TMI Blog2022 (2) TMI 1412X X X X Extracts X X X X X X X X Extracts X X X X ..... ct conflict with the express provisions of the Code? - Is the relationship between DHFL and NHB that of a debtor and creditor, and no special rights can be afforded to NHB other than as a financial creditor? - Whether the Adjudicating Authority erred in holding that the Tagged Receivables are 3rd party assets? HELD THAT:- The provisions of Section 16B of the NHB Act unequivocally provide that any sums received by the borrowing institution would be received by such borrowing institution in trust for RespondentNo.1, NHB, and would be accordingly, required to be paid to the Respondent, NHB. In the present case, both the factors stated in Section 16B are satisfied viz. the amounts held in trust by the Corporate Debtor (i) are to the extent of the accommodation granted by this Respondent; and (ii) are remaining outstanding. Accordingly, these are bound to be paid to this Respondent NHB in the plain and unambiguous terms of Section 16B of the National Housing Bank Act - Under Section 16B of the NHB Act, the Corporate Debtor is statutorily deemed to hold these funds as a 'Trustee' for this Respondent NHB. Although it is elementary and a matter of the first principle that a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ch provides 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 - It is also held that section 238 of the IB code overrides the RBI and NHB Act. Therefore the approved resolution plan that stipulates extinguishment of the claims to the FD s without discharging their payments in full is valid and legal under the Code. NHB is a development financial institution. It is lending to housing finance institutions. Exposure is not on purely commercial lines like any other commercial bank. NHB is an integral partner in formulating and implementing India's Government's housing and housing finance policies. For example, the exposure norms of RBI applicable to a commercial bank are not relevant to refinance a portfolio of a refinancing institution like NHB - If NHB were to be treated at par with any other financial creditors/commercial lenders, hypothetically, any CIRP against a Housing Finance Companies who had borrowed amounts totalling to NHB's net-worth would lead to a situation where NHB may be forced into liquidation, as it could then legally ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... lant : Mr Raunak Dhillon, Ms Madhavi Khanna, Mr Shubhankar Jain, Mr Animesh Bisht and Ms Saloni Kapadia, Advocates For the Respondent : Mr Mohammed Himayatullah, Mr Jinella Gogri and Negandhi Shah, Advocates for R-1. JUDGMENT [PER; V. P. SINGH, MEMBER (T)] 1. Union Bank of India files the instant Appeal on behalf of the Committee of Creditors ( CoC / Appellant ) of Dewan Housing Finance Corporation Limited ( Corporate Debtor / DHFL ) against the order dated June 7, 2021, passed by the Adjudicating Authority/ NCLT , Mumbai Bench in IA No. 1104 of 2020 filed in Company Petition No. 4258 of 2019 ( Company Petition ), whereby the Adjudicating Authority has inter-alia allowed the prayers, as mentioned below in the Application. 2. In the above-said Application, i.e. MA 1104 of 2020, the applicant had prayed that: (a) That this Hon'ble Tribunal be pleased to declare that under sub-section (1) of Section 16B of the National Housing Bank Act, 1987, any sums received by Dewan Housing Finance Limited in repayment or realization of loans refinanced by the Applicant and remaining outstanding shall be deemed to be received by Dewan Housing Finance Limited in tr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . The above application was disposed of by the Adjudicating Authority vide its order dated 03rd August 2020 with the following observations: Main prayers in this IA are:- 1. That this Hon ble Tribunal be pleased to declare that under sub-section (1) of Section 16B of the National Housing Bank Act, 1987, any sums received by Dewan Housing Finance Limited in repayment or realization of loans refinanced by the Applicant and remaining outstanding shall be deemed to be received by Dewan Housing Finance Limited in trust for and on behalf of the Applicant and all the amounts so received and/or to be received by Dewan Housing Finance Limited under any purported documents such as assignment agreements and/or under regular repayment/pre-payments are to be held in trust by DHFL for the benefit of the applicant. 2. Facts of the Matter is already discussed in the IA449/2021, therefore for the sake of brevity, the same is not reproduced here. 3. We have Heard Ld. Solicitor General of India, Mr Tushar Mehta, Ld Sr. Counsel Mr Ravi Kadam, Ld. Sr. Counsel Mr Gaurav Joshi, Ld. Sr. Counsel Mr Mukul Rohatgi, Ld. Sr. Counsel Mr Janak Dwaraka Das and other Ld. Counsels in this mat ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... al Ors. and Hon ble NCLAT decision in the matter of Directorate of Enforcement V/s Manoj Kumar Agrawal and Others in Company Appeal (AT)(INSOLVENCY)No.575/2019. IV. Hence this IA is allowed in terms of the prayer clause. Further, the Interim Arrangement made between the NHB and the Administrator / CoC of the DHFL vide Consent Terms dated 03.12.2020 is made absolute. IA-1104 is allowed in terms of its prayer clause (Page 31 of the IA) a, b, c and d. Further, the Interim Arrangement made between the parties as per the Consent Terms dated 03.12.2020 is also made absolute as per the prayer clause. With the aforesaid declarations/observations, the IA-1104/2020 is Allowed and stands disposed of. (verbatim copy with emphasis supplied) 4. Factual Background 4.1 The Appellant CoC of DHFL challenges the Impugned Order mainly because the NCLT had passed the order without consideration of any of the submissions made by the CoC or the Administrator and contrary to the express provisions of law. The Impugned Order proceeds on the erroneous presumption that National Housing Bank(for brevity NHB ) is the owner of DHFL's funds or property by Section 16B of the Nation ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... I ) had by way of its press release notified that the RBI had superseded the Board of Directors of DHFL in the exercise of its powers under Section 45-IE (1) of the Reserve Bank of India Act, 1934 owing to governance concerns and defaults by DHFL in meeting various payment obligations. In this Press Release, it was also stated that the RBI also intends to initiate the resolution of DHFL and that it shall apply before the Adjudicating Authority for appointing the Administrator as the Insolvency Resolution Professional. 4.7 On November 29, 2019, the RBI filed the Company Petition under Rule 5(a)(i) of the FSP Rules before the Adjudicating Authority for initiating CIRP of the Corporate Debtor under the provisions of the Code. The Adjudicating Authority vide order dated December 03, 2019, admitted the Company Petition filed by RBI. 4.8 NHB has filed Form C explicitly provided for the submission of a claim by the Financial Creditor during CIRP. Hence, NHB has acknowledged that it is a Financial Creditor of DHFL. Accordingly, the Administrator had admitted the claim of Rs. 2436.67 crores submitted by NHB after verification. NHB is a member of CoC, having 2.81% of the voting sha ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he Resolution Plan dated December 22, 2020, submitted by Piramal Capital Housing Finance Limited ( Piramal ) about DHFL , was approved by 93.65% of the voting share of the CoC. Accordingly, the Administrator filed the IA No. 449 of 2021 in the Company Petition CP 4258 of 2020 before the Adjudicating Authority for approval of the Resolution Plan under Section 30 read with Section 31 of the I B Code. 4.13 The Plan Approval Application was heard by the Adjudicating Authority and reserved for orders on May 13, 2021. The Plan Approval Application was allowed by the NCLT vide its order dated June 7, 2021. The Application filed by NHB was also allowed by the NCLT by way of Impugned Order dated June 7, 2021, wherein and whereby, among other things, the Arrangement made during CIRP was made absolute. Chronology of Events 4.14 National Housing Bank ( NHB ) was established as a statutory body established under the National Housing Bank Act, 1987 ( NHB Act ). 4.15 DHFL entered into a memorandum of Arrangement ( MOA ) dated February 27, 2004, with NHB for availing financial assistance from time to time from NHB under its refinance and other schemes. Under the MOA, DHFL and NHB w ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... solution Professional. 4.20 By press release dated November 22, 2019, in exercising the powers conferred under Section 45, I.E. 5(a) of the Reserve Bank of India Act 1934, the RBI constituted a three-member Advisory Committee to assist the Administrator in discharge of his duties. 4.21 The RBI filed the Company Petition on November 29, 2019, under Rule 5(a)(i) of the FSP Rules before the Hon'ble Adjudicating Authority, Mumbai Bench, for initiating the corporate insolvency resolution process ( CIRP ) of the Corporate Debtor under the provisions of the Code. The Adjudicating Authority Mumbai Bench vide order dated December 03, 2019, admitted the Company Petition filed by the RBI ( Admission Order ). Vide the same Admission Order, the Adjudicating Authority also confirmed the appointment of Mr R. Subramaniakumar as the Administrator of DHFL to perform all functions of the Resolution Professional under the Code and conduct and complete the CIRP of the Corporate Debtor. 4.22 NHB filed Form C for submission of the claim as the Financial Creditor on December 07, 2019, with the Administrator of DHFL upon initiation of CIRP. Accordingly, the Administrator had admitted ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of such contract: Provided that when such assets shall not be returned by the Administrator, due to breach of the terms of the contract, the financial service provider has become entitled to retain such assets for itself or dispose of the same to realise its dues. 4.25 The request for Resolution Plans was initially issued by the Administrator on March 03, 2020, and this was subsequently amended from time to time on March 17, 2020, August 15, 2020, and September 16, 2020 (collectively, the RFRP ). 4.26 An Application being I.A. No. 1104 of 2020 in C.P. (I.B.) No. 4258/MB/CII/2019 was filed by NHB in the Company Petition before the Adjudicating Authority. Subsequently, on August 07, 2020, an Additional Affidavit was also filed by NHB (collectively referred to as the Application ). 4.27 By way of this Application, relying primarily on Section 16B ( Section 16B ) of the NHB Act and the MOA entered into between DHFL and NHB. 4.28 The NHB contends that all the loan receivables of DHFL, where such loans have been financed or refinanced wholly or partly by NHB ( Tagged Receivables ), are held in trust and on behalf of NHB by DHFL. NHB accordingly sought declarat ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... aforesaid (i.e. Rs. 2436,67,20,412/-) shall be paid to NHB minus the pro-rata share already paid to NHB in terms of paragraph xix (c) above, as per paragraph 6(e) of the Arrangement. (ii) If finally decided in favour of the CoC, the entire amount (i.e. Rs. 2436,67,20,412/-) shall be distributed amongst the creditors, including NHB, as per their pro-rata share in terms of the resolution plan as per paragraph 6(f) of the Arrangement (d) In view of the Arrangement and upon filing the joint Application by NHB and CoC and placing the Arrangement before the NCLT, it was agreed that NHB should not demand any payment from the Administrator and DHFL till the final adjudication of the NHB Application by the NCLT (by the NCLAT or the Hon'ble Supreme Court as the case may be in case of an appeal against the order of the NCLT or the NCLAT). (e) It was clarified that (i) the Arrangement is without prejudice to the right of recourse available to the Applicant against sureties/guarantors for recovery of a debt due to the Applicant on account of default by DHFL as per their respective guarantee agreements and (ii) since the entire amount claimed by the Applicant is agreed to be kept ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... re such loans have been financed or refinanced wholly or partly by NHB, ( Tagged Receivables ) are held in trust and on behalf of NHB by DHFL and hence do not form part of the assets of DHFL and should be returned to NHB. 5.3 ARRANGEMENT IN THE APPLICATION i) The NCLT vide its order dated November 17, 2020, in the Application had directed that no voting should take place in relation to the manner of distribution of proceeds of the approved resolution plan and the approval of final resolution plans under Section 30 (4) of the Code till the next date of hearing in the NHB Application ( November 17 Order ) [Annexure 1-13 at pages 363 - 364, pdf pages 154 - 155 of Vol. II of the Appeal]. The November 17 Order was discussed in detail by the CoC. The CoC was of the view that an amicable arrangement may be reached to facilitate and expedite the corporate insolvency resolution process. ii) Hence, an arrangement arrived at between the CoC and NHB ( Arrangement ) (Annexure A-14 (Colly) at pages 370 - 373, pdf pages 161 - 163 of Vol. II of the Appeal). By order dated December 3, 2020, the Arrangement was taken on record by the NCLT. (Annexure 4-14 (Colly) at pages 365 - 367, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ot considering that the rights of NHB under Section 16B are additional security and not a transfer of ownership of any assets of DHFL to NHB. Once DHFL is admitted into insolvency, any rights of a creditor, including NHB under any other prior statute, are overridden by the Code. 5.7 DHFL remains the owner of the Tagged Receivables, and NHB does not get ownership of the same. The NCLT gravely erred in not appreciating that Rule 10 of the Insolvency and Bankruptcy (Insolvency and Liquidation Proceedings of Financial Service Providers and Application to Adjudicating Authority) Rules, 2019 ( FSP Rules ) and the Notification No. S.O.464 (E) dated January 30, 2020 ( January 30 Notification ) (paragraph 7(xi) on page 25, pdf page 33 of Vol. I of the Appeal) exclude only those assets which are owned by a third party and which are in the hands of the corporate debtor under a contract, from the scope of the moratorium under Section 14 of the Code. Rule 10 of the FSP Rules contemplates a principal-agent relationship, not a trustee-beneficiary relationship. The loans given by NHB do not establish a trustee beneficiary relationship between NHB and DHFL. B. NHB is a Financial Creditor an ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... der. Hence, Section 16B creates only a right of repayment. Therefore, security for repayment, in case DHFL has not been able to make payments, in the ordinary course, in favour of NHB from certain assets of DHFL. 5.14 Exercise/enforcement of such rights resulting in repayment to NHB once DHFL is admitted into CIRP is in direct conflict with the provisions and scheme of the Code, including Section 14 of the Code. This is because no creditor of DHFL can be repaid during the moratorium or in priority to any other creditor of DHFL under the scheme of the Code. 5.15 Further, all prior debts of DHFL, including those of NHB, shall be dealt with and satisfied in terms of the Resolution Plan and hence any alleged rights under Section 16B over the Tagged Receivables cannot continue. 5.16 The case of NHB is that the provisions of the NHB Act give NHB special privileges. A well-established principle of law is that when two special statutes contain non-obstante clauses, the later non-obstante clause will prevail over the earlier statute. It is further well established that in case of any inconsistency between the provisions of the Code and any other enactment, the provisions of the Cod ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e person in whom the confidence is reposed and accepted. He is the owner of the Trust property - in this case DHFL; d) The beneficiary is the person for whose benefit the confidence is accepted - in this case, NHB; e) Trust property is the subject matter of the trust, i.e. the property to which certain obligations to or rights of the beneficiary are attached - in this case, the Tagged Receivables; f) Beneficial interest or interest of the beneficiary is his right against the trustee as owner of the trust-property - in this case, the right of NHB to be repaid its dues (i.e. the loans given to DHFL) from the Tagged Receivables; (1) Instrument of trust is the instrument, if any, by which the trust is declared in this case, there is no trust deed/any other instrument creating the trust nor any trust account created. NHBs case is that Section 16B creates trust. g) It is well established that under Section 3 of the Indian Trusts Act, 1882 ( Trust Act ), a trust is only an obligation annexed to the ownership of property (Kansara Abdul Rehman Sadruddin v. Trustees of the Maniar Jamat 1967 SCC OnLine Gujrat 10 (para 8)). h) Hence, under the Trust Act, the ownership of the t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f attorney to create a mortgage or charge in its favour on the assets held by the Financing Institution including those described In Clause 10 . Hence, the assets, including the Tagged Receivables, are acknowledged by NHB to be assets of DHFL. m) Clause 13(g) of the MOA requires DHFL to maintain separate accounts and records for the loans financed or refinanced by it and, unless otherwise agreed, the housing loans flagged against NHB's assistance. However, maintenance of such separate accounts does not constitute a transfer of Tagged Receivables to NHB and shows that they remain assets of DHFL (reflected in the balance sheet as well). n) There is no property transfer from DHFL to NHB in Section 16B or the MOA. Thus, NHB as beneficiary cannot be the owner of the trust property and is only at best a beneficiary. Hence, Rule 10 of FSP Rules and the January 30 Notification do not apply to NHB. o) NHB has contended that Rule 10 also includes any funds/securities required to be held in trust for the benefit of third parties . However, on a complete reading of both the January 30 Notification and Rule 10, it is clear that the aforesaid notification and rule will apply only ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he floating charge created in favour of depositors as per the provisions of Section 29B of the NHB Act from the pari passu charge. However, no such exception has been carved out for the Tagged Receivables. 5.22 Hence, any charge of NHB on Tagged Receivables is subject to the charge of lenders and only after the satisfaction of the charge of the lenders can the same be utilised for the benefit of NHB. NHB itself, having waived its alleged benefit under the NHB Act by ceding pari passu charge in favour of all other lenders, cannot now seek to invoke the said additional privilege. F. The AA/ NCLT has passed the impugned order without considering the submissions of the CoC or the Administrator, and hence there has been a violation of the principles of natural justice; 5.23 A bare perusal of the Impugned Order clarifies that the Learned AA/ NCLT gravely erred in passing the Impugned Order. 5.24 Whether or not the Tagged Receivables are, in fact, third party assets and, therefore, not assets of DHFL, because of the operation of Section 16B of NHB Act has been not considered by the NCLT. 5.25 The Learned AA/ NCLT has further failed to deal with the issue and provide ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... id matter, the Court was dealing with quasi-judicial proceedings and the continuation of the same in light of Section 14 of the Code. c) It is pertinent that in the judgment, it was also found that the Code will have an overriding effect even over a special statute (enacted prior in time) as it has the specific object, which is to consolidate and amend laws relating to reorganisation and insolvency resolution of corporate persons, partnership firms and individuals in a time-bound manner for maximisation of value of assets of such persons and to promote entrepreneurship, availability of credit and balance the interest of all stakeholders including alteration in the order of priority of payment of Government dues. d. Hence the Manoj Kumar case supports the case of the CoC that the Code will override the NHB Act. The Manoj Kumar judgment also finds that it is incumbent on the Resolution Professional to take possession/control of all assets on the debtor's balance sheet. e. The NCLAT in this matter was not ceased of an application from a Financial Creditor seeking priority/preference in payment. H. SECURITIZATION TRANSACTIONS 5.30 NHB, before the Learned AA/ NCL ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 7 crore. 6.3 The NHB is a Government of India-owned entity set up under a Special Statue viz. National Housing Bank, 1987 ( the NHB Act ). It has the mandate under NHB Act to operate as the principal agency to promote housing finance institutions and provide financial and other support to such institutions. To meet the objective of its establishment, extended refinance assistance to primary lending institutions (PLI s), including Housing Finance Companies (HFCs). Thus, this Respondent extends refinance to the housing finance institutions to ease the liquidity in the housing sector. 6.4 Between 2003-2004 and up to 2017, it had granted refinance facility to the Corporate Debtor on the terms and conditions more particularly set out in the Memorandum of Agreement dated 27th February 2004 read with the sanction letters issued from time to time, under it, the Corporate Debtor executed security documents in favour of this Respondent No.1. When managing separate security documents, this Respondent NHB also called upon the Corporate Debtor to provide a list of loans sanctioned and disbursed to its borrowers. These individual loans were clearly and distinctively identifiable. 6.5 Th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... does not apply to the Assets held in trust under Section 16B of the NHB Act since how these third-party assets are to be dealt with are already provided in clear terms in the NHB Act. In that case, the above notification cannot be said to derail the NHB Act, which is a special statute by itself. The NHB Act is thus a complete Code by itself to the extent it deals with the affairs of this Respondent and the housing finance companies. The provisions of the NHB Act make it explicit that there is a clear and direct public interest element involved in the statute and the role of this Respondent. It is thus impermissible to travel beyond the statutorily defined nature of the relationship. 6.9 Thus, the provisions of the Code and the NHB Act do not conflict with each other in as much as Section 16B of the NHB Act segregates a pool of assets representing amounts received in repayment or realization of loans and advances financed or refinanced by Respondent NHB to be held in trust for and paid to it by the Corporate Debtor. The said legislative device carves out such amounts from the moratorium under Section 14 of the Code and the Insolvency Resolution Process. Therefore, the said NHB A ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 16B have an overriding, over-arching application. Section 19, as the provision of Section 14 of the NHB Act, also empowers the NHB to impose any conditions that it may think necessary and reasonable for protecting its interests, which can be through an agreement. Such agreements that this Respondent has entered into with the Corporate Debtor do not dilute this NHB s statutory rights under the NHB Act or make the Respondent NHB a financial creditor, ignoring the overriding trust provisions. The provisions of Sections viz. 16B, 19, 20, 21, 22 give enormous statutory powers to the NHB, distinguishing it from other Financial Creditors. 6.12 Without Prejudice, Respondent was to be treated at par with other Financial Creditors/commercial lenders; hypothetically, any CIRP against a Housing Finance Company who had borrowed amounts totalling to this Respondent net worth would lead to a situation where the NHB may be forced into liquidation, as it could then legally result in the entire net worth of Respondent NHB being extinguished. This was never and could not ever be the legislative intent while enacting the National Housing Bank Act. 6.13 Without Prejudice, if the NHB is treated ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... crutiny by not only the Resolution Professional but also by the Committee of Creditors; during such negotiations, various modifications may be done to ensure that the Financial Creditors, as well as the other creditors, are paid, and the Corporate Debtor is revived and is made an on-going concern. Thus, it's only the majority decision of the Committee of Creditors that approves the Resolution Plan and places the same before the Adjudicating Authority, i.e. the NCLT, the NCLT thus is only required to arrive at subjective satisfaction that the plan conforms to the requirements as are provided in Section 30 of the Code. The legislative intent is to freeze all the claims so that the resolution applicant starts on a clean slate and is not flung with any surprise claims. Rejoinder Submissions by Appellant in response to Ist Respondents Reply 7. In brief, NHB, in its Reply, has raised inter alia the following contentions: (i) NHB has granted refinance to the Corporate Debtor / DHFL against clear, identifiable and earmarked individual housing loan portfolios; (ii) The relationship between DHFL and NHB is not a simple debtorcreditor relationship and is governed by a spe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hus, it is submitted that even if DHFL does not receive any repayment of the loans advanced by DHFL to its customers, which have been financed/refinanced by NHB, DHFL would still have to repay NHB as per the repayment schedule of such loan. Such repayment is made to NHB by DHFL from its common pool of monies/assets, just as repayment to any other creditor of DHFL. There is no separate pool of assets for repayment to NHB. 8.3 That merely because NHB is a statutory body or merely because of the object for which NHB was set up does not entitle NHB to a better right and title than any other Financial Creditors, especially since the relationship between NHB and DHFL is a purely commercial lending relationship like other creditors. It is further submitted that various creditors of DHFL are statutory bodies, including Life Insurance Corporation, State Bank of India etc. However, under the Code, no special treatment is given to any creditor because it is a statutory body or otherwise. 8.4 The Code and the law laid down thereunder clearly stipulates only four kinds of creditors: financial, operational, secured, and unsecured. Neither the Code nor any rule laid down thereunder in any m ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... se. 9.6 The said provision only comes into effect when considering a winding up/ liquidation of NHB. In the present case, the resolution of the insolvency of DHFL and not NHB is under question, and hence the said Section 54 of the NHB Act does not further the case of NHB. 9.7 Further, suppose NHB s contention of repayment in priority to all creditors in terms of Section 16B of the NHB Act is accepted; in that case, it will lead to preferential treatment of NHB (a Financial Creditor), which is impermissible under the Code. Resultantly other Financial Creditors of DHFL will receive lesser amounts, despite being Financial Creditors having the same pari passu charge. Such preferential treatment will lead to creating a class within a class that de hors the Code's provisions. 10. NHB is not the owner of Tagged Receivables, and Rule 10 of the FSP Rules would not be applicable in the present case 10.1 The rights of NHB under Section 16B of the NHB Act is a security interest created over the Tagged Receivables. However, it does not result in the transfer of ownership of any of the assets of DHFL to NHB. It is stated that DHFL remains the owner of the Tagged Receivables. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... les. Therefore, the exception under Rule 10 of the FSP Rules read with the Notification is inapplicable in the present factual matrix. It is submitted because the memorandum of arrangement dated February 27, 2004 ( MOA ) requires DHFL to maintain separate accounts and records for the loans financed or refinanced by it. Therefore, unless otherwise agreed, the housing loans flagged against NHB s assistance, the maintenance of such separate accounts does not constitute a transfer of Tagged Receivables to NHB and shows that they remain assets of DHFL. 10.6 It is submitted that Rule 10 of the FSP Rules and the Notification only exclude assets owned by a third party in the hands of the corporate debtor under a contract from the moratorium under Section 14 of the Code and Rule 5(b) of the FSP Rules. Rule 10 of the FSP Rules, the Notification and the Code provisions complement one another and aid each other. Hence, the Tagged Receivables are not covered under the exception under Rule 10 of the FSP Rules. 11. NHB has itself filed a claim as Financial Creditor in DHFL s insolvency by submitting Form C and has stated therein that Section 16B of the NHB Act is additional security hel ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... other lenders of DHFL 12.1 NHB has at all times acknowledged and recognized the pari passu charge of the other lenders on the loans in terms of the security documents. This has been acknowledged inter alia in the sanction letters dated January 21, 2009, and March 03, 2016, and Joint Deeds of Hypothecations from 2010 to 2015. Further, a letter dated March 17, 2020, issued by the Administrator of DHFL and the Balance Sheets of DHFL, provides a pari passu charge on the security and loan amounts of DHFL in favour of NHB and other lenders. 12.2 It is stated that NHB cannot cherry-pick the contents of the no-objection letter dated September 25, 2012, provided by NHB for appointment of Catalyst Trusteeship Limited, mainly when the letter itself gives that the refinance outstanding of the NHB is secured by the first charge on all the book debts, movables (other than housing loans and investments) and immovable properties of the company ranking pari passu with other lenders. 12.3 In fact, among other things, under clause 9 of the MOA, NHB has itself recognized the creation of charge over the assets, including receivables of DHFL. Further, post-issuance of the NOC Letter, betwee ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... with the Code and is therefore overridden by the Code. As stated, the Code is a special statute that overrides all other statutes inconsistent with the Code, including any special law enacted prior to the Code. Hence, special rights, if any, under Section 16B of the NHB Act, by virtue of which NHB claims that it was required to be repaid its dues from DHFL during the corporate insolvency resolution process of DHFL and in priority to other creditors, will be invalid being contrary to the provisions of the Code. 14. The Arrangement is subject to the orders passed by this NCLT, NCLAT or the Hon ble Supreme Court (where such appeal is preferred) and does not in any manner establish or recognise the right of NHB under the Section 16 B of the NHB Act. 14.1 NHB has contended that the Plan Approval Order records the total resolution amount of Rs. 37,250 Crores includes the claim of NHB, and the same is arrived at after considering the additional recovery to the creditors by the NCLT relying on the Arrangement and taking into consideration the statutory rights of NHB. Therefore, the said contention raised by NHB is incorrect. 14.2 The Appellant is well aware on account of th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tribution of funds and in no manner can be construed by NHB to further its cause. Therefore, such an attempt by NHB is malafide and against the spirit of the Arrangement. Moreover, it is known to NHB that at the time of passing of the Plan Approval Order, the Arrangement entered into by NHB on its own volition and was subsisting till the matter was pending outcome by the NCLT, NCLAT or Hon ble Supreme Court (where such appeal is preferred) as the case may be. Hence, the submissions made by NHB about the Arrangement are entire without merit and ought not to be considered. 15. The adverse balance certificates submitted by DHFL do not further the case of NHB. 15.1 NHB has contended that the adverse balance certificate issued by DHFL states that the Tagged Receivables are unencumbered/ free from any charge . However, it is pertinent to note that NHB has not produced any document in support of its said contention. 15.2 It is further submitted that the requirement from DHFL to provide an adverse balance certificate is provided in clause 4(d)(ii) of the MOA, which is reproduced below: 4(d)(ii) ADVERSE BALANCE The Financing Institution availing the NHB Loan Assist ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... herefore founded on and for repayment of loans granted by NHB. 16.3 As stated above, NHB filed its claim in Form-C with the Administrator as a Financial Creditor of DHFL and was part of the CoC, and NHB has exercised all rights as a Financial Creditor in the CRIP of DHFL. It is reiterated that a bare perusal of the Form-C would show that NHB has claimed its alleged rights under Section 16B in clause 8 of the Form-C , i.e. under the column Details of security held, the value of the security, and the date it was given . Hence, as clearly set out by NHB in Form C , NHB has itself identified the alleged rights under Section 16 B as a security . 16.4 NHB has not produced any shred of evidence in any of the proceedings to show that the Tagged Receivables are assets of NHB, including the balance sheets of NHB. On the one hand, NHB s case in the claim form dated December 17, 2019, and revised claim form dated May 5, 2020, is that the monies belong to DHFL and that there is a security interest created in NHB s favour under Section 16 B ,and on the other hand, contended that the said monies are third party assets by NHB has effectively claimed outright ownership over the said ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ivables. It is further reiterated that where NHB wanted to carve out an exception to the terms of the agreements or the assets of DHFL, it has expressly done so in the agreements itself. 16.9 It is submitted that since NHB has ceded charge over the Tagged Receivables, which are assets of DHFL, the same must be dealt with as per the Code and Resolution Plan provisions. 16.10 NHB has also submitted that the Administrator is the real aggrieved party so far as the Impugned Order is concerned, and the Administrator has not challenged the Impugned Order. Therefore, it is submitted that the said contention of NHB is entirely incorrect. Moreover, NHB is well aware that the subject matter of the NHB Application and now the present appeal is an inter se dispute amongst creditors. Hence, the other creditors are affected by the Impugned Order and not the Administrator. Further, and without prejudice to the aforesaid, the claim of NHB in the NHB Application was contested by the Administrator. 16.11 Appellants contend that the Impugned Order is not well-reasoned and has even failed to deal with the principal issue, i.e., whether or not the Tagged Receivables are third party assets. Co ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in the Official Gazette, appoint, and different dates may be appointed for different provisions of this Act and any reference in any provision to the commencement of this Act shall be construed as a reference to the coming into force of that provision. 14. Business of the National Housing Bank. Subject to the provisions of this Act, the National Housing Bank may transact all or any of the following kinds of business, namely: (a) promoting, establishing, supporting or aiding in the promotion, establishment and support of housing finance institutions; [(b) making of loans and advances or rendering any other form of financial assistance whatsoever for housing activities to housing finance institutions, scheduled banks, State cooperative agricultural and rural development banks or any other institution or class of institutions as may be notified by the Central Government; (ba) making of loans and advances for housing or residential township-cum-housing development or slum clearance projects;] (c) subscribing to or purchasing stocks, shares, bonds, debentures and securities of every other description; (d) guaranteeing the financial obligations of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nce institutions to ensure their growth on sound lines; (l) providing technical and administrative assistance to housing finance institutions; (m) co-ordinating with the Life Insurance Corporation of India, the Unit Trust of India, the General Insurance Corporation of India and other financial institutions, in the discharge of its overall functions; (n) exercising all powers and functions in the performance of duties entrusted to the National Housing Bank under this Act or under any other law for the time being in force; (o) acting as agent of the Central Government, the State Government or the Reserve Bank or of any authority as may be authorised by the Reserve Bank; (p) any other kind of business which the Central Government may, on the recommendation of the Reserve Bank, authorise; (q) generally, doing of all such matters and things as may be incidental to or consequential upon the exercise of its powers or the discharge of its duties under this Act. [16-A. Assistance to borrower when to operate or a charge in the property offered as security. ( 1) Where any person or institution seeks any financial assistance from the National Housin ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... institution in trust for the National Housing Bank, and shall accordingly be paid by such institution to the National Housing Bank. (2) Where any accommodation has been granted by the National Housing Bank to a borrowing institution, all securities held, or which may be held, by such borrowing institution on account of any transaction in respect of which such accommodation has been granted, shall be held by such institution in trust for the National Housing Bank.] 17. Power to transfer rights. The rights and interests of the National Housing Bank (including any other rights incidental thereto) in relation to any loan or advance made, or any amount recoverable, by it, may be transferred by the National Housing Bank, either in whole or in part, by the execution or issue of any instrument or by the transfer of any instrument by endorsement, or in any other manner in which the rights and interests in relation to such loan or advance may be lawfully transferred, and the National Housing Bank may, notwithstanding such transfer, act as the trustee within the meaning of Section 3 of the Indian Trusts Act, 1882 (2 of 1882), for the transferee. 29. Chapter not to appl ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of companies. (3) The Reserve Bank may, if it considers necessary in the public interest so to do, issue directions to housing finance institutions which are companies accepting deposits referred to in Section 31, either generally or to any group of such housing finance institutions accepting deposits, and in particular, in respect of any matters relating to, or connected with, the receipt of deposits, including credit rating of the housing finance institution which is a company accepting deposits, the rates of interest payable on such deposits, and the periods for which deposits may be received. (4) If any housing finance institution which is a company accepting deposits fails to comply with any direction issued under sub-section (3), the Reserve Bank may, by order, prohibit the acceptance of deposits by that housing finance institution.] [35-B. Power of Reserve Bank to exempt housing finance institution. (1) The Reserve Bank, on being satisfied that it is necessary so to do, may declare by notification that all or any of the provisions of this Chapter shall not apply to a housing finance institution which is a company or a group of such housing finance inst ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... is entitled to any rights under section 16 B of the NHB Act after commencement of CIRP against the DHFL when such rights are in direct conflict with the express provisions of the Code? b) Is the relationship between DHFL and NHB that of a debtor and creditor, and no special rights can be afforded to NHB other than as a financial creditor? c) Whether the Adjudicating Authority erred in holding that the Tagged Receivables are 3rd party assets? 18.7 In response to the issues raised in the Appeal, the Respondent NHB emphasized the relevant provisions necessary for considering the present dispute between the parties: A. National Housing Bank Act, 1987 Section 16B - Amount and Security to be held in trust: (1) Any sums received by a borrowing institution in repayment or realization of loans and advances financed or refinanced either wholly or partly by the National Housing Bank shall, to the extent of the accommodation granted by the National Housing Bank and remaining outstanding, be deemed to have been received by the borrowing institution in trust for the National Housing Bank and shall accordingly be paid by such institution to the National Hous ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... continue to discharge the obligation of the financial service provider as a servicing or collection agent; 2. Assets of Third Parties - Where the Financial Service Provider has, as on the insolvency commencement date, in its custody or possession owned by its customers or counterparties or by counterparties of its customers under a contract, and is under an obligation to return or transfer such assets in accordance with the terms and conditions of such contract, the Administrator shall- (a) . (b) ensure that such assets are maintained in a separate and distinct manner, capable of identifying them contract wise, and are not merged with those of the financial service provider 18.8 From a perusal of the above provisions, it is clear that the provisions of Section 16B of the NHB Act unequivocally provide that any sums received by the borrowing institution would be received by such borrowing institution in trust for RespondentNo.1, NHB, and would be accordingly, required to be paid to the Respondent, NHB. 18.9 What is pertinent is that the funds with the Corporate Debtor to the extent they relate to the earmarked/flagged loans refinanced by thi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... repayments under the loans belong to this Respondent NHB and not the Corporate Debtor. The Corporate Debtor is bound to act as per the mandate of the NHB Act. The actions of the Administrator, who was vested with the management of the Corporate Debtor, cannot be in contravention of the mandate given under clause (e), sub- section (2) of Section 17 of the Code, which envisages that the Administrator will be responsible for complying with the requirements under any law for the time being in force on behalf of the Corporate Debtor and thereby jeopardize the right and entitlement of Respondent NHB or act contrary to the provisions of Section 16 B of the NHB Act. 18.15 Undisputedly the corporate debtor DHFL was accepting fixed deposits and public deposits with interest on contractual terms. In connected appeals, we have already decided that transactions of the corporate debtor with the fixed deposit holders or public deposit holders were commercial transactions. Therefore, we have decided that since the Corporate Debtor is undergoing an Insolvency Resolution Process, the creditors of the corporate debtor, i.e. fixed deposit holders and public deposit holders, are entitled to the amou ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... impose any conditions that it may think necessary and expedient for protecting its interests, which can be through an agreement. Such agreements that NHB has entered into with DHFL do not dilute NHB's statutory rights under the NHB Act or make NHB a financial creditor, ignoring the overriding trust provisions. On the contrary, the provisions of sections like S.16 B, 19, 20, 21, 22 give enormous statutory powers to NHB, distinguishing it from other financial creditors. 18.21 NHB is a development financial institution. It is lending to housing finance institutions. Exposure is not on purely commercial lines like any other commercial bank. NHB is an integral partner in formulating and implementing India's Government's housing and housing finance policies. For example, the exposure norms of RBI applicable to a commercial bank are not relevant to refinance a portfolio of a refinancing institution like NHB. 18.22 It is clear from the relevant RBI Circular on Exposure Norms inter alia that given refinance operations being the core function of a refinancing institution like NHB, the general exposure norms do not apply to its refinance portfolio. The Board of Directors of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t (as discussed above), showing the unmistakable intent of the legislature to treat NHB differently from other creditors in the matter of the conduct of its refinancing transactions. 18.28 This unique mandate of the statute must be respected. Section 16B of the NHB Act provides certain rights to NHB in clear, unambiguous terms, then assuming/suggesting the contrary is a fallacious proposition. There is no conflict, as has been explained already. There is absolutely no inconsistency since the Rule 10 exception applies to sums/assets held in trust under Sec. 16B of the NHB Act for the benefit of NHB, excluding such funds from the moratorium provisions of S. 14 of the Act and Rule 5 of the FSP Rules. 18.29 Appellants without prejudice contention that all assets, including receivables of DHFL, are secured pari passu among the creditors is incorrect. Besides the provisions of section 16 B, NHB also stipulated other securities for extending refinance to DHFL. As Sec. 19 of the NHB Act empowers NHB to do so. NHB's rights under Sec. 16 B flow from the statute; any contractual arrangements are only in furtherance of and complimenting these statutory rights and not contrary to th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ect position that emerges on an analysis of the relevant statutory provisions and the terms of the documents is that the rights of NHB extend over other securities (excluding Sec. 16 B) on a pari-passu basis. Even the latest Adverse Balance Certificates submitted by DHFL under the very regime of the Administrator appointed by NCLT confirms that the pool of tagged loans against which the company has availed refinance is unencumbered/free from charge. The same position has also been certified by the Statutory Auditor on every half-yearly basis. 18.35 The appellant contends that NHB itself filed its claim in Form C with the administrator as a financial creditor of DHFL, and is part of the committee of creditors of DHFL. Thus NHB has exercised all rights as a financial creditor in the CIRP of the DHFL. Furthermore, Form C would show that NHB has claimed its alleged rights under section 16 B, in clause 8 of Form C, i.e. under the column details of security and, the value of the security, and the date it was given . Hence, as clearly set out by NHB in Form C, NHB has identified the alleged rights under Section 16 B as security. 18.36 In reply to the above, the learned senior c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the authorities under the Code could not have precluded the control that MCGM undoubtedly has, under law, to deal with its properties and the land in question, which undeniably are public properties. The resolution plan, therefore, would be a serious impediment to MCGM's independent plans to ensure that public health amenities are developed in the manner it chooses, and for which fresh approval under the MMC Act may be forthcoming for a separate scheme formulated by that corporation (MCGM). 18.38 It is pertinent to mention that in the instant case, funds with the corporate debtor to the extent they relate to the flag loans refinanced by the NHB are clearly impressed with the trust and are held in trust for the benefit of NHB. The DHFL is not the owner of the property, but the property is held in trust. Therefore, Section 238 of the Code is not applicable for the 3rd party assets. 18.39 Based on the above discussion, it is clear that the relationship between the DHFL and NHB is not only that of a debtor and creditor. But the NHB has special rights under Section 16 B of the NHB Act, and these rights are not in conflict with the express provisions of the Code. Therefore A ..... 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