Insolvency Code overrides conflicting deposit repayment claims, and fixed deposit payouts during CIRP are not ordinary-course transactions.

Fixed deposit holders were treated as financial creditors within the insolvency framework, and the approved resolution plan was examined against sections 30(2) and 31(1) of the Insolvency and Bankruptcy Code, 2016. The Tribunal held that the National Housing Bank Act, 1987 and the Reserve Bank of India Act, 1934 did not create an enforceable right to full repayment in CIRP, and that section 238 of the Code prevailed over inconsistent provisions in those statutes. It also held that repayment of matured fixed deposits during CIRP was not in the ordinary course of business and could amount to preferential treatment, while lending and investment activity could continue under the approved insolvency process.

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Issues: (i) Whether the approved resolution plan could extinguish fixed deposit holders' claims without full repayment in view of the National Housing Bank Act, 1987 and the Reserve Bank of India Act, 1934; (ii) Whether those enactments mandated full repayment to fixed deposit holders during CIRP notwithstanding the Insolvency and Bankruptcy Code, 2016; (iii) Whether section 238 of the Insolvency and Bankruptcy Code, 2016 overrides the National Housing Bank Act, 1987 and the Reserve Bank of India Act, 1934; (iv) Whether repayment of matured fixed deposits during CIRP would fall within the ordinary course of business; (v) Whether the respondent was authorised to make loans and investments despite default in repayment of fixed deposits; and (vi) Whether payments to fixed deposit holders during CIRP would amount to preferential transactions.

Issue (i): Whether the approved resolution plan could extinguish fixed deposit holders' claims without full repayment in view of the National Housing Bank Act, 1987 and the Reserve Bank of India Act, 1934?

Analysis: The Tribunal held that fixed deposit holders are financial creditors under the insolvency framework and that the plan was to be tested on the statutory limits of section 30(2) and section 31(1) of the Insolvency and Bankruptcy Code, 2016. It found that the repayment structure approved by the Committee of Creditors was within its commercial domain and that no statutory provision under the National Housing Bank Act, 1987 or the Reserve Bank of India Act, 1934 created an enforceable right to full payment outside the insolvency regime.

Conclusion: The approved resolution plan was not invalid merely because it did not provide full repayment to fixed deposit holders.

Issue (ii): Whether those enactments mandated full repayment to fixed deposit holders during CIRP notwithstanding the Insolvency and Bankruptcy Code, 2016?

Analysis: The Tribunal held that the provisions relied upon by the appellants required repayment according to the terms of the deposits and provided regulatory consequences for non-compliance, but did not confer a statutory guarantee of full repayment in insolvency. It further held that the insolvency process governing financial service providers classifies depositors as financial creditors and subjects their claims to the Code and the Rules framed thereunder.

Conclusion: No mandate of full repayment to fixed deposit holders during CIRP was established under the National Housing Bank Act, 1987 or the Reserve Bank of India Act, 1934.

Issue (iii): Whether section 238 of the Insolvency and Bankruptcy Code, 2016 overrides the National Housing Bank Act, 1987 and the Reserve Bank of India Act, 1934?

Analysis: The Tribunal held that the Insolvency and Bankruptcy Code, 2016 is a later enactment with an overriding clause and prevails over inconsistent provisions of other laws. It found that any inconsistent claim to preferential or full repayment under the special banking statutes would yield to the insolvency framework, including the minimum entitlement under the resolution plan and the commercial wisdom of the Committee of Creditors.

Conclusion: Section 238 of the Insolvency and Bankruptcy Code, 2016 overrides the inconsistent provisions of the National Housing Bank Act, 1987 and the Reserve Bank of India Act, 1934.

Issue (iv): Whether repayment of matured fixed deposits during CIRP would fall within the ordinary course of business?

Analysis: The Tribunal held that, once CIRP had commenced, repayment of fixed deposits could not be treated as an ordinary course transaction so as to escape the insolvency moratorium. It reasoned that such repayments would deplete the corporate debtor's assets during the calm period and would be inconsistent with the statutory objective of preserving the corporate debtor as a going concern.

Conclusion: Repayment of matured fixed deposits during CIRP would not fall within the ordinary course of business.

Issue (v): Whether the respondent was authorised to make loans and investments despite default in repayment of fixed deposits?

Analysis: The Tribunal held that the administrator's and committee's actions had to be understood within the insolvency framework and the going-concern requirement. It accepted that the financial service provider could continue operations under the plan and the rules applicable to financial service providers, and that the statutory scheme did not bar such lending and investment activity merely because fixed deposit liabilities remained unpaid in full.

Conclusion: The respondent was legally authorised to make loans and investments in accordance with the insolvency framework and the approved resolution process.

Issue (vi): Whether payments to fixed deposit holders during CIRP would amount to preferential transactions?

Analysis: The Tribunal held that payment to fixed deposit holders during CIRP would amount to preferential treatment to one class of financial creditors and would conflict with the statutory moratorium and the collective resolution process. It therefore rejected the contention that such payments could be insulated from the insolvency provisions as ordinary-course transactions.

Conclusion: Any payment made to fixed deposit holders during CIRP could amount to a preferential transaction.

Final Conclusion: The appeals failed on all substantive issues; the approved resolution plan and the Tribunal's refusal to interfere with the Committee of Creditors' commercial distribution decision were sustained, leaving the challenged objections without relief.

Ratio Decidendi: In a CIRP governed by the Insolvency and Bankruptcy Code, 2016, the Committee of Creditors' commercial wisdom on distribution is not open to merits-based review by the adjudicatory forums so long as the plan satisfies the Code's statutory requirements, and inconsistent claims under other enactments must yield to section 238.

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