RCFL to carry out a voting process based on a Debenture Trust Deeds signed by the shareholders: Supreme Court Dismisses SEBI’s Petition

RCFL to carry out a voting process based on a Debenture Trust Deeds signed by the shareholders: Supreme Court Dismisses SEBI's Petition

The Supreme Court while dismissing the SEBI’s petition directed RCFL to carry out a voting process based on a Debenture Trust Deeds signed by the shareholders.

Court Observation 

The three Judges bench of Justice Dr. Dhananjaya Y Chandrachud, Justice Surya Kant and Justice A S Bopanna observed that any reference to an ICA in the SEBI Circular is also necessarily a reference to the Resolution Plan and vice versa. It is not open to debenture holders to participate in the implementation of the Resolution Plan without being involved in its genesis through the ICA.

The court said that there is only one door, so to speak, through which debenture holders can gain entry into the Resolution Plan with the lenders and that is through the ICA.

The court added that while the SEBI Circular does not mandate the execution of an ICA as the only route to entering a compromise with the issuer company, it lays down a procedure in the event that debenture holders choose the route of implementing a Resolution Plan with the lenders. This procedure cannot be circumvented.


On 7 June 2019, RBI issued the Reserve Bank of India (Prudential Framework for the Resolution of Stressed Assets) Directions 2019, with a view to providing a framework for early recognition, reporting and time bound resolution of stressed assets. 

The RBI Circular provided that certain lenders may opt for a resolution strategy available to them under the existing legal framework, including entering into a resolution plan or initiating legal proceedings for recovery or insolvency. 

If the lenders chose to implement a Resolution Plan, they were required to enter into an intercreditor agreement. Bank of Baroda and other lenders of RCFL entered into an ICA on 6 July 2019, pursuant to the RBI Circular. Bank of Baroda was later appointed as the lead bank under the ICA. 


N Venkataraman, Senior Counsel and Additional Solicitor General, contended that the parties to the Debenture Trust Deeds have entered into a Master Supplementary Debenture Trust Deed on 11 March 2021 to align the Debenture Trust Deeds with the SEBI Circular. Therefore, the parties were aware that the SEBI Circular is applicable to the debenture holders. The meeting of debenture holders directed by the Single Judge was in contravention of Clauses 6.5 and 6.6 of the SEBI Circular.

Senior Advocate Darius Khambata, appearing for RCFL, contended that The language employed in the SEBI Circular and in Regulation 15(7) of the1993 Regulations is facilitative and not mandatory. There is no separate or independent ICA imposed by SEBI outside RBI‘s Circular. 

He contended that the RBI itself reads its framework as not extending to debenture holders. The SEBI Circular does not provide that the signing of an ICA is the only route to entering into a compromise or arrangement with the issuer company.    

Senior Advocate KV Viswanathan, appearing for Bank of Baroda, contended that the SEBI Circular has no retrospective/ retroactive operation because it is not a regulation in terms of section 30 of the SEBI Act.  


The court observed that a compromise arrived under the SEBI Circular or Section 230 of the Companies Act effectively assimilates the rights of the dissenting creditors. The SEBI Circular adopts a higher voting threshold of 60% by number and 75% to bind dissenting/ abstaining debenture holders. 

The court agreed with SEBI‘s submission that the compromise arrived at the Debenture Trust Deed level among the consenting debenture holders should not bind the dissenting debenture holders. 

The court said that the dissenting debenture holders would have been bound by the Resolution Plan if it had been approved in accordance with the Insolvency and Bankruptcy Code, 2016 or under an ICA as acceded to under the SEBI Circular.

The court deemed it appropriate that dissenting debenture holders should be provided an option to accept the terms of the Resolution Plan. 

The court said that alternatively, the dissenting debenture holders have a right to stand outside the proposed Resolution Plan framed under the lender‘s ICA and pursue other legal means to recover their entitled dues. 

Case title: Securities and Exchange Board Of India v/s Rajkumar Nagpal & Ors.

Citation: Civil Appeal No. 5247 of 2022

Click here to read the Order/Judgment 

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