Document Fragment View

Matching Fragments

―RCFL‖ ―debenture holders‖ ―Vistra‖ ―Debenture Trust Deeds‖ or ―Debenture Trust Deed‖ ―RBI Circular‖ Clause 4, RBI Circular.

7

―Resolution Plan‖ ―ICA‖ PART A

3. The RBI Circular applied to banks and specified categories of lenders. Other investors were outside its purview. SEBI issued a circular on 13 October 2020. The subject was the ‗Standardisation of procedure to be followed by Debenture Trustee(s) in case of ‗default‘ by issuers of listed debt securities‘.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.

71. As evident from the definition of ‗lenders‘, the RBI Circular 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. 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 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:
―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)
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 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.

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 level‖ for entering into an ICA. RCFL has argued that the ISIN level voting could potentially frustrate a Clause 7.3, SEBI Circular PART F 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 ―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.