Appeal Dismissed, SEBI Circular Prospective Application, Retail Investors' Protection

The appeal was dismissed, upholding the single judge's order. The court affirmed the prospective application of the SEBI Circular and deemed the voting mechanism under the Debenture Trust Deeds appropriate. Retail investors' interests were safeguarded through the fair and just voting process, ensuring their protection alongside other stakeholders.

---

---

Issues Involved:

1. Maintainability of SEBI’s Appeal.
2. Applicability of SEBI Circular.
3. Retrospective application of SEBI Circular.
4. Voting mechanism for Debenture Holders.
5. Protection of retail investors' interests.

Detailed Analysis:

1. Maintainability of SEBI’s Appeal:

The court considered whether SEBI had the locus to file the appeal. SEBI was not a party to the original suit but was a respondent to the interim application. SEBI participated extensively before the single judge and was impleaded in the interim application. The court concluded that SEBI had the right to approach the Commercial Appellate Division under Section 13 of the Commercial Courts Act, 2015. The decision in IKISAN Limited (2015) SCC OnLine Bom 6358 was distinguished based on different facts and circumstances.

2. Applicability of SEBI Circular:

The SEBI Circular dated October 13, 2020, prescribes the process to be followed by Debenture Trustees in case of default by issuers of listed debt securities, including seeking consent for enforcement of security and/or entering into an Inter-Creditor Agreement (ICA). The court noted that the SEBI Circular came into force with immediate effect from October 13, 2020, and prescribes the process for defaults occurring after this date. The court held that the SEBI Circular is not applicable to defaults committed prior to its coming into force.

3. Retrospective Application of SEBI Circular:

The court emphasized that legislation is presumed to be prospective unless expressly stated otherwise. The SEBI Circular does not contain any provision suggesting its retrospective applicability. The court cited Supreme Court decisions, including ITO vs. M.C. Ponnoose (1969) 2 SCC 351 and M.D. University vs. Jahan Singh (2007) 5 SCC 77, to support the principle that delegated legislation cannot operate retrospectively unless explicitly stated. Therefore, the SEBI Circular cannot apply to defaults that occurred before October 13, 2020.

4. Voting Mechanism for Debenture Holders:

The court analyzed the voting mechanism prescribed in the SEBI Circular, which requires a 75% majority by value and 60% by number at the ISIN level. However, the court found that the SEBI Circular applies specifically to the enforcement of security and entering into an ICA, and not to the approval of a resolution plan. Since the ICA was already executed on July 6, 2019, before the SEBI Circular came into force, the circular's voting mechanism was deemed inapplicable. The court upheld the voting mechanism as per the Debenture Trust Deeds (DTDs), which required a 3/4th majority.

5. Protection of Retail Investors' Interests:

The court noted that the resolution plan provided 100% recovery for retail Debenture Holders with an exposure of up to Rs. 10,00,000, while larger holders and secured lenders were receiving significantly less. The court found that insisting on ISIN-wise voting could potentially harm retail investors, as a single investor could veto the resolution plan, leading to its failure. The court concluded that the voting mechanism under the DTDs was fair, just, and equitable, protecting the interests of all stakeholders, including retail investors.

Conclusion:

The appeal was dismissed, and the court upheld the single judge's order, emphasizing the prospective application of the SEBI Circular and the appropriateness of the voting mechanism under the DTDs. The court ensured that the interests of retail investors were adequately protected.

---