Holding

The Court held that the SEBI circular applies retroactively to the resolution of RCFL’s default, governs the procedure for any resolution plan, and that the civil court retains jurisdiction to entertain the suit.

Summary

Reliance Commercial Finance Ltd (RCFL) issued non‑convertible debentures and defaulted in March 2019. The RBI issued a prudential framework requiring lenders to enter into an inter‑creditor agreement (ICA) before a resolution plan, and SEBI later issued a circular on 13 Oct 2020 standardising the procedure for debenture trustees in such defaults. Seventeen debenture holders sued in the Bombay High Court seeking protection of their interests; the trial judge ordered a meeting of debenture holders under the trust deeds and held that the SEBI circular could not apply retrospectively. SEBI appealed, arguing that the circular governs any resolution plan involving the lenders and that civil courts lack jurisdiction. The Supreme Court held that the SEBI circular does apply retroactively to the manner of debt resolution, that it must be complied with when implementing a resolution plan, and that the civil court had jurisdiction to entertain the suit. The appeal was allowed in part, with directions under Article 142 to preserve the settlement already reached for retail debenture holders.

Issues considered

Whether the SEBI circular of 13 October 2020 is applicable to the resolution of RCFL’s default and must be followed by the debenture holders.
Whether the SEBI circular applies retrospectively or retroactively to defaults that occurred before its issuance.
Whether the civil court has jurisdiction to entertain the suit despite the bar provisions in Section 15Y of the SEBI Act and Section 430 of the Companies Act, 2013.

Legislation cited

Companies Act, 1956s. 391
Companies Act, 2013s. 1(4), s. 230, s. 430
SEBI (Debenture Trustees) Regulations, 1993s. Regulation 14, s. Regulation 15(7)
Securities and Exchange Board of India Act, 1992s. 15I, s. 15Y

Subjects

SEBI circularinter‑creditor agreementresolution plandebenture trusteesretroactive applicationcivil court jurisdictionCompanies ActRBI prudential frameworkISIN votingArticle 142

Judgment

[2022] 15 S.C.R. 1 1

SECURITIES AND EXCHANGE BOARD OF INDIA A
v.
RAJKUMAR NAGPAL & ORS.
(Civil Appeal No. 5247 of 2022)
AUGUST 30, 2022 B
[DR. DHANANJAYA Y CHANDRACHUD,
SURYA KANT AND A. S. BOPANNA, JJ.]
SEBI (Debenture Trustees) Regulations 1993 – Companies
Act 1956 – S. 391 (s. 230 Analogous provision, Present law) –
Company Act 2013 – SS. 1(4), 430 – Recovery of Debts – Resolution C
Plan – Debenture Holders – Debenture Trust Deeds – Reliance
Commercial Finance Limited (RCFL) issued Non-Convertible
Debentures to various persons – Vistra ITCL was the Debenture
Trustee – RCFL committed default under the Debenture Trust Deed
on March 4, 2019 – On June 07, 2019, a RBI circular provided that D
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 – Thereafter, SEBI issued a circular dated 13 October
2020 providing ‘Standardisation of procedure to be followed by
Debenture Trustee(s) in case of default by issuers of listed debt E
securities’ – Debenture Holders instituted a suit before the High
Court, for the protection of their interests with respect to amount
due to them by RCFL – Single Judge of the High Court suggested
that all the concerned parties to enter into a negotiated settlement –
Pursuant to that, the terms of repayments under Resolution Plan F
was formulated under the inter-creditor agreement (ICA) and
approved by the company’s lenders – Single Judge also held that
SEBI Circular dated 13 October 2020 could not be permitted to
operate retrospectively and didn’t govern the Debenture Trust Deed
– It directed debenture trustee to conduct a meeting of all debenture
holders in terms of Debenture Trust Deed and SEBI Circular would G
not override the express terms of any of the Debenture Trust Deed –
SEBI challenged the Single Judge’s order dated 28 October 2021
and 15 November 2021 before the Division Bench – Division Bench
of the High Court held that SEBI circular would not apply
retrospectively to defaults committed prior to 13 October 2020 –
H
1
2 SUPREME COURT REPORTS [2022] 15 S.C.R.

A Aggrieved by this decision SEBI moved to the Supreme Court – (i)
Whether the Debenture Holders and other parties were required to
follow the Procedure under the SEBI Circular – (ii) Whether the
civil Court had the jurisdiction to entertain the lis in this case – On
appeal, held : SEBI Circular does not stipulate that the signing of
an ICA is the only route to entering into a compromise with the
B
issuer company – Besides the absence of a clause mandating an
ICA pursuant to an event of default, clause 6.5.3 of the SEBI Circular
recognizes that the debenture holders (through the Debenture
Trustees) may undertake actions besides those contemplated in the
SEBI Circular – However, if the Debenture Holder’s choose to
C implement a Resolution Plan to which the lenders are party, they
must do so in compliance with the conditions laid down in the SEBI
Circular – SEBI circular was issued with reference to the RBI circular
– Both the RBI Circular and the SEBI Circular refer to one and the
same ICA and Resolution Plan – This is evident from Clause 4 of
the SEBI Circular – When the SEBI circular came into force, it
D
specified the conditions under which the debenture holders (through
the Debenture Trustees) could access this Resolution Plan and
participate in its formulation via the ICA – The ICA and the
Resolution Plan are inextricably intertwined and the latter has its
genesis in the former, and flows from it – Any reference to an ICA in
E the SEBI Circular is also necessarily a reference to the Resolution
Plan and vice versa – 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 –
F
As far as civil court’s jurisdiction is concerned, bar in section 15Y
would not operate as against the suit in the present case – Similarly,
nothing in the Companies Act 2013 or any other law for the time
being in force vests either the National Company Law Tribunal or
the National Company Law Appellate Tribunal with the jurisdiction
G to adjudicate upon a challenge to the RBI Circular – Hence, the
bar in Section 430 of the Companies Act, 2013 is not attracted.
SEBI (Debenture Trustees) Regulations 1993 – Companies
Act 1956 – S. 391 (s. 230 Analogous provision, Present law) –
Company Act 2013 – SS. 1(4), 430 –Retroactive application of SEBI
H Circular 13 October 2020 – Held: In the instant case, RCFL issued
SECURITIES AND EXCHANGE BOARD OF INDIA v. RAJKUMAR 3
NAGPAL

the debentures and defaulted on the payments to the debenture A
holders prior to the issuance of the SEBI Circular – However, as of
13 October 2020 (the date on which the SEBI Circular came into
force), a compromise or agreement on the restructuring of the debt
owed by RCFL did not exist – The debenture holders were not vested
with any rights with respect to the resolution of RCFL‘s debt – The
B
existence of the debt and the subsequent default by RCFL was the
status of events, which existed prior to 13 October 2020 – Once it
came into force, the SEBI Circular applied to the manner of
resolution of debt, as specified therein.
Words/Phrases – Retrospective and retroactive – Discussed.
C
Partly allowing the appeal, the Court
HELD :
There is no bar to the civil court’s jurisdiction
1. Section 15Y of the SEBI Act stipulates that no civil court D
shall have the jurisdiction to entertain any suit in respect of any
matter which an adjudicating officer appointed under the SEBI
Act is empowered to determine. Section 15-I of the SEBI Act
provides that an adjudicating officer may be appointed to adjudge
cases under Sections 15A, 15B, 15C, 15D, 15E, 15EA, 15EB,
15F, 15G, 15H, 15HA, 15HB. None of the sections mentioned in E
Section 15-I of the SEBI Act would confer jurisdiction on the
adjudicating officer to grant the relief sought by the plaintiffs in
the first instance. Hence, the bar in Section 15Y would not operate
as against the suit in the present case. Similarly, Section 430 of
the Companies Act provides that no civil court shall have the F
jurisdiction to entertain any suit in respect of any matter which
the National Company Law Tribunal or the National Company
Law Appellate Tribunal is empowered to determine. Nothing in
the Companies Act 2013 or any other law for the time being in
force vests either the National Company Law Tribunal or the
National Company Law Appellate Tribunal with the jurisdiction G
to adjudicate upon a challenge to the RBI Circular. Hence, the
bar in Section 430 is not attracted. [Paras 65-66][43-E-H]
The SEBI Circular is applicable if debenture holders wish
to implement a Resolution Plan to which the lenders are a party.
H
4 SUPREME COURT REPORTS [2022] 15 S.C.R.

A 2. The SEBI Circular does not stipulate that the signing of
an ICA is the only route to entering into a compromise with the
issuer company. Besides the absence of a clause mandating an
ICA pursuant to an event of default, Clause 6.5.3 of the SEBI
Circular recognizes that the debenture holders (through the
Debenture Trustees) may undertake actions besides those
B
contemplated in the SEBI Circular. However, if debenture holders
choose to implement a Resolution Plan to which the lenders are
party, they must do so in compliance with the conditions laid down
in the SEBI Circular. [Para 68][44-B-C]
3. The SEBI Circular was issued with reference to the RBI
C Circular; it does not specify the conditions for the execution of
an independent ICA or Resolution Plan which is separate from
the ICA and Resolution Plan under the RBI Circular. Both the
RBI Circular and the SEBI Circular refer to one and the same
ICA and Resolution Plan. This is evident from Clause 4 of the
D SEBI Circular. By issuing the SEBI Circular, SEBI subscribed
to the overall framework of the RBI Circular and permitted
debenture holders to participate in the process specified in the
RBI Circular to enter into a Resolution Plan. Under the RBI
Circular, the Resolution Plan cannot come into existence without
an ICA. The SEBI Circular does not disturb this position. When
E the SEBI Circular came into force, it specified the conditions
under which the debenture holders (through the Debenture
Trustees) could access this Resolution Plan and participate in its
formulation via the ICA. The ICA and the Resolution Plan are
inextricably intertwined and the latter has its genesis in the
F former, and flows from it. 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. There is only one “door”,
so to speak, through which debenture holders can gain entry into
G the Resolution Plan with the lenders and that is through the ICA.
Therefore, 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
H
SECURITIES AND EXCHANGE BOARD OF INDIA v. RAJKUMAR 5
NAGPAL

Resolution Plan with the lenders. This procedure cannot be A
circumvented. [Paras 72-74][45-C, G-H; 46-A-B, C; 47-F-G]
Dissenting ISIN level debenture holders are bound by the
ICA/Resolution Plan
4. Dissenting creditors do not have the option of - exiting
the compromise or arrangement arrived at in terms of Section B
230 Companies Act. Similarly, dissenting lenders do not have
the option of “exiting” the ICA / Resolution Plan under the RBI
Circular.25 The respective majorities provided for in each of these
laws bind dissenting creditors. It is along these lines that the
SEBI Circular binds dissenting debenture holders. Indeed, the C
SEBI Circular could bind dissenting debenture holders even in
the absence of similar provisions in other laws.[Para 78][49-A-
B]
The SEBI Circular has retroactive application
5. In the present case, RCFL issued the debentures and D
defaulted on the payments to the debenture holders prior to the
issuance of the SEBI Circular. However, as of 13 October 2020
(the date on which the SEBI Circular came into force), a
compromise or agreement on the restructuring of the debt owed
by RCFL did not exist. The debenture holders were not vested E
with any rights with respect to the resolution of RCFL‘s debt.
The existence of the debt and the subsequent default by RCFL
was the status of events, which existed prior to 13 October 2020.
Once it came into force, the SEBI Circular applied to the manner
of resolution of debt, as specified therein. [Para 84][51-D-E]
F
6. The SEBI Circular was issued partly in exercise of the
powers under the 1993 Regulations. Further, Regulation 15(7)
of the 1993 Regulations lays the foundation for the conditions
specified in the SEBI Circular. As such, the phrase “provisions
of the [1993 Regulations]” in Clause 59 must be read to include
the SEBI Circular. Clauses 22 and 23 of the Fifth Schedule to the G
Debenture Trust Deed are evidently in conflict with the SEBI
Circular as they each provide for different voting mechanisms.
Therefore, Clauses 22 and 23 must give way to the SEBI Circular,
which will take precedence. [Para 86][52-A-B]
H
6 SUPREME COURT REPORTS [2022] 15 S.C.R.

A Exercise of this Court’s power under Article 142 of the
Constitution
7. 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
B more than 10 lakhs are receiving 29.96% of their principal
amount. In comparison, the secured ICA lenders would receive
24.96% of their principal amount, which is lower than the recovery
made by the debenture holders. It is also important to highlight
that none of the debenture holders have raised any grievance
C with regard to the proposed compromise. In such a situation,
application of the SEBI Circular, though right in law, may lead to
unjust outcomes for the retail debenture holders if this court were
to reverse the entire course of action which has occurred in the
present case. Depending upon the facts and circumstances of a
D case, this Court can, having regard to Article 142 of the
Constitution of India, stipulate suitable directions to mitigate the
potential denial of rights. [ Paras 88 and 90][52-G; 53-A-B, D]
9. Pertinently, the SEBI circular only contemplates two
situations where ISIN-wise voting is mandated : (i) non-
E enforcement of security; and (ii) entering into an ICA. Although
it applies retroactively, it admittedly does not contemplate a
scenario where the debenture holders could give ex post facto
consent to ICAs agreed prior to the commencement of the SEBI
Circular, that is 13 October 2020. In the present case, the
application of the SEBI Circular will lead to a scenario where a
F
Resolution Plan validly agreed upon by the ICA lenders under
the RBI Framework will have to be unscrambled. For this reason,
we consider it necessary to extend the benefit under Article 142
to the retail debenture holders by allowing the Resolution Plan
to pass muster. The Court reiterates that this Court is issuing
G the directions to mould the relief under Article 142 in view of the
peculiar facts and circumstances of the present case. The Court
accept the submissions which have been urged by SEBI and
disapprove of the interpretation placed by the Division Bench of
the Bombay High Court on the SEBI Circular. The appeal is
H
SECURITIES AND EXCHANGE BOARD OF INDIA v. RAJKUMAR 7
NAGPAL

allowed in part, subject to the directions issued above under A
Article 142 of the Constitution. [Paras 94 and 99][55-A-C;56-D]
Vineeta Sharma v. Rakesh Sharma (2020) 9 SCC 1 27 ;
State Bank’s Staff Union (Madras Circle) v. Union of
India (2005) 7 SCC 584 : [2005] 3 Suppl. SCR 200;
State v. Kalyan Singh (2017) 7 SCC 444 : [2017] 6 B
SCR 946; Laxmidas Morarji v. Behrose Darab Madan
(2009) 10 SCC 425 : [2009] 14 SCR 777 - referred
to.
Case Law Reference
[2020] (9) SCC 1 27 referred to Para 82 C
[2005] 3 Suppl. SCR 200 referred to Para 83
[2017] 6 SCR 946 referred to Para 91
[2009] 14 SCR 777 referred to Para 92
CIVIL APPELLATE JURISDICTION : Civil Appeal No.5247 D
of 2022.
From the Judgment and Order dated 21.03.2022 of the High Court
of Judicature at Bombay in Commercial Appeal (L) No.27370 of 2021.
N. Venkataraman, ASG, Jayesh K. Ashar, Dhaval Mehrotra,
Abhishek Singh, Suraj Chaudhary, Sudhanshu Sikka, Chanderashekhar E
Bharti, M/s. K Ashar & Co., Advs. for the Appellant.
Darius J. Khambata, K.V. Viswanathan, Sr. Advs. Mahesh
Agarwal, Prateek Seksaria, M.S. Ananth, Divyanshu Srivastava, Karan
Rukhana, Rohan Talwar, Subir Kumar, Ms. Disha Shah, Karan Verma,
Ms. Deepsikha Mishra, Archit Jain, Yash Chheda, Nishant Chotani, E.C. F
Agrawala, Yohaann Limathwalla, Angad Baxi, Dheeraj Nair, Rahul
Sangwan, Sivagnanam K., Ms. Tine Abraham, Akshay Puri, Syed Jafar
Alam, Advs. for the Respondents.
The Judgment of the Court was delivered by
DR. DHANANJAYA Y. CHANDRACHUD, J. G
Table of Contents*
A. Facts ............................................................................. 4
i. The dispute ....................................................... 4
* Ed. Note : Pagination in the table of Contents is as per the original judgment. H
8 SUPREME COURT REPORTS [2022] 15 S.C.R.

A ii. The suit before the Bombay High Court ..... 5
iii. The impugned judgment ............................... 10
B. Issues .......................................................................... 12
C. Submissions ................................................................ 12
B D. Overview of contractual arrangements .................. 19
i. The Debenture Trust Deeds ........................ 19
ii. Steps taken by the Debenture Trustee
(Vistra) ............................................................. 23
C
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
D
ii. The RBI Circular dated 6 July 2019 and the
legal framework thereafter ........................... 27
iii. SEBI (Debenture Trustees) Regulations
1993 .................................................................. 32
E
iv. The SEBI Circular dated 13 October 2020
and the legal framework thereafter ............. 34
a. The SEBI Circular: Overview and

F Implications .................................................. 34
b. Voting at the ISIN level ............................... 42
c. The SEBI Circular has a statutory
character ...................................................... 44
G F. Analysis ...................................................................... 47
i. There is no bar to the civil court’s
jurisdiction ...................................................... 47
ii. The SEBI Circular is applicable if debenture
H
SECURITIES AND EXCHANGE BOARD OF INDIA v. RAJKUMAR 9
NAGPAL [DR. DHANANJAYA Y CHANDRACHUD, J.]

holders wish to implement a Resolution Plan to A
which the lenders are a party ....................... 49
iii. Dissenting ISIN level debenture holders are
bound by the ICA / Resolution Plan ............ 54
iv. The SEBI Circular has retroactive application B
56
v. Exercise of this Court’s power under Article
142 of the Constitution ................................. 59
vi. Dissenting debenture holders in the present C
case ............................................................................. 63
A. Facts
i. The dispute
1. Reliance Commercial Finance Limited1 issued Non-Convertible D
Debentures to various persons.2 Vistra ITCL (India) Limited was the
Debenture Trustee3 under three Debenture Trust Deeds dated 3 May
2017, 23 May 2017 and 5 February 2018.4 RCFL committed its first
default under the Debenture Trust Deeds in March 2019.
2. On 7 June 2019, RBI issued the Reserve Bank of India E
(Prudential Framework for the Resolution of Stressed Assets)5 Directions
2019, with “a view to providing a framework for early recognition, reporting
and time bound resolution of stressed assets”.6 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
F
plan7 or initiating legal proceedings for recovery or insolvency. If the
lenders chose to implement a Resolution Plan, they were required to
enter into an inter-creditor agreement.8 Bank of Baroda and other lenders
1
“RCFL”
2
“debenture holders”
3
“Vistra” G
4
“Debenture Trust Deeds” or “Debenture Trust Deed”
5
“RBI Circular”
6
Clause 4, RBI Circular.
7
“Resolution Plan”
8
“ICA”
H
10 SUPREME COURT REPORTS [2022] 15 S.C.R.

A 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.
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
B to be followed by Debenture Trustee(s) in case of ‘default’ by issuers of
listed debt securities’.9 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
Limited10 was approved by RCFL’s lenders.
C 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
D 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 certain
funds available with the Bank of Baroda, the second defendant, were
distributed amongst creditors without regard to their status as ‘secured’
E or ‘unsecured’ creditors. They also alleged that this was done without
their consent and that they had a first charge on the receivables of RCFL.
The debenture holders alleged that the RBI Circular permitted this “illegal”
distribution of funds. They also stated that RCFL, Bank of Baroda, and
Vistra could not seek an ex post facto consent from the debenture holders
for either the ICA or the Resolution Plan. They urged that it was
F mandatory for Vistra to sign the ICA on behalf of the debenture holders
before considering the Resolution Plan. The plaintiffs in the suit before
the High Court sought the setting aside of the RBI Circular as illegal and
ultra vires. They also sought an injunction restraining RCFL, Bank of
Baroda, and RBI from implementing the RBI Circular.
G 5. On 20 August 2021, Justice G S Patel of the Bombay High
Court opined prima facie that a meeting of debenture holders was
required. The Court, however, held that it could not recommend the
manner in which the meeting of debenture holders should be convened,
observing that:
9
“SEBI Circular”
H 10
“Authum”
SECURITIES AND EXCHANGE BOARD OF INDIA v. RAJKUMAR 11
NAGPAL [DR. DHANANJAYA Y CHANDRACHUD, J.]

“3. Prima facie, it is clear that a meeting or possibly meetings of A
debenture holders are required. The question presently that Vistra
faces relates to the terms on which such a meeting is to be called.
Mr. Ankhad explains that one option is to proceed according to
the ISIN series. The second is to proceed according to the
Debenture Trust Deeds. There are three different Debenture Trust
B
Deeds. The first option does not commend itself. Surely, this series
of debentures is immaterial in a situation like this.
4. Another problem that presents itself is the curtailing or
abbreviation of the necessary notice that is required.
5. Both aspects are not, prima facie, one on which this Court can C
make a recommendation, it is one thing to ask a Civil Court to
adjudicate on the correctness or otherwise of a decision of a
regulator or a validity of a rule or regulation. But I am unable to
see how a Civil Court can direct that a notice that is required by
the Trust Deed or by the applicable regulation should be shortened
or that a meeting should be held of all debenture holders in one D
particular manner over preference to another. These are directions
that only a regulator 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 E
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 199311
and the SEBI Circular and clarified that the voting would have to be
conducted in accordance with the SEBI Circular. The relevant extract F
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 G
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

11
“1993 Regulations”
H
12 SUPREME COURT REPORTS [2022] 15 S.C.R.

A SEBI as a respondent to an interlocutory application, Interim Application
No. 14224 of 2021. SEBI entered appearance on 24 September 2021.
SEBI in its affidavit before the High Court submitted that the debenture
trustees are obligated to comply with its circular in case of a default
committed by an issuer of listed debt securities even though the event of
default has taken place prior to the issuance of its circular.
B
8. On 14 October 2021 and 20 October 2021, the Single Judge of
the High Court suggested that all the concerned parties enter into a
negotiated settlement.
9. The terms of repayment under the Resolution Plan formulated
C under the ICA and approved by the company’s lenders are as follows:

D

E

F

G In terms of the above table, all individuals/ HUFs holding debentures
of a value less than Rs. 10 Lakhs were to get 100% of their principal
sum due, while individuals and HUFs holding debentures in excess of
Rs. 10 lakhs were to receive 24.96% of the principal.
10. By an order dated 28 October 2021, the Single Judge recorded
H that RCFL and the resolution applicant had agreed to pay the debenture
SECURITIES AND EXCHANGE BOARD OF INDIA v. RAJKUMAR 13
NAGPAL [DR. DHANANJAYA Y CHANDRACHUD, J.]

holders an additional sum of 5% of the total principal sum outstanding as A
an additional settlement. Therefore, the debenture holders were to receive
an aggregate sum of Rs. 91,00,000/- representing 29.96% of the total
principal outstanding. In return, debenture holder parties to the suit would
have to accept the terms of the negotiated settlement in full and final
satisfaction of all their claims against the parties and agreed to transfer
B
their debentures in favour of the resolution applicant. In the same order,
the Court held that the SEBI Circular could not be permitted to operate
retrospectively and did not govern the Debenture Trust Deeds. The Court
directed 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 C
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 D
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, E
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. F
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 considering
the peculiar facts and circumstances of the present case. It also
has consent of all the parties. G
18. As regards SEBI, I am making it clear that this order will
constitute no precedent against SEBI nor will SEBI be held to the
terms of this order for other cases. This order is made on the
peculiar facts and circumstances of this case.”
H
14 SUPREME COURT REPORTS [2022] 15 S.C.R.

A On 15 November 2021, the Single Judge passed a clarificatory
order indicating that the meeting should not deviate from the terms of
the Debenture Trust Deed(s) and that the Supplementary Trust Deeds
would have to be read with the Debenture Trust Deed(s) in a consistent
manner. The court also held that a mere reference to the SEBI Circular
would not override the express terms of any of the Debenture Trust
B
Deeds.
iii. The impugned judgment
11. SEBI challenged the Single Judge’s orders dated 28 October
2021 and 15 November 2021 before a Division Bench. SEBI submitted
C in its appeal, that the SEBI Circular is applicable and the consent of the
debenture holders at the International Securities Identification Number 12
level is necessary before a Resolution Plan could be implemented.
12. At the first hearing, SEBI took objection to paragraphs 15 to
17 of the Single Judge’s order dated 28 October 2021. Accordingly, the
D Division Bench passed an order dated 3 December 2021 granting liberty
to SEBI to move the Single Judge to obtain a clarification. On 3December
2021, the Single Judge clarified that SEBI was not a party to the suit and
could therefore not be a party to the compromise.
13. On 6 December 2021, the Division Bench admitted the appeal
E filed by SEBI and allowed the meeting to be held on 8 December 2021.
On 21 December 2021, a co-ordinate bench passed an order directing
that the results of e-voting of the meeting conducted on 8 December
2021 be placed on record.
14. After consideration of the rival submissions, the Division Bench
F dismissed the appeal filed by SEBI for the following reasons:
a. The SEBI Circular would not apply retrospectively to
defaults committed prior to 13 October 2020 because: (a) it
comes into force on 13 October 2020 and therefore only
applies to defaults committed after 13 October 2020; and
(b) it does not contain any provision for retrospective
G
application to defaults prior to 13 October 2020;
b. The SEBI Circular will only apply in two situations, namely,
enforcement of security or entering into an ICA. The SEBI
Circular will not apply to the present case as the debenture
12
H “ISIN”
SECURITIES AND EXCHANGE BOARD OF INDIA v. RAJKUMAR 15
NAGPAL [DR. DHANANJAYA Y CHANDRACHUD, J.]

holders are not proposing to enforce their security or enter A
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; B
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 C
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. D
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
Plan.
B. Issues E
15. Based on the submissions which have been canvassed by the
parties, the issues which arise for determination are:
a. Whether the debenture holders and other parties in the
present case were required to follow the procedure under
F
the SEBI Circular; and
b. Whether the civil court had the jurisdiction to entertain the
lis in this case.
C. Submissions
16. Mr. N Venkataraman, learned senior counsel and Additional G
Solicitor General made the following submissions in support of the
appellant’s argument that the SEBI Circular applies to the present case:
a. The parties to the Debenture Trust Deeds have entered
into a Master Supplementary Debenture Trust Deed on 11
H
16 SUPREME COURT REPORTS [2022] 15 S.C.R.

A 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;
B
b. The SEBI Circular is retroactive in nature because it does
not travel backwards and take away or impair vested rights.
The SEBI Circular operates in future, but its operation is
based on events that arose prior to it. Although the
Debenture Trust Deeds were signed prior to the SEBI
C Circular, the circular was brought into force before voting
took place. Therefore, the voting ought to have taken place
in accordance with the SEBI Circular;
c. The SEBI Circular has the force of law;

D d. Under the SEBI Circular, voting is required to be conducted
as per ISINs. ISIN-wise voting ensures that rights of small
investors are protected against the excesses of large
investors. The possibility of ISIN-wise voting will not defeat
the Resolution Plan as the issuer company can always
‘adjust’ the size of the security;
E
e. The Resolution Plan expressly states that it has to be carried
out in terms of the “Applicable Law”, which includes laws
enacted by SEBI. Therefore, compliance with regulatory
provisions mandated by the circular issued by SEBI is
required before implementing the Resolution Plan;
F
f. Prior to the coming into force of the SEBI Circular on 13
October 2020, a joint of meeting of a class of creditors was
governed by section 230 of the Companies Act 2013. 13 The
SEBI Circular adopted a special majority of 60% of the
investors by ISIN and 75% of the investors by value for
G 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
13
H “Companies Act”
SECURITIES AND EXCHANGE BOARD OF INDIA v. RAJKUMAR 17
NAGPAL [DR. DHANANJAYA Y CHANDRACHUD, J.]

of Section 15Y of the SEBI Act 199214 and Section 430 of A
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) B
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 C
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 Resolution
Plan without complying with the SEBI Circular.
17. Mr. Darius Khambata, learned senior counsel appearing for D
RCFL (Respondent No. 11) made the following submissions in support
of his argument that the SEBI Circular does not apply retroactively or
retrospectively to the present case:
a. The language employed in the SEBI Circular and in
Regulation 15(7) of the1993 Regulations is facilitative and E
not mandatory. There is no separate or independent ICA
imposed by SEBI outside RBI’s Circular. 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. Correspondingly, F
there is no prohibition, express or implied, on the freedom
of debenture holders to take any course of action as they
see fit. In particular, the SEBI Circular does not exclude
the provisions of Sections 62 and 63 of the Indian Contract
Act 1872; G
b. The SEBI Circular does not provide a mechanism by which
dissenting ISIN level debenture holders can ‘exit’ an ICA /
Resolution Plan. ISIN wise voting would enable a single
ISIN number to defeat the Resolution Plan;
14
“SEBI Act” H
18 SUPREME COURT REPORTS [2022] 15 S.C.R.

A c. The SEBI Circular is issued under section 11(1) of the SEBI
Act. Hence, the SEBI circular is administrative in nature
and is not delegated legislation. An administrative circular
cannot have retrospective operation as it takes away vested
rights. Moreover, the SEBI Act does not provide for
retrospective or retroactive application of subordinate
B
legislation;
d. The SEBI Circular extinguishes the vested rights of
debenture holders under the Debenture Trust Deeds. Under
Clauses 22 and 23 of the Fifth Schedule to the Debenture
Trust Deeds, the debenture holders by a special majority
C have a vested right to sanction any compromise or
arrangement with the company. However, the SEBI Circular
subjects the will of the majority to the will of the ISIN
number holders, and in the process impairs the vested rights
conferred under the Debenture Trust Deeds. Thus, the
D application of the SEBI Circular will not only be retroactive,
but also renders it retrospective;
e. The SEBI Circular does not prohibit the debenture holders
from conferring the authority on the debenture trustee in
respect of the matters enumerated under Clause 22 of the
E Fifth Schedule 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
F 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
G 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;
H
SECURITIES AND EXCHANGE BOARD OF INDIA v. RAJKUMAR 19
NAGPAL [DR. DHANANJAYA Y CHANDRACHUD, J.]

g. The Resolution Plan places the debenture holders in a better A
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 along with the lenders. Resultantly,
B
they could be easily outvoted by the lenders, who would
constitute 78.98% of the ICA by value; and
h. SEBI’s contention that Section 230 read with Section 430
of the Companies Act excludes the jurisdiction of the High
Court is untenable because the law does not expressly bar
a company from entering into a contractual compromise C
with any of its creditors.
18. It is necessary to record that Mr. Khambata does not contest
the following principles of law relied upon by the appellants:
a. Circulars issued by SEBI constitute special law and are D
binding, with the force of law;
b. Where SEBI prescribes a particular procedure to do a
particular thing, such a process cannot be dispensed with;
c. There can be no waiver of a provision of law based on
public policy; and E
d. No court will give effect to a contract which is forbidden
either expressly or by necessary implication by statute.
19. Mr. KV Viswanathan, learned senior counsel appearing for
Bank of Baroda (Respondent No. 12) submitted that the impugned order
F
should not be interfered with because:
a. The SEBI Circular has no retrospective/ retroactive
operation because it is not a regulation in terms of section
30 of the SEBI Act.
b. The compromise under the Resolution Plan does not fall G
foul of section 430 read with section 230 of the Companies
Act, 2013 because the latter is only an enabling provision.
The jurisdiction of the NCLT is invoked only when a
company which proposes to enter into a compromise with
its creditors opts to file an application before the NCLT.
H
20 SUPREME COURT REPORTS [2022] 15 S.C.R.

A c. Any further change to the extant resolution process carried
out validly under the RBI Prudential Framework would
derail the efforts undertaken by all the stakeholders.
Particularly, it would prejudice all the creditors of the
company, including 69% of the retail debenture holders who
are poised to receive 100% of the principal exposure.
B
20. Mr. Dhruv Mehta, learned senior counsel, appeared for Authum,
the Resolution Applicant. Authum is not a party to the present
proceedings. Mr Mehta submitted that the SEBI Circular can only apply
prospectively and not retrospectively/retroactively. He also submitted
that this Court can, after declaring the correct legal position, exercise its
C discretion under Article 136 of the Constitution to mould the final relief
based on equitable considerations.
D. Overview of contractual arrangements
i. The Debenture Trust Deeds
D 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
E
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
F 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
G
provision of these presents is unenforceable, the Parties shall
negotiate in good faith a new provision that as far as legally
possible, most nearly reflects the intent of the Parties and that
restores these presents as nearly as possible to its original intent
and effect.
H
SECURITIES AND EXCHANGE BOARD OF INDIA v. RAJKUMAR 21
NAGPAL [DR. DHANANJAYA Y CHANDRACHUD, J.]

59. CONFLICT OF TERMS A
The parties agree that in the event any of the terms or provisions
as contained in this indenture are in conflict with the provisions of
the SEBI (Debenture Trustees) Regulations, 1993 as amended
from time to time, then such clauses shall stand null and void.
Further the Parties have agreed that in case there is inconsistency B
in clauses mentioned in this Deed and Information Memorandum,
then the clauses mentioned in the Information Memorandum shall
prevail.”
The defaults by RCFL took place from March 2019. The lead
bank – Bank of Baroda – in its letter dated 13 June 2020 to RBI stated C
that:
“The Company (Reliance Commercial Finance Limited) availed
credit facilities aggregating to Rs.9017 Crs from various banks. It
started defaulting in servicing debt since March 2019. Sequence
of Events lead to start Resolution Process in the company’s D
account is as under:
Demerger of commercial finance business of RCL (Reliance
Capital Ltd.) into RCFL – 24.03.2017;
Mr. Devang Mody, CEO of the company resigned – 31.12.2018;
E
Default in repayment of Andhra Bank’s Term Loan –
22.03.2019;
Rating (LT) downgraded from CARE BBB+ to D-26.04.2019;
PWC, the erstwhile auditor of the company resigned –
11.06.2019" F
22. On 15 July 2019, an ICA was entered into between Bank of
Baroda and the other lenders of RCFL. On 24 August 2020, Bank of
Baroda issued a process note elucidating the process for seeking a
Resolution Plan from eligible bidders. The process note set out three
options of which the first option was in the following terms: G
“Option I – Submission of bid for RCFL as a going concern, on
as-is-where-is and as-is-what-is basis.
Under Option-I, bidders are invited to submit bid for the acquisition
of entire shareholding and business of RCFL as a going concern,
H
22 SUPREME COURT REPORTS [2022] 15 S.C.R.

A on as-is-where-is and as-is-what-is basis including each of the
Asset Books, and all rights, obligations, debts (secured and
unsecured) titles, interests, assets, properties whether movable or
immovable real or personal, in possession or reversion, corporeal
or incorporeal, tangible or intangible, present or continent, powers,
allotments, approvals, allotments, consents, privileges, employees
B
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
C 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
D 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
E expenses, employee related expenses in operations related
expenses, the Resolution Applicant will settle the dues of the
Dissenting Financial Creditors and Consenting Financial Creditors
Clause 7.5.vi - It is clarified the FC claims of the Dissenting
Financial Creditors shall be paid in priority to the payments to any
F Consenting Financial Creditors
Clause 41 - Financial Creditors (FC) shall mean the existing
secured and unsecured lenders to the Company including but not
limited to … debenture holders etc. as identified in the information
memorandum of the company”
G
Clause 40 - Financial Claims or FC Claims or Financial Creditor
Claims or FC Dues means all amounts or claims to a financial
creditor
Clause 33 - Dissenting Financial creditors or Dissenting Lenders
shall mean the financial creditors who vote against the Resolution
H
SECURITIES AND EXCHANGE BOARD OF INDIA v. RAJKUMAR 23
NAGPAL [DR. DHANANJAYA Y CHANDRACHUD, J.]

Plan or abstain from voting in favour of the Resolution Plan, as A
approved by the ICA Lenders.
Clause 6.1 - …..In line with this thought process the RA proposes
to acquire the entire business of the company ongoing basis under
Option 1 of the BID documents through either one or combination
of options mentioned in section 5 herein. B
Clause 6 - “Applicable Law means all applicable Indian statutes,
enactments, laws, ordinances, bye-laws, rules, regulations,
guidelines, notifications, notices and/or judgments, decrees,
injunctions, writs or orders of any court statutory or regulatory
authority, tribunal, board, or stock exchange in any jurisdiction, as C
may be in force and effect including any amendment, modification
or reenactment from time to time”
24. On 11 March 2021, parties entered into the Supplementary
Debenture Trust Deed to amend the earlier Debenture Trust Deeds.
The recitals to the Supplementary Trust Deed inter alia provide that: D
“WHEREAS
A. The Parties have entered into Principal Deeds as listed in
Schedule 1 hereunder for recording the terms and conditions for
issuance of Debentures by the Company in accordance with the
provisions of the Companies Act, 2013 and the regulations E
applicable to issue of debentures notified by Securities Exchange
Board of India (“SEBI”), from time to time.
B. SEBI has amended certain provisions of the SEBI (Issue and
Listing of Debt Securities) Regulations, 2008 and SEBI (Debenture
Trustee) Regulations, 1993 through its Gazette Notifications Nos. F
34 and 35, respectively and each dated October 8, 2020. Further,
SEBI has issued certain guidelines regarding debt instruments and
debenture trustees through its circulars 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
G
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”).
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24 SUPREME COURT REPORTS [2022] 15 S.C.R.

A 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
B 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
C 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’
D shall be inserted after the last existing Schedule of each respective
Principal Deed as follows:
…
5. The Company shall ensure due compliance and adherence to
the SEBI Debenture Circulars in letter and spirit.”
E (emphasis supplied)
The above contents of the Supplementary Trust Deed clearly take
notice of the 1993 Regulations and the SEBI Circular, among others.
Moreover, the Supplementary Debenture Trust Deed expressly
incorporated the terms of SEBI’s debenture circulars within its ambit
F and the requirement that RCFL shall ensure due compliance and
adherence to SEBI’s circulars in letter and spirit. The Resolution Plan
submitted by Authum was approved thereafter on 15 July 2021.
ii. Steps taken by the Debenture Trustee (Vistra)

G 25. In an affidavit filed before the Bombay High Court, Vistra
elucidated the steps which it had taken upon being intimated by RCFL of
its liquidity crisis. Vistra stated that it scheduled a meeting of the debenture
holders on 17 October 2019, 6 November 2019 and 14 January 2020 on
whether or not an ICA should be entered into. Vistra provided updates
regarding all these meetings to SEBI and RBI. In February 2020, Vistra
H
SECURITIES AND EXCHANGE BOARD OF INDIA v. RAJKUMAR 25
NAGPAL [DR. DHANANJAYA Y CHANDRACHUD, J.]

had filed proceedings before the Debts Recovery Tribunal, Bombay for A
the recovery of the outstanding dues of secured debenture holders from
RCFL. On 12 June 2020, Bank of Baroda informed Vistra that under
the Resolution Plan, it was proposed to distribute the funds of RCFL to
those lenders who had signed the ICA and the deed of indemnity.
26. Vistra addressed a communication to the Bank of Baroda on B
18 June 2020 objecting to this mechanism and the non-involvement of
the debenture holders in the decision-making process. On 1 July 2020
Bank of Baroda intimated that the total amount available for distribution
was Rs. 523 crores and that the debenture holders would be receiving
5.7% of the amount they had invested. Bank of Baroda stated that upon
signing the ICA, a proportionate amount would be paid to the debenture C
holders. Vistra adverted to the steps which it took of intimating the
debenture holders on various aspects of signing the ICA.
27. The Resolution Plan advisor requested Vistra to sign the ICA
on behalf of the debenture holders pursuant to which a meeting of the
ICA lenders was held on 6 November 2020. This meeting was inter D
alia attended by Vistra as an observer, along with four debenture holders.
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 E
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. F
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. G
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 debts
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26 SUPREME COURT REPORTS [2022] 15 S.C.R.

A i. The framework for the resolution of debt under the
Companies Act 1956
30. Prior to 6 July 2019, Section 391 of the Companies Act 1956
in Chapter V of the erstwhile legislation inter alia dealt with
compromises, arrangements and reconstructions. Section 391 as its
B marginal notes indicated, elucidated upon the power to compromise or
make arrangements with creditors and members. Under the provision, a
compromise or arrangement could be contemplated between a company
and;
a. A creditor or any class of them; or
C b. Its members or any class of them.
31. In terms of sub-section (1) of Section 391, the Company Court
(prior to the substitution of the National Company Law Tribunal for the
Company Court) could order a meeting of the creditors or a class of
creditors or of members or of a class of members. Sub-section (2) of
D Section 391 required a stipulated majority representing three-fourths in
value of the creditors or members or a class of them present and voting
to agree to a compromise or arrangement. In that event upon sanction
by the judicial body it would be binding on all creditors or members or a
class of them, as the case may be. The impact of a compromise or
E arrangement when approved by the special majority as stipulated in
Section 391(2) was that the scheme would bind even those who dissented
or abstained from voting. These provisions applied to all kinds of creditors
without exception.
32. In the absence of a provision such as Section 391 of the erstwhile
F Companies Act 1956, a contract for the repayment of the dues of creditors
would be governed by the provisions of Section 62 of the Contract Act.
Section 62 envisages that if the parties to a contract agree to substitute
a new contract for it, or to rescind or alter it, the original contract need
not be performed. Similarly, Section 63 envisages that every promisee
may dispense with or remit, wholly or in part, the performance of the
G promise made to him, or may extend the time for such performance or
may accept instead of it any satisfaction which he may think fit. The
provisions of Sections 62 and 63 would obviously apply to consenting
parties. Hence, the terms of an earlier agreement between a debtor and
a creditor would be varied by a specific act of acceptance.
H
SECURITIES AND EXCHANGE BOARD OF INDIA v. RAJKUMAR 27
NAGPAL [DR. DHANANJAYA Y CHANDRACHUD, J.]

33. The impact of Section 391 of the Companies Act 1956 lay in A
its ability, in relation to the creditors 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,
B
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 C
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 D
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
provisions of the Act shall apply inter alia to:
a. Companies incorporated under the Act or the previous E
company legislation;
b. Insurance companies;
c. Banking companies;
d. Companies engaged in the generation or supply of electricity; F
e. Any other company governed by a special Act for the time
being in force.
ii. The RBI Circular dated 6 July 2019 and the legal framework
thereafter
G
36. In exercise of its powers under the Banking Regulation Act
1949 and the Reserve Bank of India Act 1934, RBI issued directions on
7 June 2019 “with a view to providing a framework for early recognition,
reporting and time bound resolution of stressed assets”. The RBI Circular
indicates that it applies to:
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28 SUPREME COURT REPORTS [2022] 15 S.C.R.

A a. Scheduled commercial banks excluding regional rural banks;
b. Specified All India Term Financial Institutions;
c. Small Finance Banks; and
d. Deposit and non-deposit taking non-banking financial
B companies.15
37. The RBI Circular envisages that all lenders must recognize
incipient stress in loan accounts immediately on default by classifying
such assets as ‘special mention accounts’. The expression ‘default’
means a non-payment of a debt, as defined in the Insolvency and
C Bankruptcy Code 2016 when the whole or any part or an instalment has
become due and payable and is not paid by the debtor or corporate
debtor. The framework which has been put into place by the circular
includes the following provisions:-
a. The framework requires that lenders initiate the process of
D implementing a Resolution Plan even before a default
occurs. Once the borrower is reported to be in default,
lenders must undertake a prima facie review of the
borrower’s account within 30 days from such default, within
which a resolution strategy has to be decided (clause 9);
b. In cases where a Resolution Plan is to be implemented, all
E
lenders have to enter into 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
F
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
G 15
“3. The provisions of these directions shall apply to the following entities:
(a) Scheduled Commercial Banks (excluding Regional Rural Banks);
(b) All India Term Financial Institutions (NABARD, NHB, EXIM Bank, and
SIDBI);
(c) Small Finance Banks; and,
(d) Systemically Important Non-Deposit taking Non-Banking Financial Companies
H (NBFC-ND-SI) and Deposit taking Non-Banking Financial Companies (NBF-C-D)”
SECURITIES AND EXCHANGE BOARD OF INDIA v. RAJKUMAR 29
NAGPAL [DR. DHANANJAYA Y CHANDRACHUD, J.]

implementation, prudential norms, supervisory review, disclosures, and A
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.16 Clause B
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 of the RP in respect of borrowers with credit C
facilities from more than one lender. The ICA shall provide that
any decision agreed by lenders representing 75 per cent by value
of total outstanding credit facilities (fund based as well non-fund
based) and 60 per cent of lenders by number shall be binding
upon all the lenders. Additionally, the ICA may, inter alia, provide
for rights and duties of majority lenders, duties and protection of D
rights of dissenting lenders, treatment of lenders with priority in
cash flows/differential security interest, etc. In particular, the RPs
shall provide for payment not less than the liquidation value due to
the dissenting lenders.”
Footnote 5 states: E

“In cases where asset reconstruction companies (ARCs) have
exposure to the borrower concerned, they shall also sign the ICA
and adhere to all its provisions.”
Clause 10 makes it mandatory for all lenders to enter into an ICA, F
where a Resolution Plan is to be implemented. The ICA has to provide
ground rules for finalizing and implementing the Resolution Plan where
the borrower has credit facilities from more than one lender. Significantly,
the ICA must mandate that any decision agreed by lenders representing
75% by value of the total outstanding credit facilities and 60% of lenders
by number shall be binding upon by all the lenders. This means that G
where the requisite majority of lenders supports the decision, the decision
binds all lenders including those who may dissent or abstain. The ICA is
to inter alia provide for the protection of rights of dissenting lenders and
16
Footnote 1, RBI Circular: “For the purpose of these directions, ‘lenders’ shall mean
all entities mentioned at paragraph 3, unless specified otherwise.” H
30 SUPREME COURT REPORTS [2022] 15 S.C.R.

A in particular, for a payment of not less than the liquidation value to the
dissenters. The liquidation value (as specified in footnote 6 to the RBI
Circular) means the estimated realizable value of the assets of the
borrower, if the borrower were to be liquidated as on the date of the
commencement of the review period.17 Hence the ability to bind all
lenders, including those who dissent or abstain is conditioned on the
B
decision being backed by the requisite majority representing 75% by
value and 60% by number.
39. Section 1(4)(e) of the Companies Act recognizes that banking
companies can be regulated by a special legislation. Section 230(2)(c)(iv)
of the Companies Act contemplates that the company or person by whom
C 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
D 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 3.18
40. Since the circular issued by the RBI is under a special law
within the meaning of Section 1(4)(e) of the Companies Act, Section C
E provides for implementation conditions for a Resolution Plan without a
requirement of approaching the NCLT under Section 230, where the
Resolution Plan is being implemented in relation to lenders governed by
Clause 3 of the RBI Circular.
41. These provisions make it abundantly clear that the RBI Circular
F which traces its origin to the exercise of its statutory powers envisages
that:
17
Footnote 6, RBI Circular: “Liquidation value would mean the estimated realizable
value of the assets of the relevant borrower, if such borrower were to be liquidated as
on the date of commencement of the Review Period.”
18
Footnote 7, RBI Circular: “Restructuring is an act in which a lender, for economic or
G 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 default to aid curing of default / enhancement of existing credit limits; compromise
settlements where time for payment of settlement amount exceeds three months.”
H
SECURITIES AND EXCHANGE BOARD OF INDIA v. RAJKUMAR 31
NAGPAL [DR. DHANANJAYA Y CHANDRACHUD, J.]

a. All lenders must enter into an ICA where a Resolution Plan A
is being implemented;
b. The ICA shall provide that a decision by lenders representing
75% by value and 60% by number shall bind all lenders,
including those who may dissent. Entering into an ICA by
the lenders is a mandatory first step to the implementation B
of the Resolution Plan; and
c. It is the ICA which will stipulate the ability to bind all lenders
once the decision has been agreed upon by the stipulated
majority.
Significantly, the RBI Circular has prescribed a higher voting C
threshold than the threshold mandated by Section 230(6) of the Companies
Act. Consequently, on and from 7 June 2019 (the date of issuance of the
RBI Circular), lending institutions governed by Clause 3 of the RBI
Circular can avail of the special mechanism which has been introduced
under it for the purpose of entering into a compromise, resolution, plan
or arrangement for restructuring the debt due to lenders, with the ability D
to bind dissenters or those who abstain, without having to approach the
NCLT under Section 230 of the Companies Act.
iii. SEBI (Debenture Trustees) Regulations 1993
42. Regulation 2(bb) defines ‘debenture trustee’ to mean a trustee
appointed in respect of any issue of debentures of a body corporate. E
Chapter II of the 1993 Regulations contains provisions for the registration
of a debenture trustee. Chapter III provides the responsibilities and
obligations of debenture trustees. Chapter IV provides for inspection
and disciplinary proceedings. Chapter V provides the procedure for action
in case of default. Chapter VI contains a provision to relax the strict
F
enforcement of the 1993 Regulations. 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.19
19
Regulation 14, 1993 Regulations: “14. Every debenture trustee shall amongst other
G
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.” H
32 SUPREME COURT REPORTS [2022] 15 S.C.R.

A 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
B SEBI (Debenture Trustees) (Amendment) Regulation 2020 with effect
from 8 October 2020. Regulation 15 (7) provides as follows: -
“15(7) Subject to the approval of the debenture holders and the
conditions as may be specified by the Board from time to time,
the debenture trustee, on behalf of the debenture holders, may
C enter into inter-creditor agreements provided under the framework
specified by the Reserve Bank of India.”
Regulation 15(7) contemplates that the debenture trustees “may”
enter into ICAs provided under RBI’s framework subject to:
a. the approval of the debenture holders; and
D b. the conditions which may be specified by SEBI from time
to time.
45. Regulation 15(7) is facilitative in character. Regulation 15(7)
indicates that the debenture trustee may enter into an ICA in terms of
RBI’s framework with the approval of the debenture holders. But Clause
E 7 does not in and of itself specify the modalities or manner in which the
approval by the debenture holders is to be provided.
iv. The SEBI Circular dated 13 October 2020 and the legal
framework thereafter
a. The SEBI Circular: Overview and Implications
F 46. The subject of the SEBI Circular is the standardization of the
procedure to be followed by debenture trustees when there is a default
by an issuer of listed debt securities. The circular prescribes the process
to be followed by the debenture trustees in the event of such default
including seeking the consent of the investors for refraining from
G enforcing the security and/or entering into an ICA. Section B of the
SEBI Circular provides for the consent of the investors for the
enforcement of security and for signing an ICA. Section B is extracted
in its entirety below:
“B. Consent of investors for enforcement of security and for signing
the ICA
H
SECURITIES AND EXCHANGE BOARD OF INDIA v. RAJKUMAR 33
NAGPAL [DR. DHANANJAYA Y CHANDRACHUD, J.]

4. The Reserve Bank of India (“RBI”), vide Circular dated June A
07, 2019 issued the Reserve Bank of India (Prudential Framework
for Resolution of Stressed Assets) Directions 2019 which inter
alia specified the mechanism for resolution of stressed assets by
Lenders (viz. Scheduled Commercial Banks, All-India Term
Financial Institutions, Small Finance Banks, Systematically
B
Important Non-Deposit Taking Non-Banking Finance Companies
(NBFCs) as well as Deposit Taking NBFCs). In terms thereof,
investors in debt securities, being financial creditors, are
approached by other lenders to sign an agreement, referred to as
the Inter Creditor Agreement (“ICA”), under specific terms
detailed in the framework as stipulated by RBI. C
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 D
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.
E
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:
F
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 proof of delivery as also through
email as a text or as an attachment to email with a notification
including a read receipt, and proof of dispatch of such notice or G
email, shall be maintained.
6.2. The notice shall contain the following:
6.2.1. negative consent for proceeding with the enforcement of
security;
H
34 SUPREME COURT REPORTS [2022] 15 S.C.R.

A 6.2.2. positive consent for signing the ICA;
6.2.3. the time period within which the consent needs to be
provided, viz. consent to be given within 15 days from the date of
notice; and
6.2.4. the date of meeting to be convened,
B
6.3. Debenture Trustee(s) shall convene the meeting of all investors
within 30 days of the event of default (as per para 6.1 above);
Provided that in case the default is cured between the date of
notice and the date of meeting, then the convening of such a
C meeting may be dispensed with.
6.4. In view of Regulation 15(2)(b) of SEBI (Debenture Trustees)
Regulations, 1993, in case of debt securities issued by way of
public issue, the notice sent by the Debenture Trustee(s) in para
6.2 shall not contain the consent as per para 6.2.1 and the
D requirement to convene a meeting for enforcement of security, as
per para 6.3, shall not be applicable.
6.5. The Debenture Trustee(s) shall take necessary action to
enforce security or enter into the ICA or as decided in the meeting
of investors, subject to the following:
E 6.5.1. In case(s) where the majority of investors expressed their
dissent against enforcement of the security, the Debenture
Trustee(s) shall not enforce security.
6.5.2. In case(s) where majority of investors expressed their
consent to enter into ICA, the Debenture Trustee(s) shall enter
F into the ICA.
6.5.3. In case(s) consents are not received for enforcement of
security and for signing ICA, Debenture Trustee(s) shall take
further action, if any, as per the decision taken in the meeting of
the investors.
G 6.5.4. The Debenture Trustee(s) may form a representative
committee of the investors to participate in the ICA or to enforce
the security or as may be decided in the meeting.
6.6. The consent of the majority of investors shall mean the
approval of not less than 75% of the investors by value of the
H
SECURITIES AND EXCHANGE BOARD OF INDIA v. RAJKUMAR 35
NAGPAL [DR. DHANANJAYA Y CHANDRACHUD, J.]

outstanding debt and 60% of the investors by number at the ISIN A
level.”
47. Clause 4 envisages that the RBI Circular 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 B
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 C
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 D
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 E
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 of all investors
within 30 days of the event of default. Clause 6.5 mandates that F
the debenture trustee must take necessary action:
a. To enforce the security; or
b. To enter into the ICA; or
c. As decided in the meeting of investors; subject to certain
G
conditions namely:
i. Where the majority of investors has expressed its
dissent against the enforcement of the security, the
security is not to be enforced by the debenture
trustees;
H
36 SUPREME COURT REPORTS [2022] 15 S.C.R.

A ii. Where the majority of investors has expressed its
consent to enter into an ICA, the debenture trustees
must enter into the ICA;
iii. Where consents are not received for the enforcement
of security or signing the ICA, the debenture trustee
B shall take further action according to the decision
which is taken in the meeting of the investors.
49. Significantly, Clause 6 of the SEBI Circular contains mandatory
language by the use of the expression “shall” when it relays the process
to be followed for seeking the consent for enforcement of the security
C or entering into an ICA and the steps which are adopted thereafter. The
expression “shall” is used in the prefatory part of Clause 6 and in Clauses
6.1, 6.2, 6.3. 6.5 and 6.6. However, in contradistinction, Clause 6.5.4
adopts the expression “may”. Clause 6.5.4 permits the debenture trustee
to form a representative committee of investors to participate in the
ICA; or to enforce the security; or as may be decided in the meeting.
D
50. Clause 6.6 of the SEBI Circular specifies that the consent of
the majority of investors shall mean the approval of not less than 75% of
the investors by value of the outstanding debt and 60% of the investors
by number at the ISIN level.

E 51. Clause 7 of the SEBI Circular specifies conditions for the
signing of an ICA by a debenture trustee on behalf of the investors.
Evidently, the debenture trustee is vested with a discretion (“may sign
the ICA and consider the resolution plan on behalf of the investors”)
upon compliance with certain conditions, namely:

F a. The signing of the ICA and acceptance of the Resolution
Plan would be in the interest of the investors;
b. This would be in compliance with the Companies Act, the
Securities Contracts (Regulation) Act 1956,20 and the SEBI
Act and the rules, regulations, and circulars issued
thereunder;
G
c. The debenture trustee shall 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
20
circulars issued thereunder;
H “SCRA”
SECURITIES AND EXCHANGE BOARD OF INDIA v. RAJKUMAR 37
NAGPAL [DR. DHANANJAYA Y CHANDRACHUD, J.]

d. If the Resolution Plan is not finalized within a period of 180 A
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. B
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 C
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 bind creditors who fell outside
the purview of Clause 3 of the RBI Circular would be based on the
invocation of the provisions of Section 230 of the Companies Act. D

53. However, subsequent to the issuance of the SEBI Circular,
debenture holders can bind dissenters by taking recourse to the SEBI
Circular as well. The SEBI Circular facilitates the process of seeking
consent for enforcement of security and/or entering into an ICA. The
SEBI Circular recognizes that investors in debt securities who are E
financial creditors falling outside the purview of the RBI Circular are
approached by other lenders to sign the ICA under the RBI Circular.
SEBI’s circular has enunciated the modalities for standardizing the
procedure.
54. Clause 6.6 incorporates the requirement of a special majority F
by stipulating that the consent of the majority of investors shall mean the
approval of not less than 75% of the investors by value of the outstanding
debt and 60% of the investors by number at the ISIN level. We have
already seen how a provision for a special majority is stipulated in Section
230(6) of the Companies Act. The RBI Circular on the one hand and the G
SEBI Circular on the other contain separate provisions indicating the
nature of the majority necessary under each circular. The SEBI Circular
stipulates the requirement of the consent of a heightened majority of not
less than 75% of the investors by value and 60% of the investors by
number at the ISIN level. The SEBI Circular contemplates that the
H
38 SUPREME COURT REPORTS [2022] 15 S.C.R.

A investors who lie outside the purview of RBI’s framework may be
approached by the lenders to sign an ICA. This is for the reason that the
Resolution Plan in the ICA which has been entered into by the lenders
may involve the restructuring of debt security.
55. Where a Resolution Plan has to be implemented, it has to be
B preceded by all lenders entering into an ICA, in terms of the RBI Circular.
Debenture holders who lie outside the purview of the RBI Circular may
agree to enter into the ICA in which event, the Resolution Plan which is
being implemented in pursuance of the ICA entered into with the lenders
would enure to the benefit of the debenture holders subject to the
obligations and duties cast under it. The debenture holders are not bound
C to enter into an ICA in which event they would not be governed by its
provisions or of the Resolution Plan which is entered into under 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
D 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
E 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
F 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 for resolution
governing lenders within the description of Clause 3 of the RBI Circular,
the threshold is 75% by value of the total outstanding credit facilities and
G 60% of lenders by number. The SEBI Circular on the other hand mandates
the approval of not less than 75% of the investors by value of the
outstanding debt and 60% of the investors by number at the ISIN level.
The majority prescribed in Section 230(6) would govern NCLT approved
compromises within the meaning of Section 230 in its ability to bind
those who do not consent to the compromise or arrangement. Likewise,
H
SECURITIES AND EXCHANGE BOARD OF INDIA v. RAJKUMAR 39
NAGPAL [DR. DHANANJAYA Y CHANDRACHUD, J.]

the importance of the heightened majority prescribed in the RBI Circular A
lies in the consequence of binding dissenting lenders. In the same vein,
the heightened majority prescribed in Clause 6.6 of the SEBI Circular
has the consequence of binding dissenting debenture holders.
b. Voting at the ISIN level
57. Each debenture instrument has an international security B
identification number (ISIN) related to a particular issue. Each ISIN
forms a separate class or category having the same feature such as an
issue date, face value, rate of interest, maximum duration or date of
redemption. These features are homogenous for all debentures within
the same ISIN or tranches when compared to debentures across different C
ISINs. In the present case there are three Debenture Trust Deeds having
19 ISIN numbers, with ISINs split across the three Debenture Trust
Deeds dated 3 May 2017, 23 May 2017 and 5 February 2018.
58. Each ISIN being a separate class or category, the SEBI
Circular mandates that the voting is required to be done ISIN wise. D
SEBI has explained that it is left to the debenture holder in each ISIN to
determine how they wish to vote and adopt or reject the Resolution
Plan. SEBI has asserted that nothing prevents an individual holder of an
ISIN to accept a haircut in the payment of its dues. But this cannot be
forced upon them without following the framework prescribed by SEBI
to protect the interests of debenture holders. In the present case, the E
three Debenture Trust Deeds with 19 ISIN numbers are distributed in
the following manner:
a. Debenture Trust Deed-1 dated 5 February 2018 has four
(4) ISIN with an approximate principal amount of Rs.564.77
crores; F
b. Debenture Trust Deed-2 dated 3 May 2017 has nine (9)
ISIN with an approximate principal amount of Rs.1249.8
crores; and
c. Debenture Trust Deed-3 dated 23 May 2017 has six (6)
G
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:
H
40 SUPREME COURT REPORTS [2022] 15 S.C.R.

A “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
B 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
C 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:

D “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) as the case may be duly convened and held
in accordance with the provisions herein contained and carried by
a majority consisting of not less than three-fourth of the persons
voting thereat upon a show of hands or if a poll is demanded by a
E majority representing not less than three-fourths in value of the
votes cast on such poll. Such a Resolution is hereinafter called
“Special Resolution”.”
60. All the Debenture Trust Deeds were executed prior to the
RBI Circular. Clause 22(ii) deals with voting on a compromise proposed
F to be made between the issuer company and the debenture holder. The
concept of a third party resolution applicant stepping into a debtor
company in terms of a Resolution Plan led by the lenders came in with
the RBI Circular. The Debenture Trust Deeds which are earlier in point
of time must consequently be with reference to a compromise under
Section 230 of the Companies Act. Clause 22(ii) and 23 can therefore
G
not have precedence over the requirement of the special majority
prescribed by the circulars of the RBI or SEBI.
c. The SEBI Circular has a statutory character
61. The SEBI Circular has been issued in exercise of the powers
H conferred by the SEBI Act, the 1993 Regulations, the Securities and
SECURITIES AND EXCHANGE BOARD OF INDIA v. RAJKUMAR 41
NAGPAL [DR. DHANANJAYA Y CHANDRACHUD, J.]

Exchange Board of India (Listing Obligations and Disclosure A
Requirements) Regulations 2015 and the Securities and Exchange Board
of India (Issue and Listing of Debt Securities) Regulations 2008 to protect
the interest of investors in securities for promoting the development of
and regulation of the securities market.21 Now it is important to emphasise
that the ICA which has been referred to in the SEBI Circular is the ICA
B
which is provided for in the RBI Circular. Clause 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 C
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 D
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 E
not extend to other creditors of a borrower such as the debenture
holders whose primary regulator is the Securities and Exchange
Board of India (SEBI).”
“9. At the same time, other creditors to the borrower can voluntarily
agree to be a party to the ICA since it is ultimately a contract F
between the creditors. If such creditors are regulated by other
financial sector regulators, signing of the ICA by such creditors
may be subject to permission from their respective regulators. In
21
Clause 9, SEBI Circular: “9. This circular is issued in exercise of the powers conferred
upon SEBI under Section 11(1) of the Securities and Exchange Board of India Act, 1992
G
read with the provisions of Regulation 2A of the Securities and Exchange Board of India
(Debenture Trustees) Regulations, 1993, Regulation 31(1) of the Securities and Exchange
Board of India (Issue and Listing of Debt Securities) Regulations, 2008 and Regulation
101(1) or the Securities and Exchange Board of India (Listing Obligation and Disclosure
Requirements) Regulations, 2015 to protect the interest of investors in securities and
to promote the development of, and to regulate, the securities market.” H
42 SUPREME COURT REPORTS [2022] 15 S.C.R.

A this connection, it is pertinent to note that SEBI vide circular SEBI/
HO/MIRSD/CRADT/CIR/P/2020/203 dated October 13, 2020
has prescribed the conditions under which Debenture Trustees
may sign an ICA under the Prudential Framework.”
62. The above extract indicates that RBI’s stated position was
B that:
a. The prudential framework for the resolution of stressed
assets formulated in the RBI Circular was in exercise of
the powers conferred by the RBI Act 1934 and the Banking
Regulation Act 1949;
C b. The provisions of the prudential framework are mandatory
only for RBI regulated lenders;
c. RBI’s powers do not extend to other creditors of a borrower
such as debenture holders who are primarily regulated by
SEBI;
D
d. Other creditors of a borrower may voluntarily agree to the
ICA since it is a contract between creditors;
a. e. Where the other creditors are regulated by a distinct
financial sector regulator such as SEBI, the signing of the
ICA by such creditors would be subject to permission by
E
the concerned regulator; and
f. In this backdrop, SEBI prescribed the conditions under
which debenture trustees may sign an ICA under the
prudential framework, by issuing the SEBI Circular.
F RBI has, in the above extract of its affidavit, clarified that the
resolution of stressed assets is ultimately an act of commercial negotiation
between the debtor and the creditor and between various creditors of
the borrower under resolution.
F. Analysis
G 63. It is RCFL’s case that the SEBI Circular is applicable only if
the debenture holders choose to enter into an ICA under the RBI Circular.
According to RCFL, it is open to debenture holders to choose not to
enter into an ICA. Instead, they may approve of a Resolution Plan that
the lenders have formulated independent of the modalities prescribed in
H the SEBI Circular. It is argued that this route permits debenture holders
SECURITIES AND EXCHANGE BOARD OF INDIA v. RAJKUMAR 43
NAGPAL [DR. DHANANJAYA Y CHANDRACHUD, J.]

to approve or reject Resolution Plans based on whether their interests A
are properly accounted 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
B
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 C
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 D
of Baroda, and RBI from implementing the RBI Circular was also sought.
65. Section 15Y of the SEBI Act stipulates that no civil court shall
have the jurisdiction to entertain any suit in respect of any matter which
an adjudicating officer appointed under the SEBI Act is empowered to
determine. Section 15-I of the SEBI Act provides that an adjudicating E
officer may be appointed to adjudge cases under Sections 15A, 15B,
15C, 15D, 15E, 15EA, 15EB, 15F, 15G, 15H, 15HA, 15HB. None of the
sections mentioned in Section 15-I of the SEBI Act would confer
jurisdiction on the adjudicating officer to grant the relief sought by the
plaintiffs in the first instance. Hence, the bar in Section 15Y would not F
operate as against the suit in the present case.
66. Similarly, Section 430 of the Companies Act provides that no
civil court shall have the jurisdiction to entertain any suit in respect of
any matter which the National Company Law Tribunal or the National
Company Law Appellate Tribunal is empowered to determine. Nothing G
in the Companies Act 2013 or any other law for the time being in force
vests either the National Company Law Tribunal or the National Company
Law Appellate Tribunal with the jurisdiction to adjudicate upon a challenge
to the RBI Circular. Hence, the bar in Section 430 is not attracted.

H
44 SUPREME COURT REPORTS [2022] 15 S.C.R.

A 67. The Single Judge of the Bombay High Court (in the first
instance) as well as the Division Bench of the Bombay High Court
properly exercised jurisdiction over the subject matter of the suit.
ii. The SEBI Circular is applicable if debenture holders wish
to implement a Resolution Plan to which the lenders are a party
B 68. It is undoubtedly true that the SEBI Circular does not stipulate
that the signing of an ICA is the only route to entering into a compromise
with the issuer company. Besides the absence of a clause mandating an
ICA pursuant to an event of default, Clause 6.5.3 of the SEBI Circular
recognizes that the debenture holders (through the Debenture Trustees)
C may undertake actions besides those contemplated in the SEBI Circular.
However, if debenture holders choose to implement a Resolution Plan to
which the lenders are party, they must do so in compliance with the
conditions laid down in the SEBI Circular.
69. Clause 9 of the RBI Circular stipulates that the lenders are to
D undertake a review of the borrower’s accounts within 30 days from the
date of default, during which they may decide on the resolution strategy.
The lenders may opt for any resolution strategy available to them 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
E 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:
F
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
G 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.
H
SECURITIES AND EXCHANGE BOARD OF INDIA v. RAJKUMAR 45
NAGPAL [DR. DHANANJAYA Y CHANDRACHUD, J.]

71. As evident from the definition of ‘lenders’, the RBI Circular A
did not apply to debenture holders. Debenture holders continued to be
governed by Section 230 Companies Act. However, the options available
to debenture holders increased with the issuance of the SEBI Circular.
The SEBI Circular laid down the process to be followed for:
a. Refraining from enforcing security; and B
b. Entering into an ICA.
72. The SEBI Circular was issued with reference to the RBI
Circular; it does not specify the conditions for the execution of an
independent ICA or Resolution Plan which is separate from the ICA
and Resolution Plan under the RBI Circular. Both the RBI Circular and C
the SEBI Circular refer to one and the same ICA and Resolution Plan.
This is evident from Clause 4 of the SEBI Circular which states:
“The Reserve Bank of India (“RBI”), vide Circular dated June
07, 2019 issued the Reserve Bank of India (Prudential Framework
for Resolution of Stressed Assets) Directions 2019 which inter D
alia specified the mechanism for resolution of stressed assets by
Lenders … In terms thereof, investors in debt securities, being
financial creditors, are approached by other lenders to sign an
agreement; referred to as the Inter Creditor Agreement
(“ICA”), under specific terms detailed In the framework E
as stipulated by RBI.”
(emphasis supplied)
Further, Regulation 15(7) of the 1993 Regulations relates to the
duties of Debenture Trustees. It provides:
F
“Subject to the approval of the debenture holders and the conditions
as may be specified by the Board from time to time, the debenture
trustee, on behalf of the debenture holders, may enter into inter-
creditor agreements provided under the framework
specified by the Reserve Bank of India.”
(emphasis supplied) G

73. By issuing the SEBI Circular, SEBI subscribed to the overall
framework of the RBI Circular and permitted debenture holders to
participate in the process specified in the RBI Circular to enter into a
Resolution Plan. Under the RBI Circular, the Resolution Plan cannot
H
46 SUPREME COURT REPORTS [2022] 15 S.C.R.

A come into existence without an ICA. The SEBI Circular does not disturb
this position. When the SEBI Circular came into force, it specified the
conditions under which the debenture holders (through the Debenture
Trustees) could access this Resolution Plan and participate in its
formulation via the ICA.
B 74. By arguing that Clauses 22 and 23 of the Fifth Schedule to the
Debenture Trust Deed(s) are not concerned with signing an ICA or with
the subject matter 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
C 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
D 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)
E
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
F with the following conditions:
7.1 The signing of the ICA and agreeing to the resolution
plan is in the interest of investors and in compliance with the
Companies Act, 2013 and the rules made thereunder, the Securities
Contracts (Regulations) Act, 1956 and the Securities and Exchange
Board of India Act, 1992 and the rules, regulations and circulars
G
issued thereunder from time to time.
7.2. If the resolution plan imposes condition(s) on the
Debenture Trustee(s) that are not in accordance with the
provisions of Companies Act, 2013 and the rules made thereunder,
the Securities Contracts (Regulations) Act, 1956 and the Securities
H
SECURITIES AND EXCHANGE BOARD OF INDIA v. RAJKUMAR 47
NAGPAL [DR. DHANANJAYA Y CHANDRACHUD, J.]

and Exchange Board of India Act, 1992 and the rules, regulations A
and circulars issued thereunder from time to time, then the
Debenture Trustee(s) shall be free to exit the ICA altogether with
the same rights as if it had never signed the ICA. Under these
circumstances, the resolution plan shall not be binding on the
Debenture Trustee(s).
B
7.3. The resolution plan shall be finalized within 180 days
from the end of the review period. If the resolution plan is not
finalized within 180 days from the end of the review period, then
the Debenture Trustee(s) shall be free to exit the ICA altogether
with the same rights as if it had never signed the ICA and the
resolution plan shall not be binding on the ·Debenture Trustee(s). C
However, if the finalization of the resolution plan extends beyond
180 days, the Debenture Trustee(s) may consent to an extension
beyond 180 days subject to the approval of the investors regarding
the total timeline. The total timeline shall not exceed 365 days
from the date of commencement of the review period. D
7.4. If any of the terms of the approved Resolution Plan are
contravened by any of the signatories to the ICA, the
Debenture Trustee(s) shall be free to exit the ICA and seek
appropriate legal recourse or any other action as deemed fit in the
interest of the investors.” E
(emphasis supplied)
Hence, 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. F
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. Therefore, 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 G
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
H
48 SUPREME COURT REPORTS [2022] 15 S.C.R.

A 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”22 or if the Resolution Plan was not finalized
within 180 days from the end of the review period. 23 It is indubitable that
tremendous hardship would be caused to the debenture holders in both
B
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 for a majority of
75%, other Debenture Trust Deed(s) could provide for a simple majority.
C Dissenting debenture holders would then be unable to avail of the
protection provided to them by the SEBI Circular.
76. We agree that the language in Regulation 15(7) of the 1993
Regulations and the SEBI Circular is facilitative and not mandatory.
This is in recognition of the fact that debenture holders may opt to exercise
D their rights through mechanisms other than the execution of a Resolution
Plan. The language cannot be construed to be facilitative in the sense of
providing debenture holders with the option of by-passing the modalities
prescribed by the SEBI Circular while accepting a Resolution Plan. The
ICA continues to be the foundation or mother document for the Resolution
Plan.
E
iii. Dissenting ISIN level debenture holders are bound by the
ICA / Resolution Plan
77. Clause 6.6 of the SEBI Circular inter alia requires the
“approval of not less than 60% of the investors by number at the ISIN
F level” for entering into an ICA. RCFL has argued that the ISIN level
voting could potentially frustrate a Resolution Plan. The concern is that
a single debenture holder who holds an entire ISIN (or more than one
ISIN) can prevent the creditors from arriving at an ICA / a Resolution
Plan, especially in the absence of a provision for their “exit” from this
process. In response, SEBI has argued that the issuer company can
G “adjust” the size of the security by proportionally reducing it and releasing
it to the extent that debenture holders agree to the ICA / Resolution
Plan. Both these arguments miss the crux of the matter.

22
Clause 7.1, SEBI Circular
23
Clause 7.3, SEBI Circular
H
SECURITIES AND EXCHANGE BOARD OF INDIA v. RAJKUMAR 49
NAGPAL [DR. DHANANJAYA Y CHANDRACHUD, J.]

78. Dissenting creditors do not have the option of “exiting” the A
compromise or arrangement arrived at in terms of Section 230 Companies
Act.24 Similarly, dissenting lenders do not have the option of “exiting”
the ICA / Resolution Plan under the RBI Circular.25 The respective
majorities provided for in each of these laws bind dissenting creditors. It
is along these lines that the SEBI Circular binds dissenting debenture
B
holders. Indeed, the SEBI Circular could bind dissenting debenture holders
even in the absence of similar provisions in other laws.
79. The 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 C
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 D
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 E
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 retroactive. According to him, Clauses 22 and 23
of the Fifth Schedule to the Debenture Trust Deed(s) vested debenture F
holders with the right to authorize debenture trustees “to sanction any
compromise or arrangement proposed to be made between the company
and the beneficial owner(s) / debenture holder(s)”. This sanction could
be authorized by a majority of “not less than three-fourths of the persons
voting … or if a poll is demanded … not less than three-fourths in value
of the votes cast on such poll”. The SEBI Circular, it has been urged, G
changed the nature of the special majority required to sanction a
24
The NCLT will look into the overall fairness of the compromise or arrangement under
Section 230 Companies Act.
25
The RBI Circular states that the ICA may provide for the protection of dissenting
lenders. H
50 SUPREME COURT REPORTS [2022] 15 S.C.R.

A compromise by introducing the requirement of a majority of 60% of
ISIN level votes.
81. We are of the opinion that the SEBI Circular has retroactive
application. In Principles of Statutory Interpretation by Justice G.P.
Singh (14th edition, 2016 at page 583), it is stated that:
B “The rule against retrospective construction is not
applicable to a statute merely because “a part of the
requisites for its action is drawn from a time antecedent to
its passing”. If that were not so, every statute will be presumed
to apply only to persons born and things which come into existence
C after its operation and the rule may well result in virtual nullification
of most of the statutes.”
(emphasis supplied)
26
82. In Vineeta Sharma v. Rakesh Sharma, this Court described
the nature of prospective, retrospective, and retroactive laws:
D
“61. The prospective statute operates from the date of its
enactment conferring new rights. The retrospective statute
operates backwards and takes away or impairs vested rights
acquired under existing laws. A retroactive statute is the one that
does not operate retrospectively. It operates in futuro. However,
E its operation is based upon the character or status that arose earlier.
Characteristic or event which happened in the past or requisites
which had been drawn from antecedent events.”
83. The terms ‘retrospective’ and ‘retroactive’ are often used
interchangeably. However, their meanings are distinct. This Court
F succinctly appreciated the difference between these concepts in State
Bank’s Staff Union (Madras Circle) v. Union of India:27
“‘Retroactivity’ is a term often used by lawyers but rarely defined.
On analysis it soon becomes apparent, moreover, that it is used to
cover at least two distinct concepts. The first, which may be called
G ‘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
‘quasi-retroactivity’, occurs when a new rule of law is applied to
26
2020 (9) SCC 1
27
(2005) 7 SCC 584
H
SECURITIES AND EXCHANGE BOARD OF INDIA v. RAJKUMAR 51
NAGPAL [DR. DHANANJAYA Y CHANDRACHUD, J.]

an act or transaction in the process of completion....The foundation A
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 B
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 C
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 antecedent to its passing does not mean that it
is retrospective.
84. In the present case, RCFL issued the debentures and defaulted D
on the payments to the debenture holders prior to the issuance of the
SEBI Circular. However, as of 13 October 2020 (the date on which the
SEBI Circular came into force), a compromise or agreement on the
restructuring of the debt owed by RCFL did not exist. The debenture
holders were not vested with any rights with respect to the resolution of
RCFL’s debt. The existence of the debt and the subsequent default by E
RCFL was the status of events, which existed prior to 13 October 2020.
Once it came into force, the SEBI Circular applied to the manner of
resolution of debt, as specified therein.
85. Even assuming that debenture holders were vested with the
right to sanction a compromise or arrangement in terms of the special F
majority in Clause 23 to the Fifth Schedule of the Debenture Trust Deed,
they were divested of such a right upon the issuance of the SEBI Circular.
Clause 59 of the Debenture Trust Deed stipulates that any provision in
the Debenture Trust Deed which is in conflict with the 1993 Regulations
is null and void. In so doing, it lays down a trigger for the divestment of G
rights under the Debenture Trust Deed. A contractually vested right
may be taken away by the operation of a statutory instrument. A fortiori,
in the present case, the SEBI Circular owes its existence to statutory
powers conferred by a special legislation enacted with a view to protect
the interests of investors and to ensure the stable and orderly growth
and development of the market for securities. H
52 SUPREME COURT REPORTS [2022] 15 S.C.R.

A 86. The SEBI Circular was issued partly in exercise of the powers
under the 1993 Regulations.28 Further, Regulation 15(7) of the 1993
Regulations lays the foundation for the conditions specified in the SEBI
Circular. As such, the phrase “provisions of the [1993 Regulations]” in
Clause 59 must be read to include the SEBI Circular. Clauses 22 and 23
of the Fifth Schedule to the Debenture Trust Deed are evidently in conflict
B
with the SEBI Circular as they each provide for different voting
mechanisms. Therefore, Clauses 22 and 23 must give way to the SEBI
Circular, which will take precedence.
v. Exercise of this Court’s power under Article 142 of the
Constitution
C
87. Under the present scheme of the Resolution Plan, retail
debenture holders having an 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:
D

E

F

88. The above table highlights that small investors, especially those
whose exposure is up to INR 10 lakhs, are benefiting to the extent of
G
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 24.96% of their
principal amount, which is lower than the recovery made by the debenture

28
H Clause 9, SEBI Circular
SECURITIES AND EXCHANGE BOARD OF INDIA v. RAJKUMAR 53
NAGPAL [DR. DHANANJAYA Y CHANDRACHUD, J.]

holders. It is also important to highlight that none of the debenture holders A
have raised any grievance with regard to the proposed compromise. In
such a situation, application of the SEBI Circular, though right in law,
may lead to unjust outcomes for the retail debenture holders if this court
were to reverse the entire course of action which has occurred in the
present case.
B
89. The different voting mechanism proposed under the SEBI
Circular will further delay the resolution process and potentially disrupt
the efforts undertaken by the stakeholders, including the retail debenture
holders. Such unscrambling of the resolution process will not only prove
time-consuming, but may also adversely affect the agreed realized gains
to the retail debenture holders, who have already consented to the C
negotiated settlement before the High Court.
90. Depending upon the facts and circumstances of a case, this
Court can, having regard to Article 142 of the Constitution of India,
stipulate suitable directions to mitigate the potential denial of rights.
D
91. In its decision in State v. Kalyan Singh29 this Court observed
that the jurisdiction under Article 142 can be used to relax the rigors of
law depending upon the peculiar facts and circumstances. It was observed:
“22. […] This article gives a very wide power to do complete
justice to the parties before the Court, a power which exists in the E
Supreme Court because the judgment delivered by it will finally
end the litigation between the parties. It is important to notice that
Article 142 follows upon Article 141 of the Constitution, in which
it is stated that the law declared by the Supreme Court shall be
binding on all courts within the territory of India. Thus, every
judgment delivered by the Supreme Court has two components F
— the law declared which binds courts in future litigation between
persons, and the doing of complete justice in any cause or matter
which is pending before it. It is, in fact, an Article that turns one of
the maxims of equity on its head, namely, that equity follows the
law. By Article 142, as has been held in State of Punjab [State of G
Punjab v. Rafiq Masih, (2014) 8 SCC 883: (2014) 4 SCC (Civ)
657: (2014) 6 SCC (Cri) 154: (2014) 3 SCC (L&S) 134] judgment,
equity has been given precedence over law. But it is not the
kind of equity which can disregard mandatory substantive
29
(2017) 7 SCC 444 H
54 SUPREME COURT REPORTS [2022] 15 S.C.R.

A 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,
B
nay, the duty to do complete justice in a case when found
necessary. […]”
(emphasis supplied)
92. In Laxmidas Morarji v. Behrose Darab Madan30, a three-
C 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
D 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 Article 142 of the Constitution
which would amount to supplanting substantive law applicable or
ignoring express statutory provisions dealing with the subject, at
E the same time these constitutional powers cannot in any way, be
controlled by any statutory provisions. However, it is to be made
clear that this power cannot be used to supplant the law applicable
to the case. This means that acting under Article 142, the Supreme
Court cannot pass an order or grant relief which is totally
F inconsistent or goes against the substantive or statutory enactments
pertaining to the case. The power is to be used sparingly in
cases which cannot be effectively and appropriately tackled
by the existing provisions of law or when the existing
provisions of law cannot bring about complete justice
between the parties.”
G
(emphasis supplied)
93. The compromise presently arrived at, which is in the interests
of all the parties, will be disturbed if a new process is directed to be
commenced in accordance with the SEBI Circular at the present stage.
30
H (2009) 10 SCC 425
SECURITIES AND EXCHANGE BOARD OF INDIA v. RAJKUMAR 55
NAGPAL [DR. DHANANJAYA Y CHANDRACHUD, J.]

94. Pertinently, the SEBI Circular only contemplates two situations A
where ISIN-wise voting is mandated: (i) non-enforcement of security;
and (ii) entering into an ICA. Although it applies retroactively, it admittedly
does not contemplate a scenario where the debenture holders could give
ex post facto consent to ICAs agreed prior to the commencement of the
SEBI Circular, that is 13 October 2020. In the present case, the application
B
of the SEBI Circular will lead to a scenario where a Resolution Plan
validly agreed upon by the ICA lenders under the RBI Framework will
have to be unscrambled. For this reason, we consider it necessary to
extend the benefit under Article 142 to the retail debenture holders by
allowing the Resolution Plan to pass muster. We would like to reiterate
that this Court is issuing the directions to mould the relief under Article C
142 in view of the peculiar facts and circumstances of the present case
noted above.
vi. Dissenting debenture holders in the present case
95. As stated in the above sections, after 13 October 2020, there
are two mechanisms in situations where a compromise or resolution is D
sought:
a. A compromise under the SEBI Circular, which lies outside
the process of the NCLT, to restructure the debt, binding
both dissenting and abstaining debenture holders;
E
b. A compromise under Section 230 of the Companies Act by
approaching the NCLT, binding dissenting/abstaining
debenture holders.
96. It is clear that a compromise arrived under the SEBI Circular
or Section 230 of the Companies Act effectively assimilates the rights of F
the dissenting creditors. The SEBI Circular adopts a higher voting
threshold of 60% by number and 75% to bind dissenting/ abstaining
debenture holders.
97. SEBI submits that debenture holders are entitled to full
outstanding amounts due (principal plus interest) if their debt cannot be
G
resolved under the compromise/ resolution mechanism. However, it has
been argued that the compromised arrived at in terms of the direction of
the Division Bench will also bind all the other debenture holders, who
were not a party to the original suit before the High Court. This will
prejudice the dissenting debenture holders as they have to settle for a
lesser amount – 24.96% of the principal among with a further 5% of the H
56 SUPREME COURT REPORTS [2022] 15 S.C.R.

A principal outstanding. We agree 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.
98. The dissenting debenture holders would have been bound by
B 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. We accordingly deem it appropriate that
dissenting debenture holders should be provided an option to accept the
terms of the Resolution Plan. Alternatively, the dissenting debenture
holders have a right to stand outside the proposed Resolution Plan framed
C under the lender’s ICA and pursue other legal means to recover their
entitled dues.
99. For the reasons indicated in the text of the judgment, we accept
the submissions which have been urged by SEBI and disapprove of the
interpretation placed by the Division Bench of the Bombay High Court
D on the SEBI Circular. The appeal is allowed in part, subject to the
directions issued above under Article 142 of the Constitution.
100. Pending applications, if any, stand disposed of.

E Ankit Gyan Appeal partly allowed.
(Assisted by : Rakhi, LCRA)

F

G

H