9911796707
TMI Blog2022 (1) TMI 1412X X X X Extracts X X X X X X X X Extracts X X X X ..... 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, identical, similar and are as under:- i. Declare that the Resolution Plan as approved by the CoC is illegal and violative of the provisions of the Code and Regulations framed thereunder; ii. Quash and set aside the Resolution Plan as approved by the CoC and the Resolution of CoC. iii. Strictly, in the alternative, modify the Resolution Plan to direct that the A ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ct 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, senior citizens, who had deposited their hard earned savings, have to meet various expenses especially in this Covid-19 Pandemic situation, loss of jobs to number of depositors, to meet marriage, education expenses, other essential needs the employees of the P.F. Trust which is the money they would get at the time of/after superannuation. Therefore, we are of the considered vie ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 limited purpose we suggest, request the CoC to reconsider their distribution method, distribution amongst various Members of CoC within two weeks and report the same to this Adjudicating Authority. Accordingly, IA-625/2021, IA-903/2021, IA 1847/2020, IA-1993/2020, MA-415/2020 MA-416/2020 IA 605/2021 and IA-759/2021 are disposed of." (verbatim copy) 3. Brief Facts under the common ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hich 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 bank) Directions, 2016 (RBI Directions) provides that NBFC, having failed to repay any public deposit or part, shall not grant any loan or other credit. 4.8. The treatment of F.D. Holders under the Resolution Plan as unsecured creditors is entirely erroneous, illegal, arbitrary and discriminatory. F.D. Holders are entitled to their money in priority over any other creditors, as in fact, F.D. Holders are not me ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... h 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 the objections to the resolution plan filed by the Appellants through IA No. 1099/2021 had not been considered. Instead, a perverse finding is rendered by the NCLT at para 6 of the impugned Order that the Resolution Plan has not been objected to. The Resolution Plan filed vide IA No. 449/2021 has been heard behind closed doors without adequate opportunity for the Appellants to be heard. Repeated requests and applications for hearing ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on 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 class by prescribing that deposits below Rs. 2 lacs would be repaid in full and not the others are illegal. Such discrimination between similarly situated F.D. holders is arbitrary. 5.10. Appellants also submitted that if arguments of the Committee of Creditors or the Administrator is accepted, it will render the express words and the intent of all provisions of law, directions, statute, license, etc., to protect the interest of small depositor ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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. The legislative intent is clear that F.D. Holders are entitled to the same rights and protections as per the terms of the I&B Code as every other Financial Creditor of DHFL. They cannot claim any preferential treatment under the duly approved Resolution Plan. 6.6. Respondent No. 3 further submitted that on a harmonious reading of Section 20(1) and Section 25, it is clear that the primary obligation on the Resolution Professional/Administrator is to protect and ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 the CoC, including the F.D. Holders. Thus, the F.D. Holders are now bound by the resolution passed by the CoC and cannot be permitted to challenge the distribution mechanism before this Appellate Tribunal. 6.11. Respondent No. 3 further argued that the distribution of funds under the approved Resolution Plan is a commercial decision of the CoC. Therefore, this Appellate Tribunal does not have the jurisdiction to review the same. 7. Submissions on behalf of Piramal Capita ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sar 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 Administrator in February 2021. Also, Appellants filed their objections to the Resolution Plan, i.e. I.A. No. 1299 of 2021 only on 15th may, 2021, i.e. almost three months after plan approval application and after the said application was reserved for orders on May 13, 2021. 8. Issues under the present set of Appeals I. Whether the Adjudicating Authority erred in approving the Resolution Plan, which proposes extinguishing claim to the Fixed Deposit Holders without discharging their payments in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ing, 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 Tax Department v Shukla and Brothers reported in (2010) 4 SCC 785 wherein in para 26 and 27 it is observed that; "26. Our procedural law and the established practice, in fact, imposes unqualified obligation upon the courts to record reasons. There is hardly any statutory provision under the Income Tax Act or under the Constitution itself requiring recording of reasons in the judgments but it is no more res integra and stands unequivocally settled by different judgments of this Court holding that the courts and tribunals are required t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rs. 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 that the Scheme has been introduced only with a view to avoid repayment to the small depositors as it contemplates that instead of repaying of amount in accordance with the terms and conditions of the deposit, such amount shall be considered as convertible debentures with interest @ 6%, which would be converted into equity shares within a period of one year. Such a provision is clearly contrary to the mandatory requirements under Section 45-QA(1) which requires that: "45-QA. (1) Every deposit accepted by a non-banking financial company, unless re ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 9;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. Therefore, any stipulation under the Resolution plan or as per the approved minutes of the CoC, which provides that the claims of the Fixed Deposit Holders shall be extinguished upon payment as per the Resolution Plan, is entirely illegal violative of law and cannot be sustained. 18. Appellants submit that the relevant parts of the Resolution Plan extinguish the resolution applicant's liability to repay the depositors in full are illegal and liable to be set aside. Therefore, it was the statutory obligation of the RBI and the NHB to ensure that the deposits of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 mortgage or deal in any manner with its property and assets without prior written permission of the Bank for such period not exceeding six months from the date of the Order.] [45-MBA. Resolution of non-banking financial company.- (1) Without prejudice to any other provision of this Act or any other law for the time being in force, the Bank may, if it is satisfied, upon an inspection of the Books of a non-banking financial company that it is in the public interest or in the interest of financial stability so to do for enabling the continuance of the activities critical to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t 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 provisions of the Companies Act, 1956 (1 of 1956) relating to winding-up of a company shall apply to a winding-up proceeding initiated on the application made by the Bank under this provision.] ******* 20. According to the Appellant stand of the RBI in other proceedings is not relevant before this Appellate Tribunal. The RBI's stand in washing away its obligation to repay the depositors in full and follow its mandate under the RBI Act to protect depositors is contrary to law. The RBI is obligated by its duty coupled with its power to ensure that the depositors are protected. 21. The Appellants cont ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tions45Q 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 Banking Finance Company may be cancelled if the deposit holders are not paid, and such a decision can be taken only after allowing the concerned HFC or NBFC to present its case. None of the legislation provides that the F.D. Holders are required to be paid in full, and hence the Appeals proceed on an incorrect interpretation of law with a view to mislead this Tribunal. 28. Further, the 'Banning of Unregulated Deposit Schemes Act', 2019 ("BUDSA") enacted on July 19, 2019, to protect the interests of the depositors also gives primacy to the Code, which clearly states that the rights of the F.D. Holders will have pr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 business or carry on the business of housing finance as its principal business without- (a) obtaining a certificate of registration issued under this Chapter; and (b) having the net owned fund of ten crore rupees or such other higher amount, as the Reserve Bank may, by notification, specify. (2) Every housing finance institution which is a company shall make an application for registration to the Reserve Bank in such form as may be specified by the Reserve Bank: Provided that an application made by a housing finance institution which is a company to the National Housing Bank and pending for consideration with the National Housing ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 finance institution in India; or (ii) has failed to comply with any condition subject to which the certificate of registration had been issued to it; or (iii) at any time fails to fulfill any of the conditions referred to in clauses (a) to (g) of sub-section (4); or (iv) (a) fails to comply with any direction issued by the [Reserve Bank or the National Housing Bank] under the provisions of this Chapter; or (b) to maintain accounts in accordance with the requirement of any law or any direction or Order issued by the [Reserve Bank or the National Housing Bank] under the provisions of this Chapter; or (c) to submit or offer for inspection its books of ac ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ance 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 Bank shall, in consultation with the Reserve Bank, specify the companies to be deemed to be in the same group.] 29(4) The [Reserve Bank], for the purpose of considering the application for registration, may require to be satisfied by an inspection of the books of such housing finance institution or otherwise that the following conditions are fulfilled:- (a) that housing finance institution is or shall be in a position to pay its present or future depositors in full as and when their claims accrue; 36. Chapter V to override other laws.-The provisions of this Chapter shall have effect notwithstanding anything inconsistent therewith contained in any other law for the time being ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 provisions of the Code, which provide for a specific manner and priority of payment; hence will not be applicable in terms of S. 238 of the Code. The minimum amount a creditor is mandatorily required to be paid in a resolution plan, i.e. liquidation value. 40. Further, it is well-established law that when two special statutes contain a non-obstante clause, the latter will prevail over the earlier statute. In case of any inconsistency between the provision of the Code and any other enactment, the provision of the Code will prevail. Therefore, provisions of the Insolvency and Bankruptcy Code enacted later will override the NHB Act and the RBI Act by the non-obstante clause. 41. In the case of Innoventive Indus ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f 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 entrusted property was dealt by him in an acceptable manner. Thus, misappropriation with this dishonest intention is one of the most important ingredients of proof of 'criminal breach of trust'. The offence under Section 409 IPC can be committed in varied manners, and as we are concerned with its applicability in the case of a bank officer, it is fruitful to point out that the banker is one who receives money to be drawn out again when the owner has occasion for it. Since the present case involves a conventional bank transaction, it may be further noted that in such situations, the customer is the lender and the Bank is the borrower, the latter being under a super added obligation of honouring the customer's cheque ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he 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 under obligation shall refund the money of the homebuyers. In the given case, JAL deposited money on behalf of JIL for utilization of the same to the homebuyers of the Corporate Debtor. Therefore, it is evident that this deposit is made towards an obligation. When any money is received towards an obligation, it can neither be construed as trust money nor construed as governed by constructive trust, therefore we have not found any merit to say that this money is governed by trust concept." 47. Therefore, it is clear 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 fix ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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, this objection has no force. 53. The Learned Counsel for the Respondents argued that the F.D. Holders are Financial Creditors of DHFL and have been treated accordingly as per the provision of the Code. They had filed their claims in Form 'C', and as the result of admission of their claims during CIRP, they have been recognised as Financial Creditor. Consequently, the dues of F.D. Holders are financial debt, and there is no rationale for treating them as a separate class. 54. Additionally, the ILC report Insolvency Law Committee Report also clarifies that the amount deposited by the depositor's with Financial Service Provider would be treated as financial debt, and such depositors would be classified as Financial Creditors. The relevant p ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... g 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 disbursement of the amount of Rs. 750 crores to the homebuyers who seek refund would be manifestly improper and cause injustice to the secured creditors since it would amount to a preferential disbursement to a class of creditors. Once we have taken recourse to the discipline IBC, it is necessary that its statutory provisions be followed to facilitate the conclusion of the resolution process. 48.2. Secondly, the figures which have been made available presently, following the opening of the web portal by the Amicus Curiae, indicate that 8% of the homebuyers have sought a refund of their monies while 92% would evidently prefer possession of the homes which they have purchased. We cannot be unmindful of the interests of 92% of the homebuyers many of whom would also have ob ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 Authority & Ors. ((2020) 13 SCC 208) (paragraphs 25, 27), Principal Commissioner of Income Tax v Monnet Ispat and Energy Limited, [(2018) 18 SCC 786) (paragraph 2), PSL Limited vs Jotun India Pvt. Ltd. (paragraphs 31, 35 to 37 and 87) upheld by the Division Bench in Jotun India Pvt. Ltd. vs PSL Limited (paragraphs 43) and the case of Forech India Limited vs Edelweiss Asset Reconstruction Company Limited & Anr. [(2019) 18 SCC 549] (paragraph 20) in support of its contention. 62. Thus, the provisions of the Code (which was enacted later) will override the NHB Act and the RBI Act by the non-obstante clause in Section 238 of the Code. 63. Respondent further argues that the Amendments were brought in various enactments by way of the First to Eleventh Schedules provided under the Code, inte ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 the provisions of IBC read with FSP Rules. However, the NHB directions are like delegated legislation and, in any event, cannot override a statute, i.e. IBC. 69. Further, the letter dated 14 August 2019 addressed by National Housing Bank cannot apply since the same was issued before the initiation of CIRP of DHFL. The Appellants have also placed reliance on Section 36 of the NHB Act, which provides an overriding effect and begins with a non-obstante clause. It is settled law that "where two special statutes are containing non-obstante clauses, the latter must prevail". 70. Respondent further draws our attention towards the observation of the Hon'ble Supreme Court in paragraphs 8, 9 & 10 in the case of Solidaire India Ltd. v. Fairgrowth Financial Services Ltd., reported in (2001) 3 SCC 71 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e 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 of the said Act, the Legislature would have specifically so provided. The fact that the Legislature did not specifically so provide necessarily means that the Legislature intended that the provisions of the said Act were to prevail even over the provisions of the Sick Companies Act. Under Section 3 of the 1992 Act, all property of notified persons is to stand attached. Under Section 3(4), it is only the Special Court which can give directions to the Custodian in respect of property of the notified party. Similarly, under Section 11(1), the Special Court can give directions regarding property of a notified party. Under Section 11(2), the Special Court is to distribute the assets of the notified party in the manner set out thereunder. Monies payable to the notified parties are assets of the notified party ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d) 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 guarantees a minimum liquidation value to dissent financial creditors like the Appellants. 72. In the instant case, the fixed deposit holders are provided with the liquidation value of their debt under the I& B Code provisions. Hence for the Appellants seeking relief beyond the scheme of IBC is not permissible and expressly barred as per provisions of the IBC. 73. The learned Senior Counsel for the Appellants further submits that the Insolvency Resolution of DHFL could have been carried out under the RBI Act instead of IBC. But, they have failed to place any material before us to indicate that the returns to public depositors would be higher if the insolvency of DHFL had been under the RBI Act. 74. The learned Senior Counsel for the Appellants further contends that Section 45-MBA under the RBI Act contains a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 challenge the same before different forums. 79. In the instant case, the total claim amount of public depositors was Rs. 5,433 crores, out of which a claim of Rs. 5374 crores was admitted. The Appellants have participated in the CIRP by filing the claims and have been adequately represented on the CoC through an authorised representative who has attended all the meetings of the CoC. The Appellant's received and had knowledge about the meetings of the COC through their authorised representative and were also supplied with the minutes of the CoC on behalf of the entire class of public depositors. 80. Further, the Appellant has also participated in the voting process through their authorised representative. While exercising their voting rights under Section 25 A (3A) of IBC, they have dissented with the Resolution Plan and fu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d 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 & distribution of funds between different classes of creditors. 84. The Appellant herein had challenged the CIRP before the Hon'ble Supreme Court in Vinay Kumar Mittal & Others Vs. DHFL and others by seeking a refund/repayment of the respective deposits. The Hon'ble Supreme Court had directed that the fixed deposit holders could raise the contentions before the CoC, the Administrator, and if necessary, the NCLT, which would be dealt with in accordance with the law. 85. Accordingly, the Authorised Representative of the public depositors had raised the issue of refund/payment of deposits before the CoC. However, the CoC was of the view that differential treatment cannot be given to one class of Financial Creditors during CIRP. Furthermore, during the CIRP of any Corporate Debtor, it is not permissible in law to repay any creditor due to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... equivocal 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 Applicant submits that the Appellants were not entitled to payment of matured FDs during CIRP. The Appellants have erroneously argued that the erstwhile administrator ("Administrator") of the CD was obligated to repay deposits of the Appellant and other FD holders during the pendency of CIRP, as part and parcel of the Administrator's obligation to keep the CD as a "going concern". 90. The response to this argument is two-fold: The FDs formed part of the Erstwhile CD's assets and, therefore, could not be alienated throughout CIRP. a) The Appellants argue that an FD, like a "trust", cannot be considered part of the CD's assets, and the Appellants are not technically financial creditors. Further, they erroneously argue that under Rule 10 of the FSP Rules, the obligation to repay FD holders is not hit by the effect of Section 14 of the IBC as ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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-holders for whom no trustee or agent has already been appointed under a debt instrument or otherwise, an insolvency professional (other than IRP) shall be appointed by NCLT on the request of IRP. It is to be noted that as the agent or trustee or insolvency professional i.e. the authorised representative for the creditors discussed above and executors, guarantors, etc. as discussed in Para 9 of this Report, shall be a part of the CoC, they cannot be related parties to the corporate debtor in line with the spirit of proviso to Section 21(2). *** 10.8. In light of the deliberation above, the Committee felt that a mechanism requires to be provided in the Code to mandate representation in meetings of security-holders, deposit-holders, and all other classes of financial creditors which exceed a certain number, through an authorised representative. This can be done by add ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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. b) Secondly, in furtherance of the argument that the deposits are like trust, the Appellants attempted to argue that since FDs with the CD are governed by the NHB Act and the RBI Act, there is a statutory guarantee of full repayment. Indeed the Appellants primarily rely upon Sections 36A of the NHB Act and Section 45QA of the RBI Act. c) It is contended that FDs cannot be said to be in the nature of trust merely because, before CIRP, NHB Act and the RBI Act governed the CD. However, section 36A of the NHB Act and Section 45QA of the RBI Act clearly states that every deposit shall be repaid "according to the terms and conditions of such deposit". Notably, the Appellants have failed to point out a single instance within their arrangement with the Erstwhile CD, which guarantees full repayment of their FDs. Moreover, section 36A of the NHB Act and Section 45QA of the RBI Act is ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ch 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 financial services shall not be suspended or cancelled during the interim-moratorium and the Corporate Insolvency Resolution Process." i) The only reason for including such a provision within the FSP Rules is in contemplation of a scenario where the terms of the original license cannot be fulfilled, and yet, the FSP must carry on as a going concern. j) Further, the Appellants erroneously argued that an obligation for payment is also made out under the Explanation to Section 14 of the IBC. However, it clarified that the phrase "dues" as referenced therein only means current dues arising for the use of continuation of the license. The said provision does not further the Appellants' cause in any way. k) In view of the aforesaid, it is stated that the deposits, being assets of the Erstwhile CD, were hit by operation of Section 14 of the IBC. Therefore, alienation of the same militat ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e 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 so that a new management may ultimately take over and bring the corporate debtor out of financial sickness, thus benefiting all stakeholders, which would include workmen of the corporate debtor. Also, the judgment of this Court in Swiss Ribbons (P) Ltd. v. Union of India [Swiss Ribbons (P) Ltd. v. Union of India, (2019) 4 SCC 17] states the raison d'etre for Section 14 in para 28 as follows: (SCC p. 55) "28. It can thus be seen that the primary focus of the legislation is to ensure revival and continuation of the corporate debtor by protecting the corporate debtor from its own management and from a corporate death by liquidation. The Code is thus a beneficial legislation which puts the corporate debtor back on its feet, not being a mere recovery legislation for creditors. The interests of the corporate debtor have, therefore, been bifurcated and separated from that of its promoters/those w ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e 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 Reliance Infratel and Others..., in Paras 29-51, while dealing with the issue of the scope of interference by the Adjudicating Authority and the powers of the NCLT and NCLAT regarding approval of the Resolution Plan has referred different Supreme Court judgements pronounced so for, and summarised the law in this regard. 100. In this case, Hon'ble Supreme Court has held that; 29. The function of the Adjudicating Authority under Section 31 is to determine whether the resolution plan "as approved by the CoC" under Section 30(4) "meets the requirements" under Section 30(2). If the Adjudicating Authority is satisfied that the resolution plan, as approved, meets the requirements under sub-Section (2) of Section 30, "it shall by order approve the resolution plan" which shall then be binding on the Corporate Debtor and all stakeholders, including those specifically spelt out: "31.(1) If the Adjudicating Authority ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... fines 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 are specific requirements which have been spelt out in sub-Section (2)(b) of Section 30. Section 30(2)(b) requires the RP to confirm upon examination that the resolution plan: "30...(2)....(b) provides for the payment of debts of operational creditors in such manner as may be specified by the Board which shall not be less than- (i) the amount to be paid to such creditors in the event of a liquidation of the corporate debtor under section 53; or (ii) the amount that would have been paid to such creditors, if the amount to be distributed under the resolution plan had been distributed in accordance with the order of priority in sub-section (1) of section 53, whichever is higher, and provides for the payment of debts of financial creditors, who do not vote in favour of the resolution plan, in such manner as may be specified by the Board, which shall not be less than the amount to be paid to such creditors in accordance with su ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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). Moreover, even within the scope of that enquiry, the grounds on which the Adjudicating Authority can reject the plan is with reference to the matters specified in sub-Section (2) of Section 30. Similarly, the Court notes that the jurisdiction of the Appellate Authority to entertain an appeal against an approved resolution plan is defined by sub-Section (3) of Section 61. Now, it is in this context, that the consistent principle of law which has been laid down is that neither the Adjudicating Authority nor the Appellate Authority can enter into the commercial wisdom underlying the approval granted by the CoC to the resolution plan. The commercial wisdom of the CoC in its collegial capacity is, hence, not justiciable. 37. In K Sashidhar (supra), Justice A M Khanwilkar, speaking for the two-Judge Bench, held: "57. On a bare reading of the provisions of the I&B Code, it would appear that the remedy of appeal under Section 61(1) is a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... /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 been endowed with the jurisdiction to reverse the commercial wisdom of the dissenting financial creditors and that too on the specious ground that it is only an opinion of the minority financial creditors......" (emphasis supplied) 38. The Court, also held (in paragraph 62) that the legislative history of the IBC indicated that "there is a contra indication that the commercial or business decisions of financial creditors are not open to any judicial review by the adjudicating authority or the appellate authority". 39. The above principles have been re-emphasised and taken further by a three-Judge Bench in Essar Steel India Limited (supra). The Court, speaking through Justice R F Narminan, held: "73. There is no doubt whatsoever that the ultimate discretion of what to pay and how much to pay each class or sub-class of creditors is with the Committee of Creditors, but, the decision of such Committee must reflect the fact that it has ta ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... (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 the circumstances in which this power can be exercised are narrowly defined or the court has the competence and experience to exercise the necessary level of commercial and economic judgment." F.3 Exercise of jurisdiction 41. Mr. Dushyant Dave, learned Senior Counsel, sought to place emphasis on the abovementioned observations in paragraph 73 of the decision in Essar Steel India Limited (supra) to submit that the decision of the CoC must reflect that it has taken into account the need to: (i) Maximize the value of assets of the CD; and (ii) Adequately balance the interest of all stakeholders, including of operational creditors. 42. The submission of learned Counsel is that in the present case, there was a failure to maximise the value of the assets and to balance the interests of the stakeholders. 43. The submission that there has been a failure to maximise the value of the assets has not been substantiated by any concrete material befo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rt 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: "88...Fair and equitable dealing of operational creditors' rights under the said regulation involves the resolution plan stating as to how it has dealt with the interests of operational creditors, which is not the same thing as saying that they must be paid the same amount of their debt proportionately. Also, the fact that the operational creditors are given priority in payment over all financial creditors does not lead to the conclusion that such payment must necessarily be the same recovery percentage as financial creditors. So long as the provisions of the Code and the Regulations have been met, it is the commercial wisdom of the requisite majority of the Committee of Creditors which is to negotiate and accept a resolution plan, which may involve differential payment to different classes of creditors, together with negotiating with a prospective resolution applicant for better or different terms which may also involve differences in distribution o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 impermissible exercise of the Adjudicating Authority's power of judicial review. The UNCITRAL, in its Legislative Guide on Insolvency Law, has succinctly prefaced its recommendations in the following terms: "C. 15. Since an insolvency regime cannot fully protect the interests of all parties, some of the key policy choices to be made when designing an insolvency law relate to defining the broad goals of the law (rescuing businesses in financial difficulty, protecting employment, protecting the interests of creditors, encouraging the development of an entrepreneurial class) and achieving the desired balance between the specific objectives identified above. Insolvency laws achieve that balance by reapportioning the risks of insolvency in a way that suits a State's economic, social and political goals. As such, an insolvency law can have widespread effects in the broader economy." 50. Hence, once the requirements of the IBC have been fulfilled, the Adjudicat ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ditors, 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 Supreme Court has observed that; 115. A reading together of the UNCITRAL Guide and the BLRC Report clarifies, in no uncertain terms, that the procedure designed for the insolvency process is critical for allocating economic coordination between the parties who partake in, or are bound by the process. This procedure produces substantive rights and obligations. For instance, the composition of the CoC, the method and percentage of its voting, the timelines for CIRP, the obligation on the RP to file specific forms after every stage of the process and the obligation to explain to the Adjudicating Authority reasons for any deviations from 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 process. This process invariably has an impact on the conduct of the Resolution Applicant who participates in the process and consents to be bound by the RFRP and t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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, considering the earlier judgement of the Hon'ble Supreme Court passed in the case of K. Shashidhar versus Indian Overseas Bank (2019)12 SCC 150, reiterated that neither the Adjudicating Authority (NCLT) nor the Appellate Authority (NCLAT) has been endowed with the jurisdiction to reverse the commercial wisdom of the Committee of Creditors. Therefore, CoC's commercial or business decisions are not open to judicial review by the Adjudicating Authority or the Appellate Authority. The Hon'ble Supreme Court has further placed reliance on the earlier judgement of three-judge Bench in case of Essar Steel India Limited (supra) and observed that there is no doubt whatsoever that the ultimate discretion of what to pay and how much to pay each class or subclass of creditors is with the Committee of Creditors, but, the decision of such committee must reflect the fact that it has taken into account maximising the value of the assets of the Corporate Debtor and the fact that it has ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 adjudicating mechanisms that have and must be cautious in granting reliefs may run counter to the timelines and centre to the IBC. Any judicial creation of a procedural or substantive remedy that is not envisaged raised by the statute would violate the principles of separation of powers and run the risk of altering the delicate coon designed by the IBC framework. 110. In the instant case, the RBI, in the exercise of its administrative discretion under Section 45-IE of the RBI Act, superseded the Board of DHFL and appointed Administrator. Accordingly, it decided to initiate the corporate insolvency resolution proceedings with respect to DHFL under the I.B.C. and not the RBI Act. Therefore, the appellant's contention about the obligation of the Administrator and the successor in the interest of the DHFL to ensure full repayment of deposit to have FD holders under the RBI and NHB Act is not sustainable. 111. It is important to mention that the RBI Act and the NHB Act merely provides that t ..... X X X X Extracts X X X X X X X X Extracts X X X X
|
