SC exercises special power, approves resolution plan to mitigate woes of debenture holders of firm

NEW DELHI: The Supreme Court on Tuesday exercised its extraordinary power under Article 142 of the Constitution in approving the resolution plan to mitigate the woes of debenture holders of Reliance Commercial Finance Limited (RCFL), which committed the first default under the Debenture Trust Deeds in March 2019.

A bench comprising Justices D Y Chandrachud, Surya Kant, and A S Bopanna took note of the "facts and circumstances" of the case and said, "this Court can, having regard to Article 142 of the Constitution of India, stipulate suitable directions to mitigate the potential denial of rights."

The top court was to decide the question of whether the debenture holders and other parties in the present case were required to follow the procedure under the SEBI Circular.

It held that the SEBI Circular on the voting pattern for approving the resolution plan was valid and has "retroactive application".

However, it used its extraordinary power to approve the resolution plan which was arrived at without following the SEBI circular and said, "We would like to reiterate that this Court is issuing the directions to mould the relief under Article 142 in view of the peculiar facts and circumstances of the present case."

Article 142 of the Constitution gives power to the Supreme Court to "pass such decree or make such order as is necessary for doing complete justice in any cause or matter pending before it".

Three Debenture Trust Deeds were entered into between the issuer company (RCFL) and the Debenture Trustee (Vistra) in 2017 and 2018.

Lead bank, Bank of Baroda, on June 13, 2020, apprised the RBI about the default and said that the RCVL availed credit facilities aggregating to Rs. 9017 crore from various banks and started defaulting in servicing debt from March 2019.

A resolution plan was devised and agreed upon to decide the shares in realising the debts and investments of secured and unsecured creditors.

"Under the present scheme of the Resolution Plan, retail debenture holders having an exposure of up to INR 10 lakhs would stand to realize 100% of their principal dues. The secured retail debenture holders having an exposure of more than INR 10 lakhs would realize 29.69%," the bench said.

"All individuals/ HUFs holding debentures of a value less than Rs.10 Lakhs were to get 100% of their principal sum due, while individuals and HUFs holding debentures in excess of Rs.10 lakhs were to receive 24.96% of the principal," it said.

While approving the scheme, it said that none of the debenture holders have raised any grievance concerning 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," it said.

The compromise presently arrived at, which is in the interests of all the parties, will be disturbed if a new process is directed to be commenced in accordance with the SEBI Circular at the present stage, it said.

NEW DELHI: The Supreme Court on Tuesday exercised its extraordinary power under Article 142 of the Constitution in approving the resolution plan to mitigate the woes of debenture holders of Reliance Commercial Finance Limited (RCFL), which committed the first default under the Debenture Trust Deeds in March 2019. A bench comprising Justices D Y Chandrachud, Surya Kant, and A S Bopanna took note of the "facts and circumstances" of the case and said, "this Court can, having regard to Article 142 of the Constitution of India, stipulate suitable directions to mitigate the potential denial of rights." The top court was to decide the question of whether the debenture holders and other parties in the present case were required to follow the procedure under the SEBI Circular. It held that the SEBI Circular on the voting pattern for approving the resolution plan was valid and has "retroactive application". However, it used its extraordinary power to approve the resolution plan which was arrived at without following the SEBI circular and said, "We would like to reiterate that this Court is issuing the directions to mould the relief under Article 142 in view of the peculiar facts and circumstances of the present case." Article 142 of the Constitution gives power to the Supreme Court to "pass such decree or make such order as is necessary for doing complete justice in any cause or matter pending before it". Three Debenture Trust Deeds were entered into between the issuer company (RCFL) and the Debenture Trustee (Vistra) in 2017 and 2018. Lead bank, Bank of Baroda, on June 13, 2020, apprised the RBI about the default and said that the RCVL availed credit facilities aggregating to Rs. 9017 crore from various banks and started defaulting in servicing debt from March 2019. A resolution plan was devised and agreed upon to decide the shares in realising the debts and investments of secured and unsecured creditors. "Under the present scheme of the Resolution Plan, retail debenture holders having an exposure of up to INR 10 lakhs would stand to realize 100% of their principal dues. The secured retail debenture holders having an exposure of more than INR 10 lakhs would realize 29.69%," the bench said. "All individuals/ HUFs holding debentures of a value less than Rs.10 Lakhs were to get 100% of their principal sum due, while individuals and HUFs holding debentures in excess of Rs.10 lakhs were to receive 24.96% of the principal," it said. While approving the scheme, it said that none of the debenture holders have raised any grievance concerning 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," it said. The compromise presently arrived at, which is in the interests of all the parties, will be disturbed if a new process is directed to be commenced in accordance with the SEBI Circular at the present stage, it said.