Supreme Court issues notice on SEBI appeal against Bombay High Court judgment on voting for takeover of Reliance Commercial by Authum

The Supreme Court on Monday issued notice in appeal 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..A bench headed by Justice DY Chandrachud also directed that the results of the voting shall be produced before the top court in a sealed cover and posted the case for further hearing on May 4, 2022..A division bench of the Bombay High Court by way of its judgment dated March 21, 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 High Court had held.It had, however, stayed its judgment till March 28, 2022, in order to enable SEBI to approach the Supreme Court in appeal..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.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.