SPML INFRA LIMITED Vs. CHIEF MANAGER

JUDGEMENT

(1.) Demands for payment of 2% penal interest made by the debenture trustees are under challenge in the present writ petition at the instance of the company issuing the debentures.

(2.) Learned Senior Advocate for the petitioners submits that, the first petitioner had issued a letter of offer dated September 19, 1995 in respect of issuance of 17 % secured non-convertible redeemable debentures of Rs.150/- each for cash at par. Such debentures were allotted on December 12, 1995. Canara Bank was appointed as the debenture trustees. The first petitioner had executed a debenture trustee deed on December 11, 1996. In terms of Section N of SEBI Guidelines for Disclosures and Investor Protection issued by the Security and Exchange Board of India on June 11, 1992 and the clarification issued thereon, the first petitioner was required to create security within 6 months from the date of issuance of the debentures. The first petitioner could not do so within time fixed under such guidelines. A meeting of the debenture holders was convened on October 17, 1997 by a notice dated September 24, 1997. He refers to the resolutions adopted in such meeting and submits that, the debenture holders had agreed and permitted the company to create and complete full security as mentioned in the letter of offer of September 19, 1995 within June 30, 1998. The first petitioner had, thereafter, created the mortgage within June 30, 1998. Another meeting of the debenture holders was held on September 7, 1998 where it was resolved that, no additional interest was required to be paid by the petitioners for the default in creating the mortgage within 6 months of the date of issue of debentures. The debenture holders had agreed not to accept the penal interest in terms of the guidelines. Such resolution was adopted unanimously. The first petitioner had paid the agreed interest in respect of the debentures. The debenture holders had accepted such payment without any demur. The debenture holders did not demand penal interest. He submits that, the right to receive penal interest being a right in personam and limited to the debenture holders, such debenture holders are entitled to waive such rights. The debenture holders had done so. There is no contemporaneous complaint by any of the debenture holders as to the non-receipt of the penal interest. All debenture holders had received the interest agreed without any demur. None of the debenture holders has raised any grievance with regard to the so-called non-payment of penal interest. Therefore, the debenture trustee and SEBI are acting without any basis in demanding payment of 2% penal interest for the default in creation of the security within the time stipulated. Such demands of the debenture trustee should be quashed. In support of the contention that, a right in personam can be waived, learned Senior Advocate for the petitioners relies upon 2002 Volume 4 Supreme Court Cases page 316 ( Commissioner of Customs, Mumbai v. Virgo Steels, Bombay & Anr .).

(3.) Learned Advocate appearing for the respondent submits that, the debenture trustees were acting in terms of the guidelines of SEBI. The debenture trustees did not take any decision unilaterally in demanding the penal interest. Such penal interest is payable in terms of the guidelines framed by SEBI. The guidelines of SEBI are in public interest. A penal provision in such guidelines of SEBI is in public interest and, therefore, a person cannot waive the same. The so-called waiver by the debenture holders is of no consequence. The first petitioner is liable to pay the penal interest as imposed by the guidelines of SEBI. In support of the contention that, the so-called waiver of the debenture holders is of no consequences, learned Advocate for the respondents relies upon 2006 Volume 5 Supreme Court Cases page 361 ( Chairman, SEBI v. Shriram Mutual Fund & Anr .) and 2016 Volume 14 Supreme Court Cases page 161 (Galada Power and Telecommunication Limited v. United India Insurance Company Limited & Anr.). He refers to the correspondence exchanged between the debenture trustees and SEBI and submits that, the debenture trustees had enquired from SEBI as to whether penal interest is payable or not. He submits that, SEBI is of the view that, the first petitioner is liable to pay penal interest under the investor guidelines. The debenture trustees had consequently demanded payment from the first petitioner. The demands of the debenture trustees are, therefore, founded upon just and valid grounds. He submits that, the letter of SEBI by which SEBI had opined that, the first petitioner is liable to pay penal interest is not under challenge. The first petitioner is aware of such stand of SEBI. He draws the attention of the Court to the fact that, on the two dates of the meeting of the debenture holders, 100% of the debenture holders were not present. Therefore, a resolution of the majority of the debenture holders ought not to bind the debenture holders who were not present in the meeting. Such resolution in the meeting cannot override SEBI guidelines. Such resolution adopted by a section of the debenture holders cannot be pressed into service to say that, all the debenture holders have waived their rights. He submits that, in the event, the Court is pleased to hold that, the debenture holders can waive provisions of the SEBI guidelines, the same would tantamount to allowing a party in a security transaction to waive the penal provisions governing the securities transactions. SEBI guidelines are in public interest. Therefore, it is not open to the debenture holders to claim that, they are in a position to waive their rights and that, the first petitioner need not pay the penal interest. He submits that, admittedly there was a default in creation of the security within the time stipulated. The provisions for penal interest are applicable in the facts scenario of present case. There is no dispute with regard to that. Incidents leading to the attraction and application of the penal interest provisions having happened and penal interest becoming payable, it is not open to the debenture holders to waive the same.