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Securities and Exchange Board of India vs Rajkumar Nagpal

Civil Appeal · 2022 INSC 885Decided 30 Aug 2022
Civil Appeal No. 5247 of 2022
Dr. D.Y. Chandrachud · Surya Kant · A.S. Bopanna

Background

Reliance Commercial Finance Limited (RCFL) defaulted on non-convertible debentures issued to numerous investors, with Vistra ITCL as Debenture Trustee. Under an RBI framework, banks and lenders entered an Inter-Creditor Agreement and later approved a Resolution Plan by Authum Investment. A group of debenture holders sued in the Bombay High Court, arguing that a SEBI circular required voting on the Resolution Plan to be conducted series-wise (ISIN-wise) rather than collectively, and that this procedure had not been followed. The Bombay High Court's Division Bench ruled that the SEBI circular's ISIN-wise voting requirement did not apply and allowed the Resolution Plan (under which most retail debenture holders would recover very high percentages of their principal) to proceed; SEBI appealed to the Supreme Court.

Decision Breakdown

The Supreme Court disagreed with the High Court on the law, holding that the SEBI circular does apply and has retroactive effect where debenture holders wish to be bound by a Resolution Plan involving lenders, and that ISIN-wise voting was legally required. However, applying its special constitutional power under Article 142 to "do complete justice," the Court declined to unwind the already-implemented Resolution Plan, noting that most debenture holders, including all small investors, were receiving very favourable recoveries (up to 100% of principal) and had not objected, and that reopening the process now would cause more harm than good. It allowed the appeal only in part: it upheld the correct legal position on SEBI's ISIN-wise voting requirement for future cases, while permitting the existing Resolution Plan to stand, and directed that any genuinely dissenting debenture holders be given the option either to accept the Plan's terms or to pursue other legal remedies independently.

Lesson Learnt

Even when a regulator's circular is legally binding and a lower court got the law wrong, the Supreme Court can use its special "complete justice" power under Article 142 to preserve a practical, already-implemented settlement that benefits the majority of ordinary investors, rather than mechanically unwinding it, but dissenting parties are not left without options and must be given a fair choice.

Official source (sci.gov.in)View Judgment (PDF)

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