act, 1949. 25. Certain relevant clauses of the RBI Circular read as under: Applicability 3. The provisions of these directions shall apply to the following entities: a Scheduled Commercial Banks (excluding Regional Rural Banks); b All India Term Financial Institutions (NABARD, NHB, EXIM Bank, and SIDBI); c Small Finance Banks; and, d Systemically Important Non-Deposit taking Non-Banking Financial Companies (NBFC-ND-SI) and Deposit taking Non-Banking Financial Companies (NBFC-D). Purpose 4. These directions are issued with a view to providing a framework for early recognition, reporting and time bound resolution of stressed assets. B. Implementation of Resolution Plan 9. All lenders must put in place Board-approved policies for resolution of stressed asset ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ded under the RBI Circular. THE RESOLUTION PLAN VOTING THEREON : 29. Following the terms of the RBI Circular, RCFL s lenders entered into the ICA on 7th July, 2019 with a view to resolve RCFL s debt to the tune of ₹ 9,017 Crores. At this stage, it is pertinent to note that despite a copy being shared with the Debenture Trustee Vistra, it had not executed the ICA. 30. Post deliberations and negotiations, RCFL s lenders appear to have selected Authum as the successful Resolution Applicant in respect of RCFL and approved the Resolution Plan submitted by Authum in July, 2021. 31. The Resolution Plan is now to be placed for approval of the Debenture Holders as a compromise / settlement in terms of the Impugned Orders. 32. The repayment terms of the Resolution Plan are as under: Sr. No. Particulars Nos. Debt as on 6 th July, 2019 (Rs.) Recovery (Rs.) % of Recovery 1 ICA Lenders 1.1 Secured 19 7,586.05 1,893.47 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... le mechanism for the forthcoming vote. THE SEBI CIRCULAR : 35. As narrated hereinabove, SEBI issued the SEBI Circular on October 13, 2020. The SEBI Circular is titled Standardisation of procedure to be followed by Debenture Trustee(s) in case of Default by Issuers of listed debt securities . Paragraph no.1 of the SEBI Circular reads: 1. Representations were made by Debenture Trustee(s) regarding the process to be followed in case of Default by issuers of listed debt securities. After consultation with stakeholders including investors, Debenture Trustee(s), Issuers etc., procedures to be followed by the Debenture Trustee(s) in case of Default by issuers of listed debt securities has been decided. This circular prescribes the process to be followed by the Debenture Trustee(s)in case of Default by issuers of listed debt securities including seeking consent from the investors for enforcement of security and/or entering into an Inter-Creditor Agreement ( ICA ) 36. Paragraph no.10 reads: 10. The provisions of this circular shall come into force with immediate effect. 37. On a plain and literal reading of the aforesaid paragraphs of the SEBI Circular, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Debenture Trustee(s) shall enter into the ICA. 6.5.3. In case(s) consents are not received for enforcement of security and for signing ICA, Debenture Trustee(s) shall take further action, if any, as per the decision taken in the meeting of the investors. 6.5.4. The Debenture Trustee(s) may form a representative committee of the investors to participate in the ICA or to enforce the security or as may be decided in the meeting. 6.6. The consent of the majority of investors shall mean the approval of not less than 75% of the investors by value of the outstanding debt and 60% of the investors by number at the ISIN level. C. Conditions for signing of ICA by Debenture Trustee(s)on behalf of investors. 7. The Debenture Trustee(s)may sign the ICA and consider the resolution plan on behalf of the investors upon compliance with the following conditions: 7.1. The signing of the ICA and agreeing to the resolution plan is in the interest of investors and in compliance with the Companies Act, 2013 and the rules made thereunder, the Securities Contracts (Regulations) Act, 1956 and the Securities and Exchange Board of India Act, 1992 and the rules, regulations and ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... October, 2020. Admittedly, in the present case, 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. 41. On a cumulative reading of Clauses 1 and 10 of the SEBI Circular, in our considered opinion, the SEBI Circular prescribes the process to be followed by Debenture Trustees upon the commission of a default by an issuer after 13th October, 2020. This being so, on first principles, we do not see how the SEBI Circular can be applied to defaults committed prior to 13th October, 2020 also considering that on the date of such default, the mechanism to vote etc. was already provided for under the DTDs. 42. Secondly, we note that there is no provision in the SEBI Circular which provides for its applicability to defaults prior to 13th October, 2020. As a matter of law, legislation, delegated or otherwise, is deemed to be prospective unless it has been given retrospective effect expressly or impliedly. In this regard, reference may be drawn to the Supreme Court s decision in ITO vs. M.C. Ponnoo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ence of any provision contained in the legislative Act, a delegatee cannot make a delegated legislation with retrospective effect. 44. Lastly, we also deem it fit to reproduce the following principles recognized by the Supreme Court in Hitendra Vishnu Thakur Ors. vs. State of Maharashtra Ors. (1994) 4 SCC 602 as under: 26. The Designated Court has held that the amendment would operate retrospectively and would apply to the pending cases in which investigation was not complete on the date on which the Amendment Act came into force and the challan had not till then been filed in the court. From the law settled by this Court in various cases the illustrative though not exhaustive principles which emerge with regard to the ambit and scope of an Amending Act and its retrospective operation may be culled out as follows: (i) A statute which affects substantive rights is presumed to be prospective in operation unless made retrospective, either expressly or by necessary intendment, whereas a statute which merely affects procedure, unless such a construction is textually impossible, is presumed to be retrospective in its application, should not be given an extended ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ing 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. 48. SEBI has consistently submitted that the SEBI Circular has the force of law as has been recognized from time to time. Once again, we do not dispute this proposition. The question however, in the present case, is the applicability of the SEBI Circular to the present matter and not whether or not the SEBI Circular has the force of law. It is insufficient for SEBI to contend that the SEBI Circular has the force of law in the absence of demonstrating how the SEBI Circular is applicable retrospectively in the first place. 49. 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he Impugned Order dated 28th October, 2021. APPLICABILITY OF THE SEBI CIRCULAR : 52. On a cumulative reading of the entire SEBI Circular, in our considered opinion, there can be no ambiguity whatsoever as to its extent, scope and application. We are guided first by paragraph no.1 of the SEBI Circular which in one sense is its Preamble and provides This circular prescribes the process to be followed by the Debenture Trustee(s) in case of Default by issuers of listed debt securities including seeking consent from the investors for enforcement of security and/or entering into an Inter-Creditor Agreement ( ICA ) . This paragraph suggests that the SEBI Circular would apply for (i) enforcement of security; and/or (ii) entering into an Inter-Creditor Agreement. 53. When we next consider paragraph no.6 of the SEBI Circular, it too provides for the process to be followed for seeking consent for enforcement of security and/or entering into an Inter-Creditor Agreement . This restriction on the scope and ambit of the SEBI Circular is further buttressed by paragraph nos. 6.2.1, 6.2.2, 6.5.1 and 6.5.2. of the SEBI Circular. In our considered opinion, the terms of the SEBI Ci ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ement of compliance with securities laws which would include compliance with the SEBI Circular as also the clarificatory letter dated 23rd August, 2021. It cannot be disputed that clauses of the DTDs and Resolution Plan provide for compliance with applicable laws which may include various laws passed by various regulations and regulators. However, before considering compliance with a particular law, it must first be established that the law under question is applicable. As stated herein, in view of the fact that the SEBI Circular is not applicable to the facts of the present case, we fail to appreciate how the clauses of the DTDs and Resolution Plan mandating compliance with securities law can further the case of SEBI and compel compliance with the SEBI Circular, which, as we have already held, is inapplicable to the present matter. 58. Mr. Datar s next argument is that in the event of a conflict between the SEBI Circular and the DTDs, the SEBI Circular must prevail owing to Clause 59 of the DTDs which provides that in the event terms of the DTDs are in conflict with the SEBI (Debenture Trustees) Regulations, 1993 ( DT Regulations ), then such clauses shall stand null and void. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... elaborate submissions canvassed by the Respondents in respect of the consequences of applying the SEBI Circular whilst adjudicating this Appeal. However, for completeness, we only refer to these submissions briefly as under: 62. The Respondents submit that the DTDs have an aggregate of 19 ISINs of which 10 ISINs comprise entirely of a single investor / Debenture Holder. Should ISIN-wise voting be carried out, one single investor may vote against or abstain from voting, the consequence of which, is a failure of the Resolution Plan. Converted into figures, this could result in a situation where one Debenture Holder holding debentures worth ₹ 5 Crores could veto a Resolution Plan worth ₹ 9,017 Crores. 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 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 ISIN- ..... X X X X Extracts X X X X X X X X Extracts X X X X
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