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-Report by Lynda Mayengbam

The Securities and Exchange Board of India v. Rajkumar Nagpal is an appeal filed in response to the single judge’s ruling on October 28, 2021, which stated that the case concerned a Debenture Trust Agreement between the parties as
issuers and trustees of Debenture Trustees, respectively. The 17 debenture holders had filed a lawsuit to defend their rights and the amount due to them. The case was filed before the Bombay High Court on July 1, 2021.


Reliance Commercial Finance Limited as ‘Issuer’ and Vistra ITCL as ‘Debenture Trustee’ executed a Debenture Trust Deed on 3rd May 2017. In response to the first default committed by RCFL, Vistra wrote to SEBI to inform them of the
actions it had taken in its status as Debenture Trustee and to request guidance about the ICA and its implementing mechanisms.

In a circular titled “Standardization of procedure to be followed by Debenture Trustee(s) in case of “Default” by Issuers of Listed Debt Securities,” SEBI published information on October 13, 2020. (“SEBI Circular”). The Plaintiffs, who are 17 Debenture Holders, filed a lawsuit in Bombay High Court on July 1, 2021, seeking an order to restrain RCFL, BoB, and RBI from executing the RBI Circular.

The court ruled that the SEBI circular did not govern the debenture trust deeds and that it could not be allowed to apply retrospectively. The SEBI circular will not precede any of the debenture trust deeds’ specific provisions. Therefore, SEBI challenged the order passed by the Single Judge’s order of the Bombay High Court and submitted an appeal.


The respondents contended that SEBI is not a party to the lawsuit, hence SEBI cannot be deemed an aggrieved party. Any order approving a merger scheme under Section 391 of the 2013 Companies Act is not subjected to appeal by SEBI. The SEBI Circular does not apply to this case because it does not include a scenario in which the holders of the debentures would reach a compromise, settlement, or agreement with the debenture issuer. Given that the SEBI circular has a retrospective application, SEBI’s appeal cannot be upheld. As in Principles of Statutory Interpretation by Justice G.P. Singh, it stated that

‘ The rule against retrospective construction does not apply to a statute merely because a part of the requisites for its action is drawn from a time antecedent to its passing.


The Appellant contended that following Section 13 of the Commercial Courts Act of 2015, this appeal has been submitted as according to Section 13 (1A), “Any person aggrieved” by a decision or order of the Commercial, the
Commercial Appellate Division may hear the appeal. Due to specific remarks made by the Ld. Single Judge in the impugned orders to the effect that the ruling will not set a precedent against SEBI, SEBI’s statutory right to initiate an appeal cannot be revoked. The SEBI Circular makes no mention of its application to defaults that occurred before October 13, 2020. Lawfully, any legislation—delegated or otherwise—is regarded as prospective unless it has been
explicitly or obliquely given retrospective effect. If a debt cannot be settled through the compromise or settlement method, SEBI contends that debenture holders are entitled to receive the whole amount that is owed (principal and
interest). The argument, however, is that the solution reached in accordance with the Division Bench’s directive will also bind all the other debenture holders, who weren’t involved in the initial lawsuit brought before the High Court.


It was held by the hon’ble court that

i. There is no bar to the civil court’s jurisdiction
ii. The SEBI Circular is applicable if debenture holders wish to implement a Resolution Plan to which the lenders are a party
iii. Dissenting ISIN level debenture holders are bound by the ICA /Resolution Plan
iv. The SEBI Circular has retroactive application

For dissenting debenture holders in the present case the court observed:

“The dissenting debenture holders would have been bound by 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 under the lender‘s ICA and pursue other legal means to recover their entitled dues.”

The appeal was allowed in part, subject to the directions issued in the judgment under Article 142 of the Constitution.

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