A key hurdle for Reliance Industrial Finance Ltd. to restructure its debt has been cleared by the Supreme Courtroom, making means for Authum Funding and Infrastructure Ltd. to implement its decision plan.
Market regulator SEBI had approached the apex court docket difficult the way during which the approval of debenture trustees was taken for the decision. In precept, the Supreme Courtroom agreed with SEBI’s view, however invoked its powers beneath Article 142 to keep away from “unscrambling of the decision course of”.
The matter pertains to non-convertible debentures issued by Reliance Industrial Finance in 2017-18, for which Vistra ITCL (India) Ltd. was the debenture trustee. RCFL dedicated its first default beneath the debenture belief deeds in March 2019.
In the meantime, RCFL’s lenders sought to restructure their debt beneath the Reserve Financial institution of India’s confused belongings framework notified in 2019. This required them to signal an inter-creditor settlement, which the lenders did, with Financial institution of Baroda because the lead financial institution.
For the reason that RBI’s framework didn’t cowl debenture trustees, the Securities and Change Board of India had issued a round in 2020 laying down the process for his or her participation. This was notified anticipating that ICA lenders could strategy different monetary collectors—not coated by the RBI framework—to take part within the decision.
Underneath the SEBI framework, debenture trustees can consent to implement their safety and/or enter into an ICA. The edge for consent is just not lower than 75% of the traders by worth of the excellent debt and 60% of the traders by quantity on the ISIN degree.
It’s this ISIN-level voting prescribed by SEBI which grew to become the purpose of rivalry between RCFL and the regulator.
ISIN or Worldwide Securities Identification Quantity is a novel code assigned to establish securities. ISIN-wise voting ensures that rights of small traders are protected in opposition to the excesses of enormous traders, SEBI argued.
As within the case of RHFL, it’s attainable that one whole ISIN collection resides with one investor. Previous to the matter touchdown within the apex court docket, the Bombay Excessive Courtroom division bench articulated this downside in RHFL’s case:
The apex court docket agreed with the market regulator that the 2020 round envisages an ISIN-level vote.
Nevertheless it identified that beneath the ICA-approved decision plan, RHFL’s retail debenture holders with an publicity of as much as Rs 10 lakh will obtain 100% of their principal dues. And people with an publicity of greater than Rs 10 lakh would realise 29.69%. As compared, the secured ICA lenders would obtain 24.96% of their principal quantity, which is decrease than the restoration made by the debenture holders.
This prompted the court docket to invoke its powers beneath Article 142 to do full justice.
The totally different voting mechanism proposed beneath the SEBI round will additional delay the decision course of and doubtlessly disrupt the efforts undertaken by the stakeholders, together with the retail debenture holders, the apex court docket famous.
Even because it upheld the decision, the Supreme Courtroom accepted SEBI’s stance that for the reason that voting on this case didn’t occur on the ISIN-level, it can not bind dissenting debenture holders.
The apex court docket directed that such collectors ought to both be given the choice to just accept the phrases of the decision plan. In the event that they refuse, their proper to face exterior the ICA-approved plan and implement their safety continues to be alive.
