Case Note & Summary
The Supreme Court of India heard appeals challenging the Bombay High Court's order dated 16 December 2022, which dismissed an interim application filed by Reliance Home Finance Limited (RHFL) under Section 151 of the Code of Civil Procedure, 1908. The application sought approval of a Resolution Plan for RHFL's dissolution, following the Supreme Court's earlier judgment in Securities and Exchange Board of India v. Rajkumar Nagpal and Others, which involved a similar plan for RHFL's sister concern, Reliance Commercial Finance Limited (RCFL). RHFL, a non-banking financial company, had defaulted on loans and debentures in 2019, leading to substantial debt of around Rs. 11,540 crore. Authum Investment and Infrastructure Limited (AIIL) proposed a Resolution Plan approved by 96% of lenders under an Inter-Creditor Agreement. The plan aimed to repay 100% principal to 19,353 small debenture holders with exposure up to Rs. 5 lakhs. Voting by debenture holders, as per a SEBI Circular dated 13 October 2020, showed 94.55% approval among participants. The High Court dismissed the application, holding it could not exercise powers akin to the Supreme Court's Article 142 of the Constitution to approve the plan. The appellants argued that the plan was beneficial and preventing liquidation was crucial for small debenture holders, while SEBI contended that dissenting and abstaining debenture holders should have opt-out options. The Supreme Court analyzed the High Court's inherent powers under Section 151 CPC, distinguishing them from Article 142 powers, and found the High Court erred in not approving the plan. Emphasizing the plan's benefits and the risk of liquidation, the Court exercised its Article 142 powers to approve the Resolution Plan, providing an opt-out for dissenting debenture holders, thereby allowing the appeals and overturning the High Court's order.
Headnote
A) Civil Procedure - Inherent Powers - Section 151 CPC - High Court's Power to Approve Resolution Plan - Code of Civil Procedure, 1908, Section 151 - High Court dismissed an interim application seeking approval of a Resolution Plan under Section 151 CPC, holding it lacked power akin to Supreme Court's Article 142 powers - Supreme Court held the High Court erred; inherent powers under Section 151 CPC should be exercised to do complete justice and prevent liquidation, especially when the plan benefits numerous small debenture holders - Held that the High Court should have approved the plan, and the Supreme Court exercised its Article 142 powers to approve it, providing an opt-out option for dissenting debenture holders (Paras 1-19). B) Securities Law - SEBI Circular Compliance - Voting Requirements for Debenture Holders - SEBI Circular dated 13 October 2020 - Resolution Plan required consent from debenture holders as per SEBI Circular, which mandates approval by 75% by value and 60% by number at ISIN level - Voting results showed 94.55% of participating debenture holders favored the plan, but full compliance with SEBI Circular's thresholds was not explicitly verified in judgment - Supreme Court considered the plan beneficial and approved it despite pending issues, emphasizing protection of small investors (Paras 3-18). C) Constitutional Law - Supreme Court's Extraordinary Powers - Article 142 Constitution - Approval of Resolution Plan - Constitution of India, Article 142 - Supreme Court exercised its powers under Article 142 to approve a Resolution Plan for a sister concern, following a precedent where it had done similarly - This was done to avoid liquidation and ensure 100% principal repayment to small debenture holders, with an opt-out for dissenters - Held that such approval is justified to prevent injustice and delay, overriding strict procedural compliance (Paras 16-19). D) Company Law - Resolution Plan Approval - Debenture Holder Interests - Companies Act, 2013, Section 71(10) - A company petition was filed under Section 71(10) of the Companies Act, 2013 for non-payment to debenture holders - Resolution Plan proposed by a non-banking financial corporation and approved by 96% of Inter-Creditor Agreement lenders aimed to repay 100% principal to small debenture holders - Supreme Court approved the plan to prevent liquidation and protect 19,353 small debenture holders, noting its similarity to an earlier approved plan - Held that approval serves the interests of justice and creditor recovery (Paras 3-19).
Issue of Consideration
Whether the High Court, in exercise of its inherent powers under Section 151 of the Code of Civil Procedure, 1908, could approve a Resolution Plan for a company in light of the Supreme Court's earlier approval of a similar plan under Article 142 of the Constitution of India in a related case
Final Decision
Supreme Court allowed the appeals, set aside the High Court order, and approved the Resolution Plan for RHFL under Article 142 of the Constitution, providing an opt-out option for dissenting debenture holders
Law Points
- Inherent powers under Section 151 of the Code of Civil Procedure
- 1908 cannot be equated with powers under Article 142 of the Constitution of India
- High Court erred in not exercising inherent powers to approve Resolution Plan beneficial to debenture holders
- Supreme Court can approve Resolution Plan under Article 142 to prevent liquidation and protect interests of small debenture holders
