The Supreme Court upheld the vote on Reliance Commercial Finance Ltd (RCFL) debentures and paved the way for the resolution of a loan default of over ₹9,000 crore by the company.
Last July, the lenders of RCFL, a subsidiary of Reliance Capital, led by Anil Ambani, had approved Authum Infrastructure and Investment’s offer of ₹1,629 crore under the guidelines of the Reserve Bank of India (Prudential Framework for Resolution of Stressed Assets), 2019. Debentureholders also voted in favor of the resolution plan, which provided for a 100% recovery for retail debentureholders.
However, SEBI moved the Bombay High Court against the result of the vote as it was governed by the debenture trust deed which requires the approval of 75% of debt holders. On the contrary, SEBI standards require voting at the ISIN (International Securities Identification Number) level, which requires 100% approval.
The Bombay High Court upheld the outcome of the debenture vote which was conducted in accordance with RBI regulations, but suspended the implementation of the resolution plan as SEBI moved the Supreme Court.
On Thursday, the Supreme Court bench led by Justice Dhananjaya Y Chandrachud ruled that the application of SEBI standards would lead to a scenario in which a resolution plan, validly accepted by lenders ICA (inter-creditor agreement) under of the RBI, will have to unravel.
SC is worried
Such decryption of the resolution process will not only take time, but could also have a negative effect on the agreed realized gains for retail debenture holders, who have already consented to the negotiated settlement in the High Court.
“For this reason, it is necessary to extend the benefit of Section 142 to retail bondholders by allowing the resolution plan to pass,” he said in the 65-page judgment.
The different voting mechanism proposed under the SEBI standards will further delay the resolution process and potentially disrupt efforts undertaken by stakeholders, including retail debenture holders.
The compromise currently reached, which is in the interests of all parties, will be disrupted if a new process has to be initiated in accordance with the SEBI circular at the current stage, he added.
Non-binding for dissenters
However, the judgment stated that it agreed with SEBI’s argument that the compromise reached at the level of the debenture trust indenture between consenting debentureholders should not bind dissenting debentureholders.
The Supreme Court said dissenting debentureholders should be given the option to agree to the terms of the resolution plan or have the right to opt out of the proposed resolution plan framed by the lenders’ ICA and pursue other legal means to recover their rights. , he added.
It is also important to note that none of the duty bearers raised any objections to the proposed compromise. In such a situation, the application of SEBI standards, while just in law, may lead to unfair results for retail debenture holders should this court reverse the entire course of action that occurred in this case. , said.
September 01, 2022