Bombay High Court rules against SEBI; paves way for takeover of Reliance Commercial by Authum Investments

A Division Bench of Bombay High Court on Monday upheld a single-judge order which 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 the Reserve Bank of India (RBI) circular [Securities and Exchange Board of India v. Rajkumar Nagpal & Ors.].A Bench of Justices SJ Kathawalla and Milind Jadhav protected the interest of the retail debenture holders while voting for the takeover of RCFL by Authum Investments & Infrastructure."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 order said..This order however has been stayed till March 28, 2022, in order to enable SEBI to approach the Supreme Court in appeal..SEBI had come in appeal against an order of the single-judge which stated that the voting could take place as per the DTDs executed.The bone of contention in the present case arose out of the applicability of the two circulars issued by the two lenders, RBI and the Securities Exchange Board of India (SEBI).The circular by RBI provides that voting by the lenders has to be 75% in value and 60% of the total number of lenders.Meanwhile, the circular by SEBI stipulated that all the debenture holders are required to participate.The stakeholders to RCFL approved the resolution plan of Authum in July 2021.RCFL owed more than ₹9,000 crores to its creditors. Accepting the resolution plan of Authum, which offered ₹1,240 crores, meant an 86% write off for the creditors.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 on 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 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..Senior Advocate Arvind Datar with Advocates Mustafa Doctor, Suraj Choudhary, Mihir Mody, Dhaval Patil and Arnav Misra briefed by K. Ashar & Co. appeared for SEBI.Senior Advocate Darius Khambatta with Advocates Prateek Sekseria, Subir Kumar, Disha Shah, Karan Rukhana, Nishant Chotani and Yash Chheda briefed by SDS Advocates appeared for RCFL.Senior Advocate Ravi Kadam with Advocates Yohaann Limathwalla and Shahbaz Malbari from J. Sagar Associates appeared for Bank of Baroda.Senior Advocate Janak Dwarkadas with Advocates Tushad Kakalia, Anaisha Zachariah and Vidhi Dhanuka instructed by Crawford Bayley & Co. appeared for Authum Investments.[Read Judgment]