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Issues: (i) Whether receivables arising from refinance extended by NABARD to the financial service provider were required to be treated as amounts held in trust under Section 29 of the NABARD Act and as third-party assets under the FSP Rules. (ii) Whether NABARD's filing of its claim as a financial creditor and its treatment in the Committee of Creditors and resolution plan extinguished or diluted its statutory entitlement to priority payment.
Issue (i): Whether receivables arising from refinance extended by NABARD to the financial service provider were required to be treated as amounts held in trust under Section 29 of the NABARD Act and as third-party assets under the FSP Rules.
Analysis: Section 29 deems sums received in repayment or realisation of refinanced loans, to the extent outstanding, to be held in trust for NABARD. The refinance agreements and assignment documents also recorded that recoveries from the relevant receivables were to be paid over to NABARD. In the context of insolvency proceedings of a financial service provider, Rule 10 of the FSP Rules excludes third-party assets and assets required to be held in trust for third parties from the ordinary insolvency estate, and the 30.01.2020 notification provides the manner for dealing with receivables for third parties. The receivables relating to the refinanced loans therefore could not be treated as the corporate debtor's free assets for distribution in CIRP.
Conclusion: The receivables were held to be assets impressed with a statutory trust in favour of NABARD and outside the ordinary distributable pool to that extent.
Issue (ii): Whether NABARD's filing of its claim as a financial creditor and its treatment in the Committee of Creditors and resolution plan extinguished or diluted its statutory entitlement to priority payment.
Analysis: The claim was filed while expressly asserting NABARD's statutory priority and the right to recover receivables under Section 29. The filing was not treated as a waiver of statutory rights, particularly because the claim was supported by the underlying documents and the application before the Adjudicating Authority had already raised the same issue. The resolution plan itself kept a separate amount aside for NABARD, and the CoC recorded that if NABARD succeeded in its application, the set-aside amount would be paid to it. Mere participation as a secured financial creditor did not defeat the independent statutory entitlement flowing from the trust character of the receivables.
Conclusion: NABARD's statutory claim to priority was not waived or forfeited, and it was entitled to the amount kept aside under the approved distribution mechanism.
Final Conclusion: The appeal succeeded, the rejection of the application was set aside, and NABARD was held entitled to the set-aside amount under the approved distribution framework, with the amount already paid as a dissenting financial creditor to be adjusted accordingly.
Ratio Decidendi: Where a refinancing statute creates a trust over realizations from refinanced loans and the insolvency framework for financial service providers preserves third-party trust assets, such receivables do not form part of the general insolvency estate, and participation in the insolvency process as a creditor does not waive the statutory right to receive them.
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