Bombay High Court upholds voting of debenture holders of RCFL on the resolution plan at the “DTD level” and not “ISIN level”

JSA successfully advised and represented Bank of Baroda (“BoB”) in an appeal preferred by the Securities and Exchange Board of India (“SEBI”) before the Hon’ble Bombay High Court in Commercial Appeal (L) No. 27370 of 2021 (“Appeal”).

The question under consideration before the Bombay High Court was as to how the voting at the meeting of debenture holders of Reliance Commercial Finance Limited (“RCFL”) for entering into a “compromise, settlement or arrangement” was to be conducted. The voting was for the debenture holders to approve or reject the compromise, settlement or arrangement in relation to the resolution of RCFL under the RBI Prudential Framework for Resolution of Stressed Assets Circular (“RBI Circular”).

It was the stand of SEBI that the voting must be conducted on an “ISIN level” i.e. ISIN being the International Securities Identification Number which uniquely identifies a specific debt securities having similar terms and conditions. On the other hand, it was the stand of BoB (being the lead bank) and RCFL that the voting must be conducted on a “DTD level” i.e. in accordance with the procedure set out in the debenture trust deeds. The case at hand involved 3 debenture trust deeds and 18 series of ISINs. The Ld. Single Judge in the order dated October 28, 2021 read with a clarificatory order dated November 15, 2021 directed the debenture trustee to call and conduct a meeting in the manner specified in the respective debenture trust deeds. Being aggrieved, SEBI preferred the Appeal. SEBI’s primary grievance was that the voting must be conducted at an ISIN level, as prescribed under the “Standardisation of procedure to be followed by Debenture Trustee(s) in case of ‘Default’ by Issuers of listed debt securities” (“SEBI Circular”).

The Bombay High Court after hearing the submissions made by Senior Advocate Mr. Arvind Datar on behalf of SEBI, Senior Advocate Mr. Ravindra Kadam, instructed by us, on behalf of BoB and Senior Advocate Mr. Darius J. Khambatta dismissed the Appeal and held that voting by the debenture holders should be at a DTD level and not at an ISIN level. The rationale for arriving at such decision was as follows:

  • The SEBI Circular clearly states that voting should be done at the ISIN level for two items namely (a) seeking consent from the investors for enforcement of security; and/or (b) entering into an Inter-Creditor Agreement (“ICA”). Neither of the two items were being contemplated in the present case. It was only a voting by the debenture holders for approval or rejection of compromise, settlement or arrangement.
  • The SEBI Circular cannot be applied to defaults committed prior to October 13, 2020 i.e. the date of issuance of the SEBI Circular. There is no provision in the SEBI Circular to state that it has retrospective application. Therefore, the SEBI Circular would not apply to defaults and debenture trust deeds which pre-date the SEBI Circular.
  • If ISIN level voting was carried out, one single investor under a particular ISIN may vote against or abstain from voting, it would result in a failure of the resolution of RCFL. The Bombay High Court held that, “This would lead to an incongruous situation wherein even if one single investor either votes against or worse, abstains from voting, the entire resolution plan would fail”. On the contrary if DTD level voting is carried out, each individual debenture holder has the decision-making power under each debenture trust deed which is fair, just, equitable and in the interest of all stakeholders.


JSA Disputes team comprised Lead Partner – Varghese Thomas, Principal Associate – Fatema Kachwalla and Senior Associate – Yohaann Limathwalla.

JSA Banking & Finance team comprised Partner – Soumitra Majumdar and Senior Associate – Abhay Agarwal.