TMI Blog2022 (1) TMI 1412X X X X Extracts X X X X X X X X Extracts X X X X ..... tions involving repayment to Fixed Deposits Upon maturity of their deposit would fall within the ordinary course of business for Respondent No. 1 or not - authority for disbursing loans and investments despite its failure to repay Fixed Deposit holders as per the terms of their deposits - payment made against the F.D.'s in terms of their deposits during CIRP would be categorised as a preferential transaction or not. The impugned order is non-speaking, and it violates the Principles of Natural Justice - HELD THAT:- The impugned order approving the Resolution Plan is passed with a non-speaking order without any discussion on the objections raised by the Appellants The obligation of the Administrator and the successor-in-interest of DHFL to ensure full repayment of deposit to FD holders under the RBI and NHB Act - HELD THAT:- The relationship between the customer and the Bank is the creditor and debtor and not a trustee. The Bank is not a trustee of money deposited by customers. In this case, the Corporate Debtor, i.e. DHFL, took fixed deposits from their customers on the agreed interest on the amount invested in the fixed deposits. Therefore, the relationship of the DH ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ions of the law and provide flexibility. Had it been the intention of the legislation to require RBI only to pursue insolvency resolution of NBFC under the IBC prescribed under the RBI Act, then the same would have been expressly provided by the legislature by including a non-obstante clause in Section 45-MBA. The said section retains discretion with the RBI to resolve the insolvency of an NBFC under the RBI Act or any other provision of law, including IBC. Further, the FSP rules were enacted after Section 45-MBA. Hence, the provisions of the FSP Rules are also significant in this regard - it is the commercial wisdom of the requisite majority of the Committee of Creditors which is to negotiate and accept the Resolution Plan, which may involve differential payment in different classes of creditors, together with negotiating with the prospective Resolution Applicant for better or different terms which may also involve differences in the distribution of amounts between the different classes of creditors - no special dispensation ought to be granted outside the mechanism/process envisaged under the IBC, which provides for the commercial wisdom of the COC to reign supreme for the distri ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... A, MEMBER (T) For Appellant : None For Respondent : Mr Ashish Bhan, Mr Ketan Gaur, Ms Chitra Rentala, Mr Aayush Mitruka, Mr Kaustub Narendran, Ms Samriddhi Shukla, Ms Lisa Mishra and Mr Vishal Hablani, Advocates for Intervenor (Piramal Capital Housing Finance Ltd., SRA). JUDGMENT (Virtual Mode) [PER; V. P. SINGH, MEMBER (T)] 1. The current set of Appeals, i.e. Company Appeal (AT) (Ins) No. 506 of 2021, 507 of 2021 and 516 of 2021, have been preferred against a common impugned order dated June 7, 2021, passed by the Adjudicating Authority/National Company Law Tribunal, Mumbai Bench in I.A. No. 903/2020, I.A. No. 1847/2020, I.A. No. 1993/2020 I.A. No. 759/2021 in C.P. (I.B.) No. 4258/MB/C-II/2019, declaring objections raised against the Resolution Plan through the Interim Applications as infructuous given the approval of the Resolution Plan in I.A. No. 449/2021 in CP 4258 of 2019 by the previous Order. The Adjudicating Authority disposed of the IA's mentioned above with the following observations mentioned in para 2-9 of the Order on 7th June 2021, which are challenged in these Appeals. 2. Main prayers in all these applications are common, i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ness of the applicants/deposit-holders. x. Direct the Financial Service Provider to release the amounts due to the Applicant, i.e. amounts due on matured Fixed Deposits both principal and interest details whereof are provided in Annexure 6; 3. We have heard the arguments, submissions of both the sides, at length on various dates perused the documents, provisions of NHB Act etc. and our observations, findings are as under:- 4. Details of claim of all these Applicants in the form of NCDs fixed deposits etc., claims admitted, amount payable were discussed in detail in the Resolution Plan approved vide IA No. 449/2021 in CP 4258 of 2019 and for the sake of brevity the same is not reproduced. 5. With regard to the claims of more than 70,000 Fixed Deposit Holders (including individuals), Lakhs of Employees of Uttar Pradesh State Power Sector Employees Trust, Board of Trustees of Uttar Pradesh Power Corporation Contributory Provident Fund Trust, investment by Capgemini Business Services India Ltd., Employees Provident Fund Trust, other claimants falling in the similar category, and we are of the considered view that considering the number of small investors running into lakhs, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in the matter of Standard Chartered Bank and State Bank of India V/s Essar Steel Limited which has been confirmed by the Hon'ble Supreme Court of India wherein the Adjudicating Authority has directed to the CoC to consider the distribution mechanism for giving more apportionment Amount to the Operational Creditors and unsecured Financial creditors. This was duly considered by the CoC and was pleased to grant Rs. 1,000 Crore (One Thousand Crore) ex gratia to Operational Creditors and unsecured Financial creditors without any prejudice to their rights and contentions and such distribution/apportionment of amount has been further confirmed by the Hon'ble Supreme Court of India in the matter of CoC of Essar Steel India Limited V/s Satish Kumar Gupta. 8. In the matter of Jaypee Kensington Boulevard Apartments Welfare Association Ors. Vs. NBCC (India) Ltd. Ors. (Civil Appeal No. 3395 of 2020) Hon'ble Apex Court has held that the Adjudicating Authority cannot modify the approved resolution plan but it can remand back the plan to consider the issue referred to suggestions given by it. 9. In view of the above discussion, facts, findings and judgments relied upon for the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he fixed deposit does not take into consideration the legal mandate as per Sections 29A(6), 29A(4)(a), 36 and 36A of NHB Act read with para 39 of the NHB Directions, 2010, as well as Section 45Q and 45QA of RBI Act, read with para 39 of RBI Directions. 4.4. Out of all the provisions enumerated above, only section 28(1)(k) of the I B Code deals with the transfer of rights/financial debts/operational debts, which are done otherwise than in the ordinary course of business. Upon maturity, repayment of the F.D.'s to their deposit holders would fall within the normal course of business for Respondent No. 1, a Financial Service Provider (FSP) on its showing. 4.5. The Housing Finance Companies Directions, 2010 issued under NHB Act (NHB Direction) provides that a Housing Finance Corporation has failed to repay any public deposit or part shall not grant any loan or other credits. 4.6. That NHB letter dated August 14, 2019, directs DHFL not to stop/delay the repayment of public deposits. Any failure to repay the public deposits would be detrimental to its Resolution Plan. 4.7. The RBI master directions on Non-Banking Financial Companies Acceptance of Public Deposits (Reserve ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... F.D. Holders are senior citizens, single earning members and persons in dire need of their money for medical purposes, spread across the country who have invested their life savings in the form of secure Fixed Deposits in trust with Respondent No. 1, which was a 'AAA' credit rated institution. These deposits have either already matured or are nearing maturity. Therefore, the Appellants had deposited their life earnings with Respondent No. 1, hoping to utilise them in the sunset of their lives and meet emergent situations, such as medical emergencies, pandemics, loss of job, and meeting essential needs. 5.2. The Appellants further submitted that the Appellants filed detailed applications, especially I.A. No. 903/2020 and IA No. 1099/2021 were followed by detailed written submissions. It is noted at para 2 of the impugned Order that detailed arguments have been heard. However, a 'request' is made by the NCLT at para 6 of the impugned Order to the Committee of Creditors ( CoC ) to reconsider the pay-out to the Appellants without even considering a single submission of the Appellants. 5.3. The Appellant contended a violation of the Principles of Natural Justice as ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ts cannot be illegally misappropriated and cannot be subjected to the moratorium or the Resolution Process. A deposit by the depositors is not a sum lent to the company but is deposited with the company to be held in trust until maturity. Therefore, it is not a loan in the strict sense of the term. 5.8. The Appellants further contended that the Adjudicating Authority and this Appellate Tribunal have the absolute power to decide on any question of law or facts arising 'out of or about' the Corporate Insolvency Resolution Process under Section 60(5) of I B Code, which begins with a non-obstante clause and the words of this provision are to be widely interpreted. Moreover, there were specific directions by the Hon'ble Supreme Court in Vinay Kumar Mittal v. DHFL, Civil Appeal No. 654-660 of 2020, whereby the Court directed that in case the rights of the depositors are not considered as per law by the Administrator or the CoC, the Appellants may approach the Adjudicating Authority/NCLT (and by logical extension, this Appellate Tribunal). 5.9. Appellants further argued that the Classification of depositors based on amounts deposited is illegal. Creating a class within a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ould be wholly repugnant with the provisions of the I B Code, which provide for a specific manner and priority of payment and sets out the right and extent to which a creditor is mandatorily required to be paid in a Resolution Plan, i.e. the liquidation value. The provisions of the Code will override the NHB Act and the RBI Act by the non-obstante clause in Section 238 of the Code, and no preferential treatment can be granted to the F.D. Holders in the CIRP of DHFL on the basis of these enactments. 6.4. Respondent No. 3 further contended that the F.D. Holders are Financial Creditors of DHFL and have been treated accordingly as per the provisions of the I B Code. F.D. Holders filed their claims with the Administrator in 'Form C', and as a result of admission of their claims, they have been recognised as Financial Creditors under the Code. Consequently, the dues of the F.D. Holders are financial debt, and there is no rationale for treating them as a separate class. 6.5. Additionally, the ILC Report also clarifies that the amounts deposited by the depositors with an FSP would be treated as financial debt and that such depositors would be classified as Financial Creditors ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r and equitable payments to the creditors falls within the commercial wisdom of the CoC, subject to payment of minimum liquidation value to creditors. The commercial wisdom of CoC is not amenable to judicial review on any grounds. 6.9. Further, in the exercise of its commercial wisdom, CoC had decided, voted, and approved the distribution mechanism providing for value over and above the liquidation value to benefit certain small-scale F.D. Holders, if the F.D. Holders were assenting Financial Creditors. However, the F.D. Holders as a class voted against the Resolution Plan. 6.10. Respondent No. 3 further submitted that in addition and without prejudice to the above, the CoC as a body has voted against granting any additional amounts to the F.D. Holders. Under the direction of the Adjudicating Authority vide Impugned Order dated June 7, 2021, to reconsider the distribution mechanism and give F.D. Holders equal benefits as the assenting secured Financial Creditors, CoC deliberated to vote on a partial modification to the distribution mechanism on June 17, 2021. The resolution for modification of distribution mechanism was voted upon and rejected by 89.19% of the voting share of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... aturally, when making their investment, the Appellants would have been apprised that their deposits are unsecured and pari-passu with other unsecured liabilities. As such, the repayment of deposits cannot be guaranteed by RBI or NHB. 7.5. The Classification of F.D. Holders' based on their deposits with DHFL is valid and acceptable in law. Moreover, this is not the first instance in which a sub-class of creditors was created based on their admitted claims. [Committee of Creditors of Essar Steel India Limited v. Satish Kumar Gupta Ors., (2020) 8 SCC 531 (para 132)]. 7.6. Further, F.D. Holder cannot claim payment of matured deposits during the subsistence of moratorium under Section 14 of the I B Code. 7.7. It is further contended that the Appellants cannot claim violation of principles of natural justice. The Appellants contend that the hearing on the I.A. No. 449 of 2021 (Plan Approval Application) took place behind closed doors and without affording the Appellants a right of hearing cannot be sustained as Appellants being members of CoC were aware of the approval of the Resolution Plan by CoC on January 15, 2021, and filling of the plan approval application by the Ad ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nancial Service providers. Payment to FD Holders in terms of their deposit would not be a preferential transaction to one class of creditors of DHFL during CIRP. Money of the Appellants FD Holders is deposited in trust with the Respondent, and it is not the property of the Corporate Debtor. The Appellants have locus standi to maintain the instant Appeal and Application. Classification of depositors on the basis of amounts deposited with DHFL is illegal. Non-speaking order A. The impugned order is non-speaking, and it violates the Principles of Natural Justice. 11. The instant appeals are preferred against the impugned orders dated 07.06.2021 (Appeal Nos. 506 and 507/2021) and the impugned order dated 28.06.2021 (Appeal No. 516/2021) passed by the Ld. National Company Tribunal, Mumbai ( NCLT ), inter alia, approving the resolution plan without even considering the objections raised by the Appellants/Fixed deposit holders ( FD Holders ) or passing a speaking order on the detailed submissions made by the Appellants. Learned senior counsel for the appellant refers to the judgement of the Hon'ble Supreme Court in case of Asst Commissioner, Commercial Ta ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... oviders Rules, 2019 mandates that the Resolution Plan include a statement explaining how the resolution Plan satisfies or intends to satisfy the requirements of engaging in the business of the FSP. Resolution Plan of Respondent No. 6 fails to include a statement explaining how it plans to meet the needs of engaging in the business of an FSP, especially concerning the repayment of deposits. Further, the plan should comply with existing laws governing the entity's actions and the interest as per the terms of the deposit made by the F.D. holders. 13. Further, the Resolution Plan must contain provisions for complete repayment to poor and helpless depositors; otherwise, it would be held for any oblique purpose, which cannot be countenanced in law. The Hon'ble Supreme Court has held that the provisions of the RBI Act requiring payments to be made to depositors in total are a mandatory provision of law, which cannot be contracted out. The Ld. Counsel refers to the case of Integrated Finance Co. Ltd. v. RBI, reported in (2015) 13 SCC 772 wherein at para 52 and 56 Hon'ble Supreme Court has observed that; 52. We, therefore, endorse the opinion expressed by the High Court t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nds to any other law for the time being in force and to any instrument having effect by such law. The reasons for giving such categorical overriding effect is evident from the objects and reasons given in the Amendment Act viz. the magnitude of the exploitations of the poor sections of the society, leading to utter destruction of innumerable families was the underlying impetus to bring NBFC under strict control of Companies Act, 1956. Accordingly, Hon'ble Supreme Court has held that Chapter III B of the RBI Act is a self-contained Code . 16. Hon'ble Supreme Court has further held that submissions of the Appellant that Section 45QA of the RBI Act is in pari materia if not identical with Section 58A of the Companies Act cannot be accepted. Further, suppose a scheme of arrangement is not prohibited under the latter Section in that case; it cannot be prohibited under the former, i.e. Section 45QA of the RBI Act cannot also be accepted. 17. The allocation of the Resolution Amount is contrary to law, and the Resolution Plan/resolutions passed by the CoC to the extent that the F.D. Holders are not required to be paid following the terms of their deposit are illegal. Therefo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... direct, by Order, the non-banking financial company to make repayment of such deposit or part thereof forthwith or within such time and subject to such conditions as may be specified in the Order: Provided that the Company Law Board may, before making any order under this sub-section, give a reasonable opportunity of being heard to the non-banking financial company and the other persons interested in the matter. [45-MB. Power of Bank to prohibit acceptance of deposit and alienation of assets.- (1) If any non-banking financial company violates the provisions of any section or fails to comply with any direction or Order given by the Bank under any of the provisions of this Chapter, the Bank may prohibit the non-banking financial company from accepting any deposit. (2) Notwithstanding anything to the contrary contained in any agreement or instrument or any law for the time being in force, the Bank, on being satisfied that it is necessary so to do in the public interest or in the interest of the depositors, may direct, the non-banking financial company against which an order prohibiting from accepting deposit has been issued, not to sell, transfer, create charge or mor ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... l not be entitled to any compensation.] [45-MC. Power of Bank to file winding-up petition.- (1) The Bank, on being satisfied that a non-banking financial company- (a) is unable to pay its debt; or (b) has by virtue of the provisions of Section 45-IA become disqualified to carry on the business of a non-banking financial institution; or (c) has been prohibited by the Bank from receiving deposit by an order and such Order has been in force for a period of not less than three months; or (d) the continuance of the non-banking financial company is detrimental to the public interest or to the interest of depositors of the company, may file an application for winding up of such non-banking financial company under the Companies Act, 1956 (1 of 1956). (2) A non-banking financial company shall be deemed to be unable to pay its debt if it has refused or has failed to meet within five working days any lawful demand made at any of its offices or branches and the Bank certifies in writing that such company is unable to pay its debt. (3) A copy of every application made by the Bank under sub-section (1) shall be sent to the Registrar of Companies. (4) All the provis ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n in the strict sense of the term. (Deepak Insulated Cable v. UOI, (at p. 1288, para 9 at p. 1289 of compilation); Vijay Mills Co v. State of Gujarat. 24. In response to the argument of the Appellant, the Learned Senior Counsel representing CoC submits that there is no provision either in the RBI Act, the NHB Act, or any other law that mandates fixed depositor holders full payment. 25. A plain reading of Sections 29A(6), Section 29A(4)a), 36 and 36A of the National Housing Bank Act, 1987 ( NHB Act ), read with para 39 of the Housing Finance Companies (NHB) Directions, 2010 ( NHB Directions ), as well as sections45Q and 45QA of the RBI Act read with para 39 of RBI Master Direction on Non- Banking Financial Companies Acceptance of Public Deposits (Reserve Bank) Directions, 2016 ( RBI Directions ) makes it amply clear that none of the enactments guarantees full payment to the F.D. Holders. 26. RBI also acknowledged the same in its replies to the Writ Petitions filed by F.D. Holders before the Hon'ble Delhi High Court and the Hon'ble Bombay High Court. 27. The RBI Act and the NHB Act merely provide that the license of an HFC Housing Finance Company or NBFC Non Banki ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f NHB and without prejudice to the same, it is stated that F.D. Holders have not shown any law or document like National Housing Bank has demonstrated, in any manner, to substantiate their argument. 34. Respondent No. 3 proceeds to state that the amounts deposited by the F.D. Holders in DHFL are shown as liabilities in the balance sheet of DHFL and the F.D. Holders are financial creditors of DHFL and have been treated accordingly. Thus, the bald, unsupported and misleading contention of the Appellants that the amount payable to F.D. Holders are held in trust by DHFL is entirely fictional and ought not to be entertained. 35. It is pertinent to mention that there is no provision in either the RBI Act, the NHB Act, or any other law that mandates that depositors have to be paid in full. The relevant Sections 29 A(6), 29 A(4)(a), 36 and 36 A of the National Housing Bank Act, 1987 is given below for ready reference: [29-A. Requirement of registration and net owned fund.- [(1) Notwithstanding anything contained in this Chapter or in any other law for the time being in force, no housing finance institution which is a company shall commence housing finance as its principal ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... institution to commence or to carry on the business in India; (f) that the grant of certificate of registration shall not be prejudicial to the operation and growth of the housing finance sector of the country; and (g) any other condition, fulfillment of which in the opinion of the [Reserve Bank], shall be necessary to ensure that the commencement of or carrying on the business in India by a housing finance institution shall not be prejudicial to the public interest or in the interests of the depositors: [Provided that the Reserve Bank may, wherever it considers necessary so to do, require the National Housing Bank to inspect the books of such housing finance institution and submit a report to the Reserve Bank for the purpose of considering the application.] (5) The [Reserve Bank] may, after being satisfied that the conditions specified in sub-section (4) are fulfilled, grant a certificate of registration subject to such conditions which it may consider fit to impose. (6) The [Reserve Bank] may cancel a certificate of registration granted to a housing finance institution under this section if such institution- (i) ceases to carry on the business of a housing finan ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... re making any order of rejection of Appeal, such institution shall be given a reasonable opportunity of being heard. Explanation.-For the purposes of this section,- (I) net owned fund means- (a) the aggregate of the paid-up equity capital and free reserves as disclosed in the latest balance sheet of the housing finance institution after deducting therefrom- (i) accumulated balance of loss; (ii) deferred revenue expenditure; and (iii) other intangible assets; and (b) further reduced by the amounts representing- (1) investments of such institution in shares of- (i) its subsidiaries; (ii) companies in the same group; [(iii) all other housing finance companies; and] (2) the book value of debentures, bonds, outstanding loans and advances (including hire-purchase and lease finance) made to, and deposits with,- (i) subsidiaries of such company; and (ii) companies in the same group, to the extent such amount exceeds ten per cent of (a) above; [(II) the expressions subsidiaries and companies in the same group shall have the meanings respectively assigned to them in the Companies Act, 2013 (18 of 2013): Provided that the National Housing ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . Hence the Appellant's contention is based on an incorrect interpretation of the law. 37. The Learned Senior Counsel for the Appellant represented that amount deposited by F.D. Holders were held in trust by DHFL. In response to this contention, the Ld. Sr. Counsel for the CoC submits that Rule 10 of the Insolvency and Bankruptcy (Insolvency and Liquidation Proceedings of FSPs and Application to Adjudicating Authority) Rules, 2019 only applicable in situations where assets of third parties are held in trust by the Corporate Debtor. 38. F.D. Holders have not filed any documents to show that amount deposited by the F.D. Holder was assets held in trust. Therefore, there is no legal justification whatsoever given by the Appellant/F.D. Holder to show that the money deposited by them was held in trust by DHFL and the amount held by DHFL were not assets of DHFL. Thus, Rule 10 of FSP Rules is inapplicable about the amount deposited by F.D. Holder. 39. The Learned Senior Counsel representing CoC submits that no full payment right exists under NHB Act, RBI Act, or any other subordinate legislation. Moreover, even if it exists, any such request would be wholly repugnant to provis ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . In Aswini Kumar Ghose [AIR 1952 SC 369], this Court held that: 16. ... a non obstante clause [must be construed strictly and] the Court must try to find the extent to which the legislature had intended to give one provision overriding effect over another provision. (A.G. Varadarajulu case [(1998) 4 SCC 231], SCC p. 236, para 16). 43. The above case relates to the period before the enactment of the I B Code, 2016, and pertains to the scheme and arrangements under the Companies Act, 2013; hence not applicable to the present case. 44. Appellants contention that the amount of fixed deposit held by the Bank as a trustee is the property of the customer held by the Bank is negated by the recent observation of the Hon'ble Supreme Court in para 44 of the Judgment in case of N. Raghavender v state of Andhra Pradesh, CBI. 45. In this case, Hon'ble Supreme Court has observed that; As already clarified by us, to prove the charge under Section 409 IPC, the prosecution need not prove the exact manner of misappropriation. Once the 'entrustment' is admitted or proved, as has been done in the present case, the onus lies on the Accused to prove that the entrust ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hat trust is a relationship where property/money held by one party for the benefit of another party. Trustee holds the property/money for the benefit of the trust beneficiaries. Trustee is under fiduciary duty to ensure that the property of the owner is maintained and the benefit thereof is reached to the persons to whom it is intended to. In the case of trust, the owner is under no obligation to pass on the benefit to the beneficiary, therefore, the owner/settler being the owner of the property, he is entitled to take it back in the event it is not utilized for the purpose the owner intended to. But that is not the case when money from the Debtor or on behalf of the Debtor has gone out towards discharge of an obligation. In the case of trust, ownership of that property or money remains with the owner as long as it is not utilized for the purpose intended to. That owner has no obligation to part with his property/money. 59. In case of homebuyers' issue, once homebuyers entered into an agreement with a developer and when their relations entered into turbulence and not in a position to become normal, the relation in between them will become creditor and debtor and the person u ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Hon'ble Supreme Court not considered as per law by the Administrator or the CoC, the Appellant may approach the NCLT and also gives the right to the Appellants to raise the issue before NCLAT. 51. Based on the orders of the Hon'ble Supreme Court in the case of Vinay Kumar Mittal Vs. DHFL, Civil Appeal No. 654-650 of 2020, wherein right is given to the Appellants to raise the issue before NCLT/NCLAT the appellants have filed the appeal. Therefore contention of the respondent COC that the appellant had no locus to file the present appeal is not sustainable. C. Resolution Plan is discriminatory as it creates class within a class of similarly situated creditors 52. The Learned Counsel for the Respondents further argues that creating a separate class, from other creditors of the same class, by prescribing deposits below rupees, two lakhs, shall be paid in full, and not others are discriminatory-such discrimination between the similarly situated F.D. Holders are illegal. The said contention is without any basis because distribution among the creditors is approved by the overwhelming majority of the CoC exercising commercial wisdom, which is not justiciable. Hence, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... harma Vs. Union of India reported in (2018) 18 SCC 575, wherein in paras 48, 48.1, and 48.2 Hon'ble Supreme Court had observed that; 48. As we have stated earlier, an amount of Rs. 750 crores is lying in deposit before this Court pursuant to the interim directions, on which interest has accrued. The homebuyers have earnestly sought the issuance of interim directions to facilitate a pro rata disbursement of this amount to those of the homebuyers who seek a refund. We are keenly conscious of the fact that the claim of the homebuyers who seek a refund of monies deserves to be considered with empathy. Yet, having given our anxious consideration to the plea and on the balance, we are not inclined to accede to it for more than one reason; 48.1. Firstly, during the pendency of the CIRP, it would, as a matter of law, be impermissible for the Court to direct a preferential payment being made to a particular class of financial creditors, whether secured or unsecured. For the present, we leave open the question as to whether the homebuyers are unsecured creditors (as was urged by Mr. Tripathi) or secured creditors (as was urged by the counsel appearing for them). Directing disburse ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ns and RBI Act. 59. The Learned Senior Counsel representing CoC argued that F D Holders have no right to full payment under the NHB Act, the RBI Act, or any other subordinate legislation. Moreover, any such right, even if it exists, would be wholly repugnant to provisions of the Code, which provide for a specific manner and priority of payment and sets out the right and the minimum amount a creditor is mandatorily required to be paid in a Resolution Plan, i.e. the liquidation value. 60. Without prejudice to the above, it is established law that when two special statutes contain non-obstante clauses, the later statute will prevail over the earlier statute. It is a settled proposition of law that in case of any inconsistency between the provisions of the I B Code and any other enactment, the Code's provisions shall prevail. The Learned Counsel refers to Paragraphs 13, 59 - 61 of the Judgement of Hon'ble Supreme Court in Innoventive Industries Ltd. v. ICICI Bank and Ors. [(2018) 1 SCC 407) to bolster its contention. 61. Respondent also relied on the judgment of Hon'ble Supreme Court in the case of Rajendra K. Bhutta v Maharashtra Housing and Development Author ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 39;ble Supreme Court in case of Embassy Property Developers Private Limited v state of Karnataka and others (Para 11) has held that IBC is a unified umbrella Code, covering the entire gamut of the law relating to the insolvency resolution of corporate entities in a time-bound manner. On a combined reading of the FSP Rules, related provisions of the IBC and the various judgements as relied upon, it is clear that IBC provides a detailed mechanism whereunder the claims of the creditors, including the Appellants, have been sufficiently dealt with. Accordingly, the interest of the fixed deposit holders as a class of creditors, including the Appellants, is represented and protected in the CIRP and is valid in law. Therefore, the claims of the Appellant's must be considered only in terms of the statutory mechanism under IBC and the FSP Rules. 68. Section 238 of the IBC provides explicitly that the provisions of IBC override other laws which are inconsistent with it. Therefore, since Section 238 of IBC overwrites any law inconsistent with it, the NHB Act, NHB directions, Deposit Act, gives the right to payment to the Appellant's under any of these Act, must be read as subject to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ons of the 1985 Act. Rejecting this contention, the Special Court had come to the conclusion that the Special Court Act being a later enactment would prevail. The headnote which brings out succinctly the ratio of the said decision is as follows: Where there are two special statutes which contain non obstante clauses the later statute must prevail. This is because at the time of enactment of the later statute, the Legislature was aware of the earlier legislation and its non obstante clause. If the Legislature still confers the later enactment with a non obstante clause it means that the Legislature wanted that enactment to prevail. If the Legislature does not want the later enactment to prevail then it could and would provide in the later enactment that the provisions of the earlier enactment continue to apply. The Special Court (Trial of Offences Relating to Transactions in Securities) Act, 1992, provides in Section 13, that its provisions are to prevail over any other Act. Being a later enactment, it would prevail over the Sick Industrial Companies (Special Provisions) Act, 1985. Had the Legislature wanted to exclude the provisions of the Sick Companies Act from the ambit o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ct if it is held that the 1992 Act is to prevail. On such an interpretation the objects of both would be fulfilled and there would be no conflict. It is clear that the Legislature intended that public monies should be recovered first even from sick companies. Provided the sick company was in a position to first pay back the public money, there would be no difficulty in reconstruction. The Board for Industrial and Financial Reconstruction whilst considering a scheme for reconstruction has to keep in mind the fact that it is to be paid off or directed by the Special Court. The Special Court can, if it is convinced, grant time or installments. There can, therefore, be no stay of any proceedings for recovery against a sick company so far as the Special Court under the 1992 Act is concerned. (emphasis supplied) 71. It is pertinent to mention that when the statute has conferred the power to do an act and has laid down the method in which the power is to be exercised, it necessarily prohibits the doing of the act in any other manner than that which has been prescribed. The terms of the IBC are clear and unambiguous, especially dealing with the facts in the present matter. The IBC g ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... lders are dissenting Financial Creditors, they shall be paid upfront cash and not debt securities before making any payment to other Financial Creditors as per the Resolution Plan. 77. The mere fact that 'Form C' has been filed by the Appellants is not ipso facto determinative of the Appellants' status as Financial Creditors or persons who have deposited their monies in trust with DHFL. Therefore, there can be no estoppel against the law (MCGM v. Abhilash Lal Ors., Civil Appeal No. 6530 of 2019 dated 15.11.2019 (at p. 838, para 48 at p. 890) and the status of the Appellants has to be determined in the light of the facts of the case. 78. Based on the facts of the case, it is clear that there are about 77,000 public deposit holders of the corporate debtor, i.e. DHFL. The IBC and the Rules framed thereunder provide a mechanism to represent the interest of the fixed deposit holders through an authorised representative. In the present case, the fixed deposit holders of DHFL are represented through Respondent No. 4. In the I B Code, individual fixed deposit holders do not have the right to challenge the Resolution Plan approved by CoC or file separate action to chall ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... involve differential payment in different classes of creditors, together with negotiating with the prospective Resolution Applicant for better or different terms which may also involve differences in the distribution of amounts between the different classes of creditors. 83. Having participated in the CIRP, the Appellant's cannot challenge the action of the CoC to approve the Resolution Plan, which is otherwise in compliance with the provisions of the IBC. In the light of the Hon'ble Supreme Court decision in Essar Steel (supra), it is unequivocally clear that the CoC members have the critical task of not only running the resolution process but also working towards maximisation of value of the Corporate Debtor for all the stakeholders, not fixed deposit holders alone, and providing for the manner of distribution of funds as obtained by way of a resolution plan. By seeking payment outside the resolution process, the appellants who are also CoC members (other CoC members being banks, etc. are acting in a silo for obtaining funds at the outset, which is not only against the interest of all the stakeholders but also against a holistic resolution for maximisation of value ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ors of DHFL. Suppose relief, as sought by the Appellant, seeking a refund in repayment of fixed deposits, are granted; in that case, similar claims regarding repayment of dues will be made on behalf of NCD holders and other creditors, which would be detrimental to the Corporate Insolvency Process of DHFL. Even otherwise, any monies that can be raised during the resolution process is towards keeping the business alive as a going concern and not for out of turn or pre-resolution process claims, that too outside the scheme of the IBC. If payments were to be made to fixed deposit holders whose fixed deposits have matured, it would result in a situation where matured fixed deposit holders would obtain a preference as a special dispensation, as opposed to fixed deposit holders, whose fixed deposits have not matured, thereby resulting in the differential an unequivocal treatment within similarly situated creditors. Therefore no special dispensation ought to be granted outside the mechanism/process envisaged under the IBC, which provides for the commercial wisdom of the COC to reign supreme for the distribution of funds. 89. The Learned Senior Counsel representing Successful Resolution ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... but apart from such an arrangement, his position qua banker is that of a debtor, and not trustee. The law was stated in those terms in the old and well-known decision of the House of Lords in Foley v. Hill [11 HLC 28: 9 ER 1002] and that has never been questioned. 91. Further, in the case of Swiss Ribbons (P) Ltd. v. Union of India, reported in (2019) 4 SCC 17 in para 46 Hon'ble Supreme Court has observed that; 46. However, the Insolvency Law Committee (ILC), in its Report of March 2018 dealt with debenture-holders and fixed deposit-holders, who are also financial creditors, and are numerous. The Report then went on to state: 10.6. For certain securities, a trustee or an agent may already be appointed as per the terms of the security instrument. For example, a debenture trustee would be appointed if debentures exceeding 500 have been issued [Section 71(5), Companies Act, 2013] or if secured debentures are issued [Rule 18(1)(c), Companies (Share Capital and Debenture) Rules, 2014]. Such creditors may be represented through such pre-appointed trustees or agents. For other classes of creditors which exceed a certain threshold in number, like home buyers or security-hol ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r judgments including Innoventive Industries Ltd. (supra) and Swiss Ribbons Pvt. Ltd. (supra) and held that even individuals who were debenture holders and fixed deposit holders could also be financial creditors who could initiate the Corporate Resolution Process. 93. The 1st Respondent highlighted the Insolvency Law Committee Notification, FSP Sub-Committee Report dated 04.10.2019, (para 17), wherein a clarification is issued about deposits of FD holders, which is as follows: With respect to amounts deposited by depositors with an FSP, such amounts will be treated as financial debt and such depositors will be classified as financial creditors and will be treated accordingly: 94. The Learned Senior Counsel for Respondent contends that the Appellants ought to be subjected to the same rights and treatment as any other financial creditor on the following grounds; a) An amount held by a person cannot be classified both as a debt and 'being held in trust' at the same time. Furthermore, it is settled law that a depositor and bank relationship is not equivalent to one between a beneficiary and trustee. Instead, it is a relationship between a creditor and a debtor. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ce with the terms of its license. In this regard, the Appellants primarily rely upon Sections 29 A(4)(a), 29 A(6) of the NHB Act, Section 45-IA of the RBI Act, Directions 18 39 of the Housing Finance Companies (NHB) Directions, 2010, and Directions 38 39 of the Non-Banking Financial Companies and Acceptance of Public Deposits (Reserve Bank) Directions, 2016. g) At the outset, it is clarified that none of these provisions contemplates the survival of the terms of the license where the company is undergoing CIRP as per IBC. The provisions referenced by the Appellants are myopic. They do not contemplate that a company undergoing CIRP may not fulfill the conditions of the license to keep afloat as a going concern. For instance, Section 29A of the NHB Act requires that a housing finance company must have adequate capital structure and earning prospects . h) In consideration of such terms and conditions of a license that an FSP (such as the Erstwhile CD) may have been unable to fulfill, the requirements of FSP Rules explicitly states under Rule 5 (b)(ii) that the license or registration which authorises the financial service provider to engage in the business of providing fin ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in any manner whatsoever and hence shall be in sync with the purpose of moratorium which includes keeping the corporate debtor's assets together during the insolvency resolution process and facilitating orderly completion of the process envisaged during the insolvency resolution process and ensuring the company may continue as a going concern. o) Further, in the case of P. Mohanraj v. Shah Bros. Ispat (P) Ltd., reported in (2021) 6 SCC 258 in para 30, Hon'ble Supreme Court has observed that; 30. It can be seen that Para 8.11 refers to the very judgment under appeal before us, and cannot therefore be said to throw any light on the correct position in law which has only to be finally settled by this Court. However, Para 8.2 is important in that the object of a moratorium provision such as Section 14 is to see that there is no depletion of a corporate debtor's assets during the insolvency resolution process so that it can be kept running as a going concern during this time, thus maximising value for all stakeholders. The idea is that it facilitates the continued operation of the business of the corporate debtor to allow it breathing space to organise its affairs s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... DHFL including the fixed deposit holders. 97. The above issue has been separately dealt with in the Company Appeals, i.e. CA (AT)(Ins) No. 454 of 2021, 63 Moons Technologies Limited Vs. The Administrator Dewan Housing Finance Corporation Limited and Ors; CA (AT)(Ins) No. 455 of 2021, 63 Moons Technologies Limited Vs. The Administrator Dewan Housing Finance Corporation Limited and Ors. and in CA (AT)(Ins) No. 750 of 2021 Roopjyot Engineering Pvt. Ltd. Vs. The Administrator Dewan Housing Finance Corporation Limited and Ors. Decision on this issue about recoveries of avoidance application is also treated as a decision in the instant Appeals. 98. The objections of fixed deposit holders, and by depositors under EPF Act, Public Deposit Holders against the approved Resolution Plan on being dissatisfied by the distribution proposed in the approved Resolution Plan against their deposit are also not maintainable on the ground that the NCLT/NCLAT has been endowed with limited jurisdiction as specified in the I B Code, and not to act as a court of equity or exercise plenary powers. 99. Hon'ble Supreme Court in case of Pratap Technocrats (P) Ltd. v. Monitoring Committee of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 31, is similarly structured on specified grounds. Section 61(3) provides: 61. ....(3) An appeal against an order approving a resolution plan under section 31 may be filed on the following grounds, namely:- (i) the approved resolution plan is in contravention of the provisions of any law for the time being in force; (ii) there has been material irregularity in exercise of the powers by the resolution professional during the corporate insolvency resolution period; (iii) the debts owed to operational creditors of the corporate debtor have not been provided for in the resolution plan in the manner specified by the Board; (iv) the insolvency resolution process costs have not been provided for repayment in priority to all other debts; or (v) the resolution plan does not comply with any other criteria specified by the Board. 32. Section 5(7) defines the expression 'financial creditors' while Section 5 defines the expression 'financial debt'. The expression 'operational creditor' is defined in Section 5, while the expression 'operational debt' is defined in Section 5(21). Now, insofar as the operational creditors are concerned, there a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... between the operational creditors as a class, and not between different classes of creditors. The statute has indicated that once the requirements of Section 30(2)(b) are fulfilled, the distribution in accordance with its provisions is to be treated as fair and equitable to the operational creditors. 35. The appellants are challenging the treatment of operational creditors on the ground that it has not been fair and equitable. The entitlement of the operational creditors being defined by sub-clause (b) of sub-section (2) of Section 30, the clarification contained in Explanation-1 must apply. As such, as long as the payment under the resolution plan is fair and equitable amongst the operational creditors as a class, it satisfies the requirements of Section 30(2)(b). 36. The nature of the jurisdiction which is exercised by the Adjudicating Authority, while approving a resolution plan under Section 31, has been interpreted in the judgment of a two-Judge Bench in K Sashidhar v. India Overseas Bank ( K Sashidhar ). The decision emphasizes that the Adjudicating Authority is circumscribed by Section 31 to scrutinizing the resolution plan as approved by the CoC under Section 30(4 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ction 30 or under Section 61 of the I B Code-are regarding testing the validity of the approved resolution plan by CoC; and not for approving the resolution plan which has been disapproved or deemed to have been rejected by CoC in exercise of its business decision. 58. Indubitably, the inquiry in such an appeal would be limited to the power exercisable by the resolution professional under Section 30(2) of the I B Code or, at best, by the adjudicating authority (NCLT) under Section 31(2) read with Section 31(1) of the I B Code. No other inquiry would be permissible. Further, the jurisdiction bestowed upon the appellate authority (NCLAT) is also expressly circumscribed. It can examine the challenge only in relation to the grounds specified in Section 61(3) of the I B Code, which is limited to matters other than enquiry into the autonomy or commercial wisdom of the dissenting financial creditors. Thus, the prescribed authorities (NCLT/NCLAT) have been endowed with limited jurisdiction as specified in the I B Code and not to act as a court of equity or exercise plenary powers. 59. In our view, neither the adjudicating authority (NCLT) nor the appellate authority (NCLAT) has b ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... iew, and once it is satisfied that the Committee of Creditors has paid attention to these key features, it must then pass the resolution plan, other things being equal. 40. The precedents laid down by this Court are in tandem with recommendations made in the UNCITRAL's Legislative Guide on Insolvency Law, which states that it is desirable that a court does not interfere with the commercial wisdom of the decisions taken by the creditors. The relevant extract is reproduced below: 63. The more complex the decisions the court is asked to make in terms of approval or confirmation, the more relevant knowledge and expertise is required of the judges and the greater the potential for judges to interfere in what are essentially commercial decisions of creditors to approve or reject a plan. In particular, it is highly desirable that the law not require or permit the court to review the economic and commercial basis of the decision of creditors (including issues of fairness that do not relate to the approval procedure, but rather to the substance of what has been agreed) nor that it be asked to review particular aspects of the plan in terms of their economic feasibility, unless th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rough Justice R F Nariman, observed: 51. Most importantly, financial creditors are, from the very beginning, involved with assessing the viability of the corporate debtor. They can, and therefore do, engage in restructuring of the loan as well as reorganisation of the corporate debtor's business when there is financial stress, which are things operational creditors do not and cannot do. Thus, preserving the corporate debtor as a going concern, while ensuring maximum recovery for all creditors being the objective of the Code, financial creditors are clearly different from operational creditors and therefore, there is obviously an intelligible differentia between the two which has a direct relation to the objects sought to be achieved by the Code. 45. In Essar Steel India Limited (supra), this Court held that the UNCITRAL Legislative Guide...makes it clear beyond any doubt that equitable treatment is only of similarly situated creditors . The Court finally also observed that the 'fair and equitable' norm does not mean that financial and operational creditors must be paid the same amounts in any resolution plan before it can pass muster. On the contrary, it noted: ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nsolvency regime, it appears that a conscious choice has been made by the legislature to not confer any independent equity based jurisdiction on the Adjudicating Authority other than the statutory requirements laid down under sub-Section (2) of Section 30 of the IBC. 49. An effort was made by Mr. Dushyant Dave, learned Senior Counsel, to persuade this Court to read the guarantees of fair procedure and non-arbitrariness as emanating from the decision of this Court in Maneka Gandhi v. Union of India into the provisions of the IBC. The IBC, in our view, is a complete code in itself. It defines what is fair and equitable treatment by constituting a comprehensive framework within which the actors partake in the insolvency process. The process envisaged by the IBC is a direct representation of certain economic goals of the Indian economy. It is enacted after due deliberation in Parliament and accords rights and obligations that are strictly regulated and coordinated by the statute and its regulations. To argue that a residuary jurisdiction must be exercised to alter the delicate economic coordination that is envisaged by the statute would do violence on its purpose and would be an imp ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... India) Ltd. has observed that; 210. To put in a nutshell, the Adjudicating Authority has limited jurisdiction in the matter of approval of a resolution plan, which is well-defined and circumscribed by Sections 30(2) and 31 of the Code read with the parameters delineated by this Court in the decisions above-referred. The jurisdiction of the Appellate Authority is also circumscribed by the limited grounds of appeal provided in Section 61 of the Code. In the adjudicatory process concerning a resolution plan under IBC, there is no scope for interference with the commercial aspects of the decision of the CoC; and there is no scope for substituting any commercial term of the resolution plan approved by the CoC. Within its limited jurisdiction, if the Adjudicating Authority or the Appellate Authority, as the case may be, would find any shortcoming in the resolution plan vis- -vis the specified parameters, it would only send the resolution plan back to the Committee of Creditors, for re-submission after satisfying the parameters delineated by Code and exposited by this Court. 103. Further, in the case of Ebix Singapore (P) Ltd. v. Committee of Creditors of Educomp, Hon'ble Supre ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... NCLT's inherent powers under Rule 11 of the NCLT Rules 2016 or even the powers of this Court under Article 142 of the Constitution must be closely scrutinized for broader compliance with the insolvency framework and its underlying objective. The adjudicating mechanisms which have been specifically created by the statute, have a narrowly defined role in the process and must be circumspect in granting reliefs that may run counter to the timeliness and predictability that is central to the IBC. Any judicial creation of a procedural or substantive remedy that is not envisaged by the statute would not only violate the principle of separation of powers, but also run the risk of altering the delicate coordination that is designed by the IBC framework and have grave implications on the outcome of the CIRP, the economy of the country and the lives of the workers and other allied parties who are statutorily bound by the impact of a resolution or liquidation of a Corporate Debtor. 104. Based on the judgement of the Hon'ble Supreme Court in the case of Pratap Technocrats (P) Ltd. (supra) wherein Hon'ble Supreme Court has while analysing the scope of Section 31 of I B Code, consi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... om the timeline while submitting a resolution plan, and other such procedural requirements create a mechanism which tightly structures the conduct of all participants in the insolvency resolution process. This process invariably impacts the conduct of the Resolution Applicant who participates in the process and consents to be bound by the RFRP and the broader insolvency framework. An analysis of the statute and regulations framework provides insight into the dynamic and comprehensive nature of the statute. 108. Hon'ble Supreme Court has observed that while exercising the interpretative task by the Adjudicating Authority and the Appellate Authority, the powers are limited, to the extent that infrastructure under the Code is sufficiently developed to enable to take critical decisions for maximisation of the value of the Corporate Debtor and to keep it as a going concern. 109. The Hon'ble Supreme Court has further crystallised the powers of the NCLT/NCLAT by specifying that under Section 60 (5) (c) of the IBC or rule 11 of NCLT Rules, powers are limited to the extent relating to the border compliance with the insolvency framework and its underlying objective. The adjudic ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of full payment exists under the NHB Act or the RBI Act or under any other subordinate legislation. Even if it exists, any such right would be wholly repugnant to the provisions of the Code, which provide for a specific manner in priority of payment and sets out the right. The minimum amount a creditor is mandatorily required to be paid in the Resolution Plan, i.e. the liquidation value. 114. Based on the above discussion, we hold that; a) The Adjudicating Authority has not erred on this count in approving the Resolution Plan that proposes extinguishing claims to the Fixed Deposits without discharging their payments in full to Holders of FD. Therefore, it does not contravene the statutory provisions of the NHB Act and RBI Act. b) AS THE CASE MAY BE, the NHB Act or RBI Act does not mandate the FULL payment to the F.D./Deposit Holders. c) Further, Section 238 of the Insolvency and Bankruptcy Code, 2016, overrides the RBI and NHB Act. Therefore the approved Resolution Plan that stipulates extinguishment of the claims to the F.D. without discharging their payments in full is valid and legal under the Code. d) The repayment to Fixed Deposits Upon maturity of their dep ..... X X X X Extracts X X X X X X X X Extracts X X X X
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