TaxTMI 
TaxTMI 
2022 (9) TMI 110
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..... The impugned judgment ...................................................................................... 10 B. Issues ............................................................................................................... 12 C. Submissions ................................................................................................... 12 D. Overview of contractual arrangements ......................................................... 19 i. The Debenture Trust Deeds ................................................................................. 19 ii. Steps taken by the DebentureTrustee (Vistra) .................................................... 23 E. Evolution of the law surrounding the resolution of debts .......................... 25 i. The framework for the resolution of debt under the Companies Act 1956 ....... 25 ii. The RBI Circular dated 6 July 2019 and the legal framework thereafter ........... 27 iii. SEBI (Debenture Trustees) Regulations 1993 ..................................................... 32 iv. The SEBI Circular dated 13 October 2020 and the legal framework thereafter 34 a. The SEBI Circular: Overview and Impli....
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....s later appointed as the lead bank under the ICA. 3. The RBI Circular applied to banks and specified categories of lenders. Other investors were outside its purview. SEBI issued a circular on 13 October 2020. The subject was the "Standardisation of procedure to be followed by Debenture Trustee(s) in case of "default' by issuers of listed debt securities'."SEBI Circular On 11 March 2021, RCFL and Vistra amended the Debenture Trust Deeds by executing a Supplementary Debenture Trust Deed which took note of the SEBI circular. On 15 July 2021, the Resolution Plan submitted by Authum Investment and Infrastructure Limited "Authum" was approved by RCFL's lenders. ii. The suit before the Bombay High Court 4. Seventeen debenture holders instituted a suit on the Original Side of the Bombay High Court on 1 July 2021. The debenture holders instituted the suit for the protection of their interests with respect to the amounts due to them by RCFL. RCFL was impleaded as the first defendant to the suit. The debenture holders urged that Vistra, who was impleaded as the third defendant, should have taken necessary steps to protect their interests. The debenture holders also alleged that certa....
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....tor can issue." 6. The Court noted that Vistra had sought a clarification on 11 August 2021, regarding the manner in which the meeting was to be held. It directed SEBI to respond to Vistra's representation on a "priority and extremely urgent basis". SEBI issued a clarificatory letter on 23 August 2021 in response to this representation. The clarificatory letter referred to Regulation 15(7) of SEBI (Debenture Trustees) Regulations 1993 "1993 Regulations" and the SEBI Circular and clarified that the voting would have to be conducted in accordance with the SEBI Circular. The relevant extract of this letter reads as follows: "5. In view of regulation 15(7) of the DT Regulations read with clause 3, 6.5, 6.6 and 7 of SEBI Circular, it is stated that it shall be mandatory for DTs to sign the Inter-Creditor Agreement (ICA) on behalf of debenture holders before considering the resolution plan to be implemented as a result of ICA proceedings." 7. SEBI was not impleaded as a party to the suit. On 17 September 2021, the Single Judge granted leave to the debenture holders to join SEBI as a respondent to an interlocutory application, Interim Application No. 14224 of 2021. SEBI ent....
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....irected Vistra to conduct a meeting of all debenture holders in terms of the Debenture Trust Deed(s): "13. In view of this, the 3rd Defendant is directed to call and conduct meeting of all the debenture holders under all three Debenture Trust Deeds within 30 days of this order ensuring that the calling and conduct of the meeting/s and the voting at such meetings conforms to the terms of the respective Debenture Trust Deeds. At such meeting/s, the 3rd Defendant will place for consideration and approval of the beneficial owners or debenture holders the settlement offer/compromise/arrangement as envisaged in the approved resolution plan, and as modified to the extent provided herein above. 14. If there is any further or later or supplementary trust deed, then the provisions of that supplementary trust deed will also be taken into account. 15. All parties agree and undertake to maintain confidentially of the settlement and/or compromise and/or arrangement arrived thereto. 16. In view of the above comprise arrived at between the parties, the suit stands disposed off in these terms. 17. It is made clear that the aforesaid order is passed consi....
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.... namely, enforcement of security or entering into an ICA. The SEBI Circular will not apply to the present case as the debenture holders are not proposing to enforce their security or enter into an ICA; c. The Supplementary Debenture Trust Deed executed on 11 March 2021 makes the SEBI Circular applicable to defaults occurring after it was issued or to defaults after 13 October 2020; d. Clause 23 of the Fifth Schedule to the Debenture Trust Deed(s) is consistent with the 1993 Regulations. Therefore, the SEBI Circular will not defeat the Debenture Trust Deed(s) in lieu of clause 59 of the Debenture Trust Deed(s); and e. The clarificatory letter dated 23 August 2021 issued by SEBI is also inapplicable since the SEBI Circular is inapplicable. The Court also observed that the application of the SEBI Circular would lead to a situation where one debenture holder holding debentures worth Rs. 5 crores could veto a Resolution Plan worth Rs. 9,017 crores. Thus, in the view of the Division Bench, holding an ISIN-wise meeting of debenture holders would defeat the interests of small investors, who were realizing 100% of the debt owed to them, under the Resolution Pla....
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.... the investors by ISIN and 75% of the investors by value for debenture holders to resolve their debt under a resolution plan or compromise. The SEBI Circular adopted a higher threshold than Section 230 of the Companies Act to bind the dissenting/ abstaining debenture holders. The civil court does not have jurisdiction over the present matter by virtue of Section 15Y of the SEBI Act 1992 "SEBI Act" and Section 430 of the Companies Act; and g. After the SEBI Circular came into force on 13 October 2020, only two possible options were available to the debenture holders to restructure the debt: (i) a compromise independent of the NCLT under the SEBI Circular; or (ii) approaching the NCLT under section 230 of the Companies Act. No third option, especially under the Debenture Trust Deed, is available to the debenture holders. Contrary to the express provisions of law, the High Court incorrectly assumed jurisdiction and directed a meeting of debenture holders to consider the Resolution Plan in accordance with the terms of the Debenture Trust Deeds. The High Court could not have exercised jurisdiction to direct the calling of a meeting of debenture holders to consider the Resolutio....
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.... to the Debenture Trust Deeds. The mandatory language used in the SEBI Circular applies only to the two eventualities mentioned in Clause 6.5 and does not encompass all the generalities which are covered under the Debenture Trust Deeds. The SEBI Circular is applicable to only two situations: (i) a negative consent for proceeding with enforcement of security; and (ii) a positive consent for signing an ICA. The subject matter of the Resolution Plan covers neither of the aforesaid situations; f. The Supplementary Trust Deed does not expressly amend, substitute, or modify the provisions of Clauses 22 and 23 of the Fifth Schedule to the Debenture Trust Deeds. Even if it is assumed that the Supplementary Trust Deed incorporates each and every term of the SEBI Circular, this will not result in overriding or superseding the provisions of Clauses 22 and 23; g. The Resolution Plan places the debenture holders in a better position than they would be in under a new ICA process. It provides for 100% repayment to debentures holders with an exposure of upto Rs. 10 lakhs. The debenture holders will constitute only 21.02% of the total value of debt if they become a part of the ICA....
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.... the final relief based on equitable considerations. D. Overview of contractual arrangements i. The Debenture Trust Deeds 21. Three Debenture Trust Deeds were entered into between the issuer company (RCFL) and the Debenture Trustee (Vistra) on 3 May 2017, 23 May 2017, and 5 February 2018. Clauses 58 and 59 of the first Debenture Trust Deed are as follows: "58. SEVERABILITY Each Provision of these presents shall be considered severable and if for any reason any provision of these presents is determined by a court of competent jurisdiction to be invalid or unenforceable and contrary to Indian laws or existing or future applicable law, such invalidity shall not impair the operation or prevent those provisions of these presents which are valid. In that case, these presents shall be construed so as to limit any term or provision so as to make it enforceable or valid within the requirements of any applicable law and in vent such term or provision cannot be so limited, these presents shall be construed to omit such invalid or unenforceable provisions. Following the determination that any provision of these presents is unenforceable, the Parties shall negotiate i....
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....angible or intangible, present or continent, powers, allotments, approvals, allotments, consents, privileges, employees etc., of RCFL. Under this Option-I, bid for selective or part of the Asset Book will not be accepted. Exercise of this option would result in change in management of RCFL. The acquirer shall have the flexibility to structure the acquisition either as share purchase or scheme of arrangement (including merger, demerger etc.) or in such other manner which is mutually beneficial from a commercial, tax, and regulatory perspective. It is hereby clarified that an amount of Rs.100 crores will be retained in RCFL for its day to day operations. Any amount in excess of Rs.100 crores may be utilised for the benefit of the lenders." 23. The Resolution Plan was submitted by Authum on 15 January 2021. The relevant terms and conditions of the Resolution Plan submitted by Authum were as follows: "Clause 7.5.ii - After the settlement of the Resolution Plan related expenses, employee related expenses in operations related expenses, the Resolution Applicant will settle the dues of the Dissenting Financial Creditors and Consenting Financial Creditors Clau....
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....lars bearing reference numbers i) SEBI/HO/DDHS/CIR/P/2020/198 and dated October 5, 2020; ii) SEBI/HO/MIRSD/CRADT/CIR/P/2020/203 and dated October 13, 2020; iii) SEBI/HO/MIRSD/CRADT/CIR/P/2020/207 and dated October 22, 2020; iv) SEBI/HO/MISRD/CRADT/CIR/P/2020/218 and dated November 3, 2020; and v) SEBI/HO/MIRSD/CRADT/CIR/P/2020/230 and dated November 12, 2020 (collectively referred to as the "Debenture Circulars"). C. In accordance with the applicable laws including the terms stipulated under the Debenture Circulars, the Parties are now desirous of making amendments to the Principal Deeds by executing this Supplementary Deed." The Supplementary Trust Deed also contains the following provisions: "2.2 Immediately after the last provision/article/section clause of the respective Principal Deeds, the following shall be inserted: "In order to incorporate the terms of the SEBI Debenture Circulars within this Deed, all the provisions set out under the schedule hereto named "Schedule-SEBI AMENDMENTS 2020' is hereby included as an integral part of this Deed ... 2.3 A new Schedule as "Schedule-SEBI Amendments 2020‟ shall be inserted after ....
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....ders. In the meantime, Vistra received payments in the amount of Rs. 38.6 crore (5 September 2020) Rs. 23.4 crore (29 January 2021) and Rs. 9 crore (23 April 2021) which were distributed to the debenture holders. 28. Thereafter, Vistra received an email on 16 July 2021 stating that the Resolution Plan submitted by Authum had been approved by the ICA lenders on 15 July 2021 and requesting the convening of a meeting of the debenture holders for completing the resolution process. The details of the approved Resolution Plan were sent to the debenture holders on 19 July 2021. 29. Vistra conducted a meeting of the debenture holders on 30 July 2021. After several concerns were raised by the debenture holders, Vistra communicated with the officials of SEBI. By a letter dated 23 August 2021, SEBI clarified that in consonance with the SEBI Circular, voting by the debenture holders would have to be conducted ISIN wise. Finally, Vistra clarified in its affidavit before the Bombay High Court that despite making several requests to debenture holders to provide instructions on whether to sign the ICA, it had not received any response. E. Evolution of the law surrounding the resolution of....
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....tors or members of a company, to bind non-consenting members or creditors where the terms of the compromise or arrangement were approved by a special majority and assented to by the judicial body. Upon the enactment of the Companies Act, Section 230 which forms a part of Chapter XV is titled "Compromises, arrangements and amalgamations". Section 230 contains an analogous provision. 34. Sub-section (6) of Section 230 provides that where at a meeting which is held in pursuance of sub-section (1), the majority of persons representing 3/4th in value of the creditors or class of creditors or members or class of members agree to a compromise or arrangement and upon its sanction by the Tribunal, it shall be binding on the company and all the creditors or class of creditors or members or class of members and the contributories of the company. Section 230 of the Companies Act provides for the manner in which dissenting or abstaining creditors within a class of creditors of the company (such as debenture holders) can be bound by the terms of the compromise or arrangement upon approval by a special majority and by the NCLT. 35. Section 1(4) of the Companies Act, 2013 stipulates that the....
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.... an ICA during the review period (clause 10); and c. The ICA has to provide that any decision agreed by lenders representing 75% by value of the total outstanding credit facilities ("fund based and non-fund based") and 60% of lenders by number shall be binding upon all the lenders (clause 10). The RBI Circular contains other provisions including those on the implementation of the Resolution Plan, consequences of delayed implementation, prudential norms, supervisory review, disclosures, and exceptions. 38. Clause 3 of RBI's directions indicates that its ambit is restricted to lenders as defined in that clause. The directions therefore do not make any provision for other investors such as debenture holders, a point which has been highlighted by footnote 1 to the framework. Footnote 1, RBI Circular: "For the purpose of these directions, "lenders' shall mean all entities mentioned at paragraph 3, unless specified otherwise." Clause 10 provides as follows: "10. In cases where RP is to be implemented, all lenders shall enter into an inter-creditor agreement (ICA), during the above-said Review Period, to provide for ground rules for finalisation and implementation ....
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....es can be regulated by a special legislation. Section 230(2)(c)(iv) of the Companies Act contemplates that the company or person by whom an application is made under sub-section (1) shall disclose by affidavit any scheme of corporate debt restructuring consented to by not less than 75% of the secured creditors in value, and where the company proposes to adopt the corporate debt restructuring guidelines specified by the RBI, a statement to that effect. Clauses 9, 10 and 13 of the RBI Circular read together with footnote 7 contemplate a Resolution Plan inclusive of restructuring of a default account with lender institutions falling within the ambit of Clause 3. Footnote 7, RBI Circular: "Restructuring is an act in which a lender, for economic or legal reasons relating to the borrower's financial difficulty, grants concessions to the borrower. Restructuring would normally involve modification of terms of the advances / securities, which would generally include, among others, alteration of payment period / payable amount / the amount of instalments / rate of interest; roll over of credit facilities; sanction of additional credit facility / release of additional funds for an account in ....
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....ions. Regulation 15 provides for the duties of debenture trustees. Among them is the duty to take steps to convene a meeting of the holders of debentures as and when a meeting is required to be held (Clause (l)). Regulation 14 provides for the obligation of debenture trustees. Regulation 14, 1993 Regulations: "14. Every debenture trustee shall amongst other matters, accept the trust deeds which shall contain the matters as specified in section 71 of Companies Act, 2013 and Form No. SH.12 specified under the Companies (Share Capital and Debentures) Rules, 2014. Such trust deed shall consist of two parts: a. Part A containing statutory/standard information pertaining to the debt issue; b. Part B containing details specified to the particular debt issue." 43. As already noted earlier, the RBI Circular specifically applies to the category of lenders specified in Clause 3. The requirement that lenders enter into an ICA is triggered where a Resolution Plan is to be implemented, as specified in Clause 10. 44. Regulation 15(7) of the 1993 Regulations was inserted by the SEBI (Debenture Trustees) (Amendment) Regulation 2020 with effect from 8 October 2020. Regulation 15 (7) p....
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....), under specific terms detailed in the framework as stipulated by RBI. 5. Regulation 59 of LODR Regulations provides that material modification in the structure of debt securities shall be made only after obtaining the consent of the requisite majority of investors. Regulation 18 of the Securities and Exchange Board of India (Issuer and Listing of Debt Securities) Regulations, 2008 ("ILDS Regulations"), applicable in case of public issue of debt securities, stipulates a period of fifteen days for giving notice in case of roll-over of debt securities and further provides for approval to be obtained from not less than 75% of the holders by value of such debt securities. 6. As resolution plan in the ICA may involve restructuring including roll-over of debt securities, requiring the consent of the investors, the process to be followed for seeking consent for enforcement of security and/or entering into an Inter-Creditor Agreement shall be as under: 6.1. The Debenture Trustee(s) shall send a notice to the investors within 3 days of the event of default by registered post/acknowledgement due or speed post/acknowledgement due or courier or hand delivery with pr....
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....ircular dated 7 June 2019 has specified the mechanism for the resolution of stressed assets by lenders. In terms of the RBI Circular, investors in debt securities who are financial creditors are approached by other lenders to sign an ICA under specific terms which are detailed in the framework which is stipulated by the RBI. 48. Clause 6 of the SEBI Circular acknowledges that the Resolution Plan in the ICA may involve the restructuring of debt security which would, as a consequence, require the consent of the investors. It specifies the process to be followed for seeking the consent of investors for: a. Enforcing the security; and / or b. Entering into an ICA. Clause 6.2 specifies the requirement of issuing a notice to investors within a specified period of the event of default. The notice must contain: a. A negative consent for proceeding with the enforcement of the security; b. A positive consent for signing the ICA; c. The requirement that the consent needs to be given within 15 days from the date of notice; and d. The date of the meeting to be convened for the purpose. The debenture trustee has to convene a meeting ....
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....all be free to exit the ICA if the Resolution Plan imposes conditions which are not in accordance with the Companies Act, 2013, the SCRA and the SEBI Act together with the rules, regulations, and circulars issued thereunder; d. If the Resolution Plan is not finalized within a period of 180 days from the end of the review period, the debenture trustee shall be free to exit the ICA altogether; and e. The debenture trustee is free to exit the ICA and seek legal recourse if the terms of the Resolution Plan are contravened by any of the signatories to the ICA. 52. The mechanism which has been prescribed by the RBI Circular is restricted only to those lending institutions which fall within the ambit of Clause 3. Apart from these lending institutions, debenture holders constitute another class of financial creditors to whom a debt may be due by the debtor company. Other creditors including debenture holders could voluntarily enter into a contractual arrangement for the restructuring of the debt within the ambit of Section 62 of the Contract Act. These provisions are, however, restricted to consenting parties. Prior to the issuance of the SEBI Circular, the ability to ....
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.... the ICA. But to bind the entire class of debenture holders, the decision to enter into an ICA has to be backed by the stipulated majority which is prescribed in the SEBI Circular. The ability to bind the dissenting debenture holders or those who abstain is precisely conditional on whether the decision to enter into an ICA is backed by the requisite majority. In the absence of the consent expressed by the majority of investors to enter into an ICA in terms of Clause 6.5.2 the debenture trustee would have no authority to enter into an ICA in which event, the trustee shall take such further action in terms of the decision taken in the meeting of the investors. Such further action would, however, not comprehend the ability to bind dissenting debenture holders. Dissenters can be bound only if a requisite majority as defined in Clause 6.6 expresses its consent. 56. To recapitulate, in the case of an NCLT approved scheme of compromise or arrangement within the ambit of Section 230 of the Companies Act, the threshold is of a "majority of persons representing 3/4th in value of the creditors or class of creditors or members or class of members". When it comes to the prudential framework ....
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.... crores; and c. Debenture Trust Deed-3 dated 23 May 2017 has six (6) ISIN with an approximate principal amount of Rs.81.00 crores. 59. Clauses 22 (ii) and 22(iii) of the Fifth Schedule to the Debenture Trust Deeds contains the following provision: "22. A meeting of the Beneficial Owner(s) / Debenture holder(s) as the case may be shall, inter alia, have the following powers exercisable in the manner hereinafter specified in Clause 23 hereof ... (ii) Power to sanction any compromise or arrangement proposed to be made between the Company and the Beneficial Owner(s) / Debenture holder(s). (iii) Power to sanction any modification, alteration, or abrogation of any of the rights of the Beneficial Owner(s) / Debenture holder(s) as the case may be against the Company or against the Mortgaged Premises or other properties whether such right shall arise under the Trust Deed or Debentures or otherwise." Clause 23 of the of the Fifth Schedule to the Debenture Trust Deeds provides thus: "The powers set out in Clause 22 hereof shall be exercisable by a Special Resolution passed at a meeting of the Beneficial Owner(s) / Debenture holder(s)....
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.... 4 of the SEBI Circular indicates that investors in debt security who are financial creditors are approached by other lenders to sign an agreement namely an ICA "under specific terms detailed in the framework as stipulated by RBI." Moreover, Regulation 15(7) of the 1993 Regulations confers an enabling power upon the debenture trustee, subject to the approval of the debenture holders and the conditions specified by SEBI to enter into an ICA "provided under the framework specified by the RBI". In its affidavit filed before the Bombay High Court, RBI clarified that : "8. Given that the ICA is a contractual agreement between the creditors to a borrower undergoing resolution, inter se disputes between the signatories to the ICA have to be resolved within the ICA which is a contract. Since the Prudential Framework was issued by the RBI under powers conferred upon it by the provisions of the Reserve Bank of India Act, 1934 and Banking Regulation Act, 1949, the provisions of the Prudential Framework are mandatory only for the RBI-regulated lenders. These powers do not extend to other creditors of a borrower such as the debenture holders whose primary regulator is the Securities an....
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....d for. It has been urged that this may be preferable to entering into an ICA, where the debenture holders may find themselves at the mercy of the lenders (who may wield greater power while formulating the Resolution Plan, either due to their number or due to the value of the debt owed to them or both). Debenture holders would, it has been argued, consequently be forced to abide by a Resolution Plan which does not properly account for their interests. Hence, according the submission, they may opt out of an ICA and instead approve or reject the restructuring of debt at the stage of implementation of a Resolution Plan. While this argument may seem attractive at first blush, it gives way on closer inspection. The reasons why we are not inclined to accept the submission are formulated below: i. There is no bar to the civil court's jurisdiction 64. As noted above, the suit before the Single Judge of the Bombay High Court (on the original side) sought the setting aside of the RBI Circular as illegal and ultra vires. An injunction restraining RCFL, Bank of Baroda, and RBI from implementing the RBI Circular was also sought. 65. Section 15Y of the SEBI Act stipulates that no civil c....
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....em under the existing legal framework, including (i) entering into a Resolution Plan; or (ii) initiating legal proceedings for recovery; or (iii) insolvency. If the lenders choose to implement a Resolution Plan, they are required to enter into an ICA in terms of Clause 10 of the RBI Circular. The existence of an ICA which is in compliance with the RBI Circular is a sine qua non for the implementation of a Resolution Plan. 70. After the RBI Circular was issued, all creditors could opt for one of the following courses of action: a. Enforce the security; b. Initiate CIRP under the IBC; c. File a suit for the recovery of the monies due to them; In addition, lenders could choose to implement a Resolution Plan in terms of the RBI Circular (with other lenders). The debenture holders could enter into an arrangement or scheme under Section 230 Companies Act (with any other creditors). Needless to say, creditors were free to exercise other options available in law, besides those detailed in this paragraph. 71. As evident from the definition of "lenders', the RBI Circular did not apply to debenture holders. Debenture holders continued to be governed by Sect....
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....ter of the SEBI Circular in general, RCFL is suggesting that the ICA and the Resolution Plan are distinct and severable. The implication is that debenture holders may opt in to the Resolution Plan after it has been formulated, without concerning themselves with the ICA. This is an incorrect interpretation of the circulars in question. The ICA and the Resolution Plan are inextricably intertwined and the latter has its genesis in the former, and flows from it. The SEBI Circular, too, recognizes this fact in Clause 6, which states: "As the resolution plan in the ICA may involve restructuring including roll-over of debt securities, requiring the consent of the investors, the process to be followed for seeking consent for enforcement of security and/or entering Into an Inter-Creditor Agreement shall be as under ..." (emphasis supplied) Further, Clause 7 recognizes the interdependence between the ICA and the Resolution Plan: "The Debenture Trustee(s) may sign the ICA and consider the resolution plan on behalf of the investors upon compliance with the following conditions: 7.1 The signing of the ICA and agreeing to the resolution plan is in the inter....
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....CA 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. 75. The purpose of the SEBI Circular is multi-fold - not only does it protect the interests of debenture holders at large (Clause 7), but it also protects the interests of any dissenting debenture holders (Clause 6.6). If RCFL's argument was to be accepted, both these protections would fail. In the absence of Clause 7, debenture trustees would likely be unable to exit the ICA or the Resolution Plan even if they were not "in the interest of investors" Clause 7.1, SEBI Circular or if the Resolution Plan was not finalized within 180 days from the end of the review period. Clause 7.3, SEBI Circular It is indubitable that tremendous hardship would be caused to the debenture holders in both these situations. Significantly, the absence of Clause 6.6 could mean that dissenting debenture holders would be bound by decisions taken even by way of a simple majority. While Clause 23 of the Fifth Schedule to the Debenture Trust Deed(s) in this case provides ....
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.... argument that the SEBI Circular is not applicable because a single debenture holder will be able to frustrate the Resolution Plan is a consequential one. The applicability of a circular cannot be determined on the basis of such a concern. We need not comment upon this aspect in the absence of a challenge to the SEBI Circular. We also note that it is open to the relevant stakeholders to approach SEBI with any concerns, commercial or otherwise, and request an amendment to the SEBI Circular. SEBI as a statutory regulator can always look at such concerns and has the power to factor them in if it deems fit to do so in public interest and for the orderly functioning of the securities' market. iv. The SEBI Circular has retroactive application 80. Mr. N Venkataraman, learned senior counsel and Additional Solicitor General has argued that the SEBI Circular is retroactive in nature as it does not take away or impair any vested rights. It operates in the future, based on events that arose prior to its issuance. Mr. Darius Khambata, learned senior counsel appearing for RCFL argued that the effect of applying the SEBI Circular to the present case will render it retrospective and not retr....
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....s used to cover at least two distinct concepts. The first, which may be called 'true retroactivity', consists in the application of a new rule of law to an act or transaction which was completed before the rule was promulgated. The second concept, which will be referred to as 'quasiretroactivity', occurs when a new rule of law is applied to an act or transaction in the process of completion....The foundation of these concepts is the distinction between completed and pending transactions...." (T.C. Hartley, The Foundations of European Community Law 129 (1981)" Many decisions of this Court define "retroactivity' to mean laws which destroy or impair vested rights. In real terms, this is the definition of "retrospectivity' or "true retroactivity'. "Quasi-retroactivity' or simply "retroactivity' on the other hand is a law which is applicable to an act or transaction that is still underway. Such an act or transaction has not been completed and is in the process of completion. Retroactive laws also apply where the status or character of a thing or situation arose prior to the passage of the law. Merely because a law operates on certain circumstances which are a....
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....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 table showing the distribution is extracted below: 28 Clause 9, SEBI Circular Particulars Count Exposure (INR) Recovery (In INR) Recovery (In %) Secured individuals and HUF debenture holders (up to INR 10 lakhs) 227 13.92 crores 13.93 crores 100 Secured individuals and HUF debenture holders (more than 10 lakhs) 37 43.95 crores 13.17 crores 29.96 Other secured debenture holders 42 1,556.70 crores 388.55 crores 24.96 Unsecured debenture holders 21 81 crores 16.46 crores 20.32 Related party 1 200 crores 26.90 crores 13.45 Total 328 1,896 crores 88. The above table highlights that small investors, especially those whose exposure is up to INR 10 lakhs, are benefiting to the extent of 100% of their principal amount. Even debenture holders whose exposure is more than 10 lakhs are receiving 29.96% of their principal amount. In comparison, the secured ICA lenders would receive 24....
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....dence over law. But it is not the kind of equity which can disregard mandatory substantive provisions of law when the court issues directions under Article 142. While moulding relief, the court can go to the extent of relaxing the application of law to the parties or exempting altogether the parties from the rigours of the law in view of the peculiar facts and circumstances of the case. This being so, it is clear that this Court has the power, nay, the duty to do complete justice in a case when found necessary. [...]" (emphasis supplied) 92. In Laxmidas Morarji v. Behrose Darab Madan (2009) 10 SCC 425, a three-judge bench of this Court held that the use of powers under Article 142 should be based on equitable principles in situations where the provisions of law cannot do complete justice. It was observed: "25. Article 142 being in the nature of a residuary power based on equitable principles, the Courts have thought it advisable to leave the powers under the article undefined. The power under Article 142 of the Constitution is a constitutional power and hence, not restricted by statutory enactments. Though the Supreme Court would not pass any order under Articl....