Authum Investment & Infrastructure Ltd. vs R.K. Mohatta Family Trust

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)

JUDGMENT

B.R. GAVAI, J.

1. Leave granted.

2. These appeals challenge the order of the High Court

of Judicature at Bombay, dated 16th December 2022, vide

which the High Court dismissed the Interim Application (L)

No. 33514 of 2022 in Commercial Suit (L) No. 162 of 2022

Signature Not Verified filed by Reliance Home Finance Limited (hereinafter referred 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

1 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.

Rajkumar Nagpal and Others1. 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

Rs. 5 lakhs. These debentures were issued on 30 th August

2018. It is pertinent to note that RHFL had, previously, taken

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2 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.

3.3 On 6th 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.

3.4 On 26th 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.

3 138 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

for RHFL was submitted by AIIL on 19 th June 2021, which,

thereafter, was approved by the consortium of lenders who

had entered into an ICA. Pertinently, 96% of the ICA lenders

approved the RP. On 21st 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

4 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

dated 13th 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

5 debenture holders on the RP. The High Court, vide its order

dated 31st March 2022, directed for a meeting of the

debenture holders to be convened to allow the debenture

holders to vote on the RP. Vide another order dated 12 th May

2022, the High Court further directed that the results of the

voting would be placed in a sealed envelope before the High

Court.

3.11 The voting on the RHFL RP took place on 13 th May

2022, and the results thereof were submitted before the High

Court on 10th 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

allowed by the High Court vide order dated 28 th 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%.

6 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.

7 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

8 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-

23, i.e., 31st 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

case of Rajkumar Nagpal (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

11 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

12 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

identical to the facts in the case of Rajkumar Nagpal

(supra). In the present case also, we find that a different

voting mechanism proposed under the SEBI Circular will

13 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

14 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

31st March 2023.

…..….......................J. [B.R. GAVAI]

…….........................J. [ARAVIND KUMAR] NEW DELHI;

MARCH 03, 2023.

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