2026 (2) TMI 438 - AT - IBC

Statutory trust under NABARD Act and third party assets: Form C did not waive statutory entitlement; set aside sums payable.

Statutory trust obligations under the NABARD Act and Rule 10 of the FSP Rules require the administrator to segregate and preserve third party receivables; ... Statutory trust u/s 29 of the NABARD Act - third-party assets held in trust - Administrator's duty to segregate and deal with third-party assets under Rule 10 of the FSP Rules and Notification dated 30.01.2020 - effect of filing claim in Form-C / status as a financial creditor in CIRP of a financial service provider - binding effect of an approved resolution plan vis-a -vis pending statutory entitlement and distribution mechanism - HELD THAT:- As noted, even prior to submission of its claim in Form-C, the Appellant has written to the Administrator claiming its statutory entitlement of receivables from the CD, which were to be handed over to the NABARD. By submitting claim in Form-C, the Appellant has not given up any of its rights, which flow from statutory provisions. In any view of the matter, along with Form-C, the Appellant has given all details of transactions. Along with rejoinder affidavit, the Appellant has brought on record entire Form-C, including the relevant documents, statement of facts, which were part of Form-C. It is useful to notice some of the averments made in the statement of facts. When along with claim Form, all relevant transactions, including the claim of the Appellant to get the receivables from the accounts of the CD, which it refinanced, the claim of the Appellant, cannot be said to be in any manner diminished by filing its claim in Form-C. The Adjudicating Authority committed error in holding that since the Appellant is Member of the CoC, it is bound by Resolution Plan and the amount proposed by the SRA is for full and final payment. There can be no dispute to the proposition that Plan binds all, but present is a case where distribution mechanism, which is approved by the CoC, itself takes care of claim of the Appellant, which has been set apart as noted above. Thus, the fact that Appellant was treated as part of the CoC as secured Financial Creditor, does not negate the claim of the Appellant in any manner and Adjudicating Authority although noticed the relevant provisions of Section 29 of the NABARD Act and Rule 10 of FSP Rules, has not adverted to the said statutory provisions, which obliged the Administrator to keep apart third-party assets, which was its statutory obligation. We, thus, are satisfied that Adjudicating Authority committed error in rejecting IA (IB) No.896/KB/2022 and the Appellant has made out a case for granting the reliefs as prayed in the application. In the present Appeal, we had passed an interim order on 04.04.2024 “Implementation of the Plan is in pursuance of the Impugned Order shall abide by the result of the Appeal”. Moreso, the distribution mechanism as approved by the CoC has noted that if the NABARD application (IA (IB) No.896/KB/2022) is decided in NABARD favour by NCLT or NCLAT or the Hon’ble Supreme Court, the NABARD set aside amount will be paid to NABARD as noticed above. Thus, the CoC has already approved the distribution mechanism in event the application is allowed, the NABARD shall be paid the amount set apart. In result, we allow the Appeal, set aside the impugned order dated 01.02.2024 rejecting IA (IB) No.896/KB/2022. IA (IB) No.896/KB/2022 is allowed. The Appellant shall be entitled for the amount set apart for NABARD as per distribution mechanism noted and approved in 37th CoC Meeting, as noted above. The amount already paid to the Appellant as dissenting Financial Creditor is also liable to be adjusted in the amount set apart and to be paid to the Appellant under the distribution mechanism. Issues: (i) Whether amounts/receivables realised by the corporate debtor in respect of loans refinanced by the National Bank are third-party assets held in trust under Section 29 of the National Bank for Agriculture and Rural Development Act, 1981 and Rule 10 of the FSP Rules, or whether the claimant is to be treated only as a secured/dissenting financial creditor under the approved resolution plan.Analysis: The statutory framework comprises Section 29 of the National Bank for Agriculture and Rural Development Act, 1981 which deems sums received by a borrowing institution in repayment or realisation of loans refinanced by the National Bank to be received in trust for the National Bank, Rule 10 of the Insolvency and Bankruptcy (Insolvency and Liquidation Proceedings of Financial Service Providers and Application to Adjudicating Authority) Rules, 2019 which preserves treatment of third-party assets and obliges the Administrator to take control and custody of such assets, and Notification No. S.O. 464(E) dated 30.01.2020 which prescribes the manner of dealing with receivables and assets of third parties held by financial service providers. The claimant notified the Administrator of its statutory entitlement prior to and after commencement of the CIRP, furnished sanction letters, General Refinance Agreements and Deeds of Assignment establishing assignment of present and future book debts, and filed IA seeking protection/recognition of its trust entitlement prior to approval of the resolution plan. The Administrator and the CoC were aware of the claim and amounts received from identified/refinance accounts were recorded in the Administrator's replies and CoC minutes. The fact that the claimant submitted its claim form under the standard claim process for creditors does not, particularly in the context of FSP Rules and the Notification, operate to extinguish or waive statutory rights to third-party assets held in trust; the Administrator had the statutory duty to segregate and deal with such receivables. The adjudicating authority rejected the IA by treating the claimant as a secured financial creditor bound by the resolution plan, but did not, contrary to statutory obligations under Rule 10 and the notification, recognize the trust/third-party character of receivables supported by the refinancing agreements and assignment documents. Having regard to the statutory provisions, the documents on record, the Administrator's own statements of amounts received from refinance accounts, and the CoC's decision to set aside an amount pending the IA, the claim to third-party receivables under Section 29 and Rule 10 is substantiated and was wrongly rejected.Conclusion: Issue (i) is answered in favour of the Appellant; the Appellant is entitled to the receivables/amounts set apart for it under the distribution mechanism as per the CoC decision and to recognition of its statutory trust rights under Section 29 of the National Bank for Agriculture and Rural Development Act, 1981 and Rule 10 of the FSP Rules.