AI Drafter 
Generate professional replies, appeals, opinions to Show Cause Notices, assessment orders, audit objections, and other legal communications using TaxTMI's AI Drafter. 
TaxTMI 
TaxTMI 
2022 (1) TMI 1412
X X X X Extracts X X X X
X X X X Extracts X X X X
.... [PER; V. P. SINGH, MEMBER (T)] 1. The 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, ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....e heard the arguments, submissions of both the sides, at length on various dates perused the documents, provisions of NHB Act 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 e....
X X X X Extracts X X X X
X X X X Extracts X X X X
....istribution mechanism for giving more apportionment Amount to the Operational Creditors and unsecured Financial creditors. This was duly considered by 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-625/20....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ra 39 of RBI Directions. 4.4. Out of all the provisions enumerated above, only section 28(1)(k) of the I&B Code deals with the transfer of rights/financial debts/operational debts, which 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 uns....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... with Respondent No. 1, which was a 'AAA' credit rated institution. These deposits have either already matured or are nearing maturity. Therefore, the Appellants had deposited their life earnings with 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 n....
X X X X Extracts X X X X
X X X X Extracts X X X X
....l maturity. Therefore, it is not a loan in the strict sense of the term. 5.8. The Appellants further contended that the Adjudicating Authority and this Appellate Tribunal have the absolute power to decide on any question 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 a....
X X X X Extracts X X X X
X X X X Extracts X X X X
...., i.e. the liquidation value. The provisions of the Code will override the NHB Act and the RBI Act by the non-obstante clause in Section 238 of the Code, and no preferential treatment can be granted to the F.D. Holders in the CIRP of 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 ....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... 6.9. Further, in the exercise of its commercial wisdom, CoC had decided, voted, and approved the distribution mechanism providing for value over and above the liquidation value to benefit certain small-scale F.D. Holders, if the F.D. Holders 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. ....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... 7.5. The Classification of F.D. Holders' based on their deposits with DHFL is valid and acceptable in law. Moreover, this is not the first instance in which a sub-class of creditors was created based on their admitted claims. [Committee of Creditors of Essar 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 wa....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... * Money of the Appellants FD Holders is deposited in trust with the Respondent, and it is not the property of the Corporate Debtor. The Appellants have locus standi to maintain the instant Appeal and Application. * Classification of depositors on the basis of amounts deposited with DHFL is illegal. Non-speaking order A. The impugned order is non-speaking, 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....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ents of engaging in the business of the FSP. Resolution Plan of Respondent No. 6 fails to include a statement explaining how it plans to meet the needs of engaging in the business of an FSP, especially concerning the repayment of deposits. Further, the plan should comply with existing laws governing the entity's actions and the interest as per the terms of the deposit made by the F.D. holders. 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 amoun....
X X X X Extracts X X X X
X X X X Extracts X X X X
....egorical overriding effect is evident from the objects and reasons given in the Amendment Act viz. the magnitude of the exploitations of the poor sections of the society, leading to utter destruction of innumerable families was the underlying impetus to bring NBFC under strict control of Companies Act, 1956. Accordingly, Hon'ble Supreme Court has held that "Chapter III B of the RBI Act is a self-contained Code". 16. Hon'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 Fi....
X X X X Extracts X X X X
X X X X Extracts X X X X
....h or within such time and subject to such conditions as may be specified in the Order: Provided that the Company Law Board may, before making any order under this sub-section, give a reasonable opportunity of being heard to the non-banking financial company and the other persons interested in the matter. [45-MB. Power of Bank to prohibit acceptance of deposit and alienation of assets.- (1) If any non-banking financial company violates the provisions 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 o....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ensation.] [45-MC. Power of Bank to file winding-up petition.- (1) The Bank, on being satisfied that a non-banking financial company- (a) is unable to pay its debt; or (b) has by virtue of the provisions of Section 45-IA become disqualified to carry on the business of a non-banking financial institution; or (c) has been prohibited by the Bank from receiving deposit by an order and such Order has been in force for a period of not less than three months; or (d) the continuance of the non-banking financial company is detrimental to the public interest 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. ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....l maturity. It is not a loan in the strict sense of the term. (Deepak Insulated Cable v. UOI, (at p. 1288, para 9 at p. 1289 of compilation); Vijay Mills Co v. State of Gujarat. 24. In response to the argument of the Appellant, the Learned Senior Counsel representing CoC submits that there is no provision either in the RBI Act, the NHB Act, or any other law that mandates fixed depositor holders full payment. 25. A plain reading of Sections 29A(6), Section 29A(4)a), 36 and 36A of the National Housing Bank Act, 1987 ("NHB Act"), read with para 39 of the Housing Finance Companies (NHB) Directions, 2010 ("NHB Directions"), as well as sections45Q 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 Financ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....C is contesting the stand of NHB and without prejudice to the same, it is stated that F.D. Holders have not shown any law or document like National Housing Bank has demonstrated, in any manner, to substantiate their argument. 34. Respondent No. 3 proceeds to state that the amounts deposited by the F.D. Holders in DHFL are shown as liabilities in the balance sheet of DHFL and the F.D. Holders are financial creditors of DHFL and have been treated accordingly. Thus, the bald, unsupported and misleading contention of the Appellants that the amount payable to F.D. Holders are held in trust by DHFL is entirely fictional and ought not to be entertained. 35. It 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 commenc....
X X X X Extracts X X X X
X X X X Extracts X X X X
....at the public interest shall be served by the grant of certificate of registration to the housing finance institution to commence or to carry on the business in India; (f) that the grant of certificate of registration shall not be prejudicial to the operation and growth of the housing finance sector of the country; and (g) any other condition, fulfillment of which in the opinion of the [Reserve Bank], shall be necessary to ensure that the commencement of or carrying on the business in India by a housing finance institution shall not be prejudicial to the public interest or in the interests of the depositors: [Provided that the Reserve Bank may, wherever it considers necessary so to do, require the National Housing Bank to inspect the books of such 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 gr....
X X X X Extracts X X X X
X X X X Extracts X X X X
....l Government and the decision of the Central Government where an appeal has been preferred to it, or of the [Reserve Bank] where no appeal has been preferred, shall be final: Provided that before making any order of rejection of Appeal, such institution shall be given a reasonable opportunity of being heard. Explanation.-For the purposes of this section,- (I) "net owned fund" means- (a) the aggregate of the paid-up equity capital and free reserves as disclosed in the latest balance sheet of the housing finance institution after deducting therefrom- (i) accumulated balance of loss; (ii) deferred revenue expenditure; and (iii) other intangible assets; and (b) further reduced by the amounts representing- (1) investments of such institution in shares of- (i) its subsidiaries; (ii) companies in the same group; [(iii) all other housing finance 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 i....
X X X X Extracts X X X X
X X X X Extracts X X X X
....de that the licence of a Housing Finance Corporation and Non-Banking Finance Corporation may be cancelled if the deposit holders are not paid. Such a decision can be taken only after giving the concern HFC or NBFC an opportunity to present its case. None of the legislation provides that F.D. Holders are required to be paid in full. Hence the Appellant's contention is based on an incorrect interpretation of the law. 37. The Learned Senior Counsel for the Appellant represented that amount deposited by F.D. Holders were held in trust by DHFL. In response to this contention, the Ld. Sr. Counsel for the CoC submits that Rule 10 of the Insolvency and Bankruptcy (Insolvency and Liquidation Proceedings of FSPs and Application to Adjudicating Authority) Rules, 2019 only applicable in situations where assets of third parties are held in trust by the Corporate Debtor. 38. F.D. Holders have not filed any documents to show that amount deposited by the F.D. Holder was assets held in trust. Therefore, there is no legal justification 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....
X X X X Extracts X X X X
X X X X Extracts X X X X
....C 231]; ICICI Bank Ltd. [(2006) 10 SCC 452]; R.S. Raghunath [(1992) 1 SCC 335 : 1992 SCC (L&S) 286 : (1992) 19 ATC 507] and JIK Industries Ltd. [(2012) 3 SCC 255 : (2012) 2 SCC (Civ) 82 : (2012) 2 SCC (Cri) 125] The said cases undoubtedly reiterate the settled law on the manner in which a particular non obstante clause ought to be interpreted. In Aswini Kumar Ghose [AIR 1952 SC 369], this Court held that: "16. ... a non obstante clause [must be construed strictly and] the Court must try to find the extent to which the legislature had intended to give one provision overriding effect over another provision." (A.G. Varadarajulu case [(1998) 4 SCC 231], SCC p. 236, para 16)." 43. The above case relates to the period before the enactment of the I & B Code, 2016, and pertains to the scheme and arrangements under the Companies Act, 2013; hence not applicable to the present case. 44. Appellants contention that the amount of fixed deposit held by the Bank as a trustee is the property of the customer held by the Bank is negated by the recent observation of the Hon'ble Supreme Court in para 44 of the Judgment in case of N. Raghavender v state of Andhra Pradesh, CBI. 45. ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....debtor. Though JAL is per se not a debtor to the Homebuyers, when money has come on behalf of the debtor in relation to a debt obligation or for discharge of an obligation, the person deposited it towards that obligation cannot subsequently say that he is the owner of the money, therefore entitled for return of it. 58. If trust concept is examined, we will know that trust is a relationship where property/money held by one party for the benefit of another party. Trustee holds the property/money for the benefit of the trust beneficiaries. Trustee is under fiduciary duty to ensure that the property of the owner is maintained and the benefit thereof is reached to the persons to whom it is intended to. In the case of trust, the owner is under no obligation to pass on the benefit to the beneficiary, therefore, the owner/settler being the owner of the property, he is entitled to take it back in the event it is not utilized for the purpose the owner intended to. But that is not the case when money from the Debtor or on behalf of the Debtor has gone out towards discharge of an obligation. In the case of trust, ownership of that property or money remains with the owner as long as it....
X X X X Extracts X X X X
X X X X Extracts X X X X
....plan. Whereas only a few individual homebuyers challenged the plan. In this case, the class of depositors and Appellant's has rejected the Resolution Plan. 50. Further, Hon'ble Supreme Court's specific directions in the case of Vinay Kumar Mittal Vs. DHFL, Civil Appeal No. 654-650 of 2020, stating that "in case the right of the depositors as per orders of the Hon'ble Supreme Court not considered as per law by the Administrator or the CoC, the Appellant may approach the NCLT and also gives the right to the Appellants to raise the issue before NCLAT." 51. Based on the orders of the Hon'ble Supreme Court in the case of Vinay Kumar Mittal Vs. DHFL, Civil Appeal No. 654-650 of 2020, wherein right is given to the Appellants to raise the issue before NCLT/NCLAT the appellants have filed the appeal. Therefore contention of the respondent COC that the appellant had no locus to file the present appeal is not sustainable. C. Resolution Plan is discriminatory as it creates class within a class of similarly situated creditors 52. The Learned Counsel for the Respondents further argues that creating a separate class, from other creditors of the same class, by presc....
X X X X Extracts X X X X
X X X X Extracts X X X X
....." 55. Therefore, the legislative intent is clear that F.D. Holders are entitled to the same rights and protections as per the terms of the Code as every other Financial Creditors of DHFL. 56. Further, the F.D. Holders claim for seeking priority payment during CIRP under the Resolution Plan is in contravention with the Code's provisions and law laid down in the case of Chitra Sharma Vs. Union of India reported in (2018) 18 SCC 575, wherein in paras 48, 48.1, and 48.2 Hon'ble Supreme Court had observed that; "48. As we have stated earlier, an amount of Rs. 750 crores is lying in deposit before this Court pursuant to the interim directions, on which interest has accrued. The homebuyers have earnestly sought the issuance of interim directions to facilitate a pro rata disbursement of this amount to those of the homebuyers who seek a refund. We are keenly conscious of the fact that the claim of the homebuyers who seek a refund of monies deserves to be considered with empathy. Yet, having given our anxious consideration to the plea and on the balance, we are not inclined to accede to it for more than one reason; 48.1. Firstly, during the pendency of the CI....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ing the CIRP moratorium order is applicable. Therefore, no payment can be made during CIRP. If any payment is made to the F.D. Holders during CIRP then it will amount to preferential treatment to a particular class of creditors, which dehors the provision of the Code, which is impermissible under the Code D. The I & B Code, a subsequent enactment, overrides the provisions of the NHB Act, NHB Directions and RBI Act. 59. The Learned Senior Counsel representing CoC argued that F D Holders have no right to full payment under the NHB Act, the RBI Act, or any other subordinate legislation. Moreover, any such right, even if it exists, would be wholly repugnant to provisions of the Code, which provide for a specific manner and priority of payment and sets out the right and the minimum amount a creditor is mandatorily required to be paid in a Resolution Plan, i.e. the liquidation value. 60. Without prejudice to the above, it is established law that when two special statutes contain non-obstante clauses, the later statute will prevail over the earlier statute. It is a settled proposition of law that in case of any inconsistency between the provisions of the I & B Code and any other ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ins to the schemes and arrangements under the Companies Act, 2013. 66. Further, after the initiation of CIRP of DHFL, the rights and issues of the appellant shall be governed as per the provisions of IBC. The I & B Code is enacted with the objective of the revival of the Corporate Debtor. However, the same is a complete Code and exhaustively deals with all the stakeholders' rights. 67. Hon'ble Supreme Court in case of Embassy Property Developers Private Limited v state of Karnataka and others (Para 11) has held that IBC is a unified umbrella Code, covering the entire gamut of the law relating to the insolvency resolution of corporate entities in a time-bound manner. On a combined reading of the FSP Rules, related provisions of the IBC and the various judgements as relied upon, it is clear that IBC provides a detailed mechanism whereunder the claims of the creditors, including the Appellants, have been sufficiently dealt with. Accordingly, the interest of the fixed deposit holders as a class of creditors, including the Appellants, is represented and protected in the CIRP and is valid in law. Therefore, the claims of the Appellant's must be considered only in terms ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....nk [(2000) 4 SCC 406] and Ram Narain v. Simla Banking & Industrial Co. Ltd. [AIR 1956 SC 614 : 1956 SCR 603] 10. We may notice that the Special Court had in another case dealt with a similar contention. In Bhoruka Steel Ltd. v. Fairgrowth Financial Services Ltd. [(1997) 89 Comp Cas 547 (Special Court)] it had been contended that recovery proceedings under the Special Court Act should be stayed in view of the provisions of the 1985 Act. Rejecting this contention, the Special Court had come to the conclusion that the Special Court Act being a later enactment would prevail. The headnote which brings out succinctly the ratio of the said decision is as follows: "Where there are two special statutes which contain non obstante clauses the later statute must prevail. This is because at the time of enactment of the later statute, the Legislature was aware of the earlier legislation and its non obstante clause. If the Legislature still confers the later enactment with a non obstante clause it means that the Legislature wanted that enactment to prevail. If the Legislature does not want the later enactment to prevail then it could and would provide in the later enactment that....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ose of the Sick Industrial Companies (Special Provisions) Act, 1985. It is a settled rule of interpretation that if one construction leads to a conflict, whereas on another construction, two Acts can be harmoniously constructed then the latter must be adopted. If an interpretation is given that the Sick Industrial Companies (Special Provisions) Act, 1985, is to prevail then there would be a clear conflict. However, there would be no conflict if it is held that the 1992 Act is to prevail. On such an interpretation the objects of both would be fulfilled and there would be no conflict. It is clear that the Legislature intended that public monies should be recovered first even from sick companies. Provided the sick company was in a position to first pay back the public money, there would be no difficulty in reconstruction. The Board for Industrial and Financial Reconstruction whilst considering a scheme for reconstruction has to keep in mind the fact that it is to be paid off or directed by the Special Court. The Special Court can, if it is convinced, grant time or installments. There can, therefore, be no stay of any proceedings for recovery against a sick company so far as t....
X X X X Extracts X X X X
X X X X Extracts X X X X
....xed deposit holders, including the appellant's are secured Financial Creditors whose rights are secured to the extent of floating charge created over the assets in terms of the Circular dated 27 November 2006 issued by National Housing Bank. The floating charge was created over the assets of DHFL in terms of the NHB Act and the surplus therein for an amount aggregating to the Resolution Plan approved by NCLT. Further, since the fixed deposit holders are dissenting Financial Creditors, they shall be paid upfront cash and not debt securities before making any payment to other Financial Creditors as per the Resolution Plan. 77. The mere fact that 'Form C' has been filed by the Appellants is not ipso facto determinative of the Appellants' status as Financial Creditors or persons who have deposited their monies in trust with DHFL. Therefore, there can be no estoppel against the law (MCGM v. Abhilash Lal & Ors., Civil Appeal No. 6530 of 2019 dated 15.11.2019 (at p. 838, para 48 at p. 890) and the status of the Appellants has to be determined in the light of the facts of the case. 78. Based on the facts of the case, it is clear that there are about 77,000 public depo....
X X X X Extracts X X X X
X X X X Extracts X X X X
....taken into account the fact that the Corporate Debtor needs to keep going as a going concern during the Insolvency Resolution Process; it needs to maximise the value of its assets; and that the interest of all stakeholders including operational creditors has been taken care of. 82. Therefore, it is the commercial wisdom of the requisite majority of the Committee of Creditors which is to negotiate and accept the Resolution Plan, which may involve differential payment in different classes of creditors, together with negotiating with the prospective Resolution Applicant for better or different terms which may also involve differences in the distribution of amounts between the different classes of creditors. 83. Having participated in the CIRP, the Appellant's cannot challenge the action of the CoC to approve the Resolution Plan, which is otherwise in compliance with the provisions of the IBC. In the light of the Hon'ble Supreme Court decision in Essar Steel (supra), it is unequivocally clear that the CoC members have the critical task of not only running the resolution process but also working towards maximisation of value of the Corporate Debtor for all the stakeholders....
X X X X Extracts X X X X
X X X X Extracts X X X X
....esent that class of creditors. The Hon'ble Supreme Court has already examined the validity of the provisions relating to the Authorised Representative and upheld the same. The ILC report dated 4 October 2019 (para 17) contains that the depositors in a Financial Service Provider are to "be classified as financial creditors and be treated accordingly". 88. The Public deposit holders stand on an equal footing with other Financial Creditors of DHFL. Suppose relief, as sought by the Appellant, seeking a refund in repayment of fixed deposits, are granted; in that case, similar claims regarding repayment of dues will be made on behalf of NCD holders and other creditors, which would be detrimental to the Corporate Insolvency Process of DHFL. Even otherwise, any monies that can be raised during the resolution process is towards keeping the business alive as a going concern and not for out of turn or pre-resolution process claims, that too outside the scheme of the IBC. If payments were to be made to fixed deposit holders whose fixed deposits have matured, it would result in a situation where matured fixed deposit holders would obtain a preference as a special dispensation, as opposed....
X X X X Extracts X X X X
X X X X Extracts X X X X
....eficiary. The banker is entitled to use the monies without being called upon to account for such user, his only liability being to return the amount in accordance with the terms agreed between him and the customer. And it makes no difference in the jural relationship whether the deposits were made by the customer himself, or by some other persons, provided the customer accepts them. There might be special arrangement under which a banker might be constituted a trustee, but apart from such an arrangement, his position qua banker is that of a debtor, and not trustee. The law was stated in those terms in the old and well-known decision of the House of Lords in Foley v. Hill [11 HLC 28: 9 ER 1002] and that has never been questioned." 91. Further, in the case of Swiss Ribbons (P) Ltd. v. Union of India, reported in (2019) 4 SCC 17 in para 46 Hon'ble Supreme Court has observed that; "46. However, the Insolvency Law Committee (ILC), in its Report of March 2018 dealt with debenture-holders and fixed deposit-holders, who are also financial creditors, and are numerous. The Report then went on to state: "10.6. For certain securities, a trustee or an agent may already ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ail, to address any technical issues which may arise due to a large number of creditors voting at the same time." (emphasis supplied) 92. The Ld. Counsel for the 1st Respondent refers to the judgement of Hon'ble Supreme Court dated 26.7.2021, in case of Orator Marketing Pvt. Ltd. v. Samtex Desinz Pvt. Ltd., wherein at para 14 it is observed that; "14. In Pioneer Urban Land and Infrastructure Ltd. v. Union of India, this Court speaking through Nariman, J. referred to several earlier judgments including Innoventive Industries Ltd. (supra) and Swiss Ribbons Pvt. Ltd. (supra) and held that even individuals who were debenture holders and fixed deposit holders could also be financial creditors who could initiate the Corporate Resolution Process." 93. The 1st Respondent highlighted the Insolvency Law Committee Notification, FSP Sub-Committee Report dated 04.10.2019, (para 17), wherein a clarification is issued about deposits of FD holders, which is as follows: "With respect to amounts deposited by depositors with an FSP, such amounts will be treated as financial debt and such depositors will be classified as financial creditors and will be treated accordingl....
X X X X Extracts X X X X
X X X X Extracts X X X X
....they unequivocally expressed this within the provision's language. For instance, Section 16B of the NHB Act speaks of amounts and securities "to be held in trust". There is no such equivalent stipulation for depositors such as the Appellants. f) The supposed terms of the license under the NHB Act and RBI Act do not, and cannot, govern the functioning of the Erstwhile CD during CIRP. The Appellants have argued that as a part of its operations as a going concern, it was mandatory for the Erstwhile CD to repay deposits in accordance with the terms of its license. In this regard, the Appellants primarily rely upon Sections 29 A(4)(a), 29 A(6) of the NHB Act, Section 45-IA of the RBI Act, Directions 18 & 39 of the Housing Finance Companies (NHB) Directions, 2010, and Directions 38 & 39 of the Non-Banking Financial Companies and Acceptance of Public Deposits (Reserve Bank) Directions, 2016. g) At the outset, it is clarified that none of these provisions contemplates the survival of the terms of the license where the company is undergoing CIRP as per IBC. The provisions referenced by the Appellants are myopic. They do not contemplate that a company undergoing CIRP ma....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... n) The Learned Senior Counsel relies on Para 10 of the judgement of the Hon'ble Supreme Court in the case of Power Grid Corporation of India Ltd. v. Jyoti Structures Ltd., wherein it is observed that; "10. In the light of above purpose or object behind the moratorium, Section 14 of the Code would not apply to the proceedings which are in the benefit of the corporate debtor, like the one before this court in as much these proceedings are not a 'debt recovery action' and its conclusion would not endanger, diminish, dissipate or impact the assets of the corporate debtor in any manner whatsoever and hence shall be in sync with the purpose of moratorium which includes keeping the corporate debtor's assets together during the insolvency resolution process and facilitating orderly completion of the process envisaged during the insolvency resolution process and ensuring the company may continue as a going concern." o) Further, in the case of P. Mohanraj v. Shah Bros. Ispat (P) Ltd., reported in (2021) 6 SCC 258 in para 30, Hon'ble Supreme Court has observed that; "30. It can be seen that Para 8.11 refers to the very judgment under appeal....
X X X X Extracts X X X X
X X X X Extracts X X X X
....roval of the Resolution Plan challenging the same on the ground that Resolution Plan extending the recoveries made under Applications filed under Sections 43-51 and Section 66 of the Code shall be whatsoever may be for the benefit of the Resolution Applicant is contrary to law and void ab initio and non-est in law. 96. I.A. 449 of 2021 in CP No. 4258 of 2019 also contains a relief that outcome of avoidance application filed under Sections43-51 and Section 63 of the Code or anyone, or more of these provisions including appeal proceedings arising from there shall be for the sole benefit of creditors of the DHFL including the fixed deposit holders. 97. The above issue has been separately dealt with in the Company Appeals, i.e. CA (AT)(Ins) No. 454 of 2021, 63 Moons Technologies Limited Vs. The Administrator Dewan Housing Finance Corporation Limited and Ors; CA (AT)(Ins) No. 455 of 2021, 63 Moons Technologies Limited Vs. The Administrator Dewan Housing Finance Corporation Limited and Ors. and in CA (AT)(Ins) No. 750 of 2021 Roopjyot Engineering Pvt. Ltd. Vs. The Administrator Dewan Housing Finance Corporation Limited and Ors. Decision on this issue about recoveries of avoidanc....
X X X X Extracts X X X X
X X X X Extracts X X X X
....determining whether the requirements which are specified in sub-Section (2) of Section 30 have been fulfilled. This is a jurisdiction which is statutorily-defined, recognised and conferred, and hence cannot be equated with a jurisdiction in equity, that operates independently of the provisions of the statute. The Adjudicating Authority as a body owing its existence to the statute, must abide by the nature and extent of its jurisdiction as defined in the statute itself. 31. The jurisdiction of the Appellate Authority under Section 61, while considering an appeal against an order approving a resolution plan under Section 31, is similarly structured on specified grounds. Section 61(3) provides: "61. ....(3) An appeal against an order approving a resolution plan under section 31 may be filed on the following grounds, namely:- (i) the approved resolution plan is in contravention of the provisions of any law for the time being in force; (ii) there has been material irregularity in exercise of the powers by the resolution professional during the corporate insolvency resolution period; (iii) the debts owed to operational creditors of the corpora....
X X X X Extracts X X X X
X X X X Extracts X X X X
....lan was distributed in accordance with the order of priority under Section 53(1)(b), which provides for a waterfall mechanism. 34. These provisions indicate that the ambit of the Adjudicating Authority is to determine whether the amount that is payable to the operational creditors under the resolution plan is consistent with the above norms which have been stipulated in clause (b) of sub-clause (2) of Section 30. Significantly, Explanation-1 to clause (b), which is clarificatory in nature, provides that a distribution which is in accordance with the provisions of the clause "shall be fair and equitable" to such creditors. Fair and equitable treatment, in other words, is what is fair and equitable between the operational creditors as a class, and not between different classes of creditors. The statute has indicated that once the requirements of Section 30(2)(b) are fulfilled, the distribution in accordance with its provisions is to be treated as fair and equitable to the operational creditors. 35. The appellants are challenging the treatment of operational creditors on the ground that it has not been fair and equitable. The entitlement of the operational creditors ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ing an appeal that too against an order "approving a resolution plan" under Section 31. First, that the approved resolution plan is in contravention of the provisions of any law for the time being in force. Second, there has been material irregularity in exercise of powers "by the resolution professional" during the corporate insolvency resolution period. Third, the debts owed to operational creditors have not been provided for in the resolution plan in the prescribed manner. Fourth, the insolvency resolution plan costs have not been provided for repayment in priority to all other debts. Fifth, the resolution plan does not comply with any other criteria specified by the Board. Significantly, the matters or grounds-be it under Section 30 or under Section 61 of the I&B Code-are regarding testing the validity of the "approved" resolution plan by CoC; and not for approving the resolution plan which has been disapproved or deemed to have been rejected by CoC in exercise of its business decision. 58. Indubitably, the inquiry in such an appeal would be limited to the power exercisable by the resolution professional under Section 30(2) of the I&B Code or, at best, by the adjudicat....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... judicial review available is to see that the Committee of Creditors has taken into account the fact that the corporate debtor needs to keep going as a going concern during the insolvency resolution process; that it needs to maximize the value of its assets; and that the interests of all stakeholders including operational creditors has been taken care of. If the Adjudicating Authority finds, on a given set of facts, that the aforesaid parameters have not been kept in view, it may send a resolution plan back to the Committee of Creditors to re-submit such plan after satisfying the aforesaid parameters. The reasons given by the Committee of Creditors while approving a resolution plan may thus be looked at by the Adjudicating Authority only from this point of view, and once it is satisfied that the Committee of Creditors has paid attention to these key features, it must then pass the resolution plan, other things being equal." 40. The precedents laid down by this Court are in tandem with recommendations made in the UNCITRAL's Legislative Guide on Insolvency Law, which states that it is desirable that a court does not interfere with the commercial wisdom of the decisions t....
X X X X Extracts X X X X
X X X X Extracts X X X X
....9.62 per cent. On the other hand, the payment to financial creditors is 10.32 per cent. 44. The observations in paragraph 73 of the decision in Essar Steel India Limited (supra) clarify that once the Adjudicating Authority is satisfied that the CoC has applied its mind to the statutory requirements spelt out in sub-Section (2) of Section 30, it must then pass the resolution plan. The decision also emphasises that equitable treatment of creditors is "equitable treatment" only within the same class. In this context, the judgment contains an elaborate foundation on the basis of which it has held that financial creditors belong to a class distinct from operational creditors. This distinction was emphasised in the earlier decision in Swiss Ribbons (supra), where a two-Judge Bench of the Court, speaking through Justice R F Nariman, observed: "51. Most importantly, financial creditors are, from the very beginning, involved with assessing the viability of the corporate debtor. They can, and therefore do, engage in restructuring of the loan as well as reorganisation of the corporate debtor's business when there is financial stress, which are things operational creditor....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... there a residual equity based jurisdiction in the Adjudicating Authority or the Appellate Authority to interfere in this decision, so long as it is otherwise in conformity with the provisions of the IBC and the Regulations under the enactment. 48. Certain foreign jurisdictions allow resolution/reorganization plans to be challenged on grounds of fairness and equity. One of the grounds under which a company voluntary arrangement can be challenged under the United Kingdom's Insolvency Act, 1986 is that it unfairly prejudices the interests of a creditor of the company. The United States' US Bankruptcy Code provides that if a restructuring plan has to clamp down on a dissenting class of creditors, one of the conditions that it should satisfy is that it does not unfairly discriminate, and is fair and equitable. However, under the Indian insolvency regime, it appears that a conscious choice has been made by the legislature to not confer any independent equity based jurisdiction on the Adjudicating Authority other than the statutory requirements laid down under sub-Section (2) of Section 30 of the IBC. 49. An effort was made by Mr. Dushyant Dave, learned Senior C....
X X X X Extracts X X X X
X X X X Extracts X X X X
....required to be excluded from the CoC is of no consequence, once the plan is approved by a 100 per cent voting share of the CoC. The jurisdiction of the Adjudicating Authority was confined by the provisions of Section 31(1) to determining whether the requirements of Section 30(2) have been fulfilled in the plan as approved by the CoC. As such, once the requirements of the statute have been duly fulfilled, the decisions of the Adjudicating Authority and the Appellate Authority are in conformity with law." (emphasis supplied) 101. Based on the law laid down by the Hon'ble Supreme Court, it is clear that the NCLT/NCLT 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. 102. Further, Hon'ble Supreme Court in case of Jaypee Kensington Boulevard Apartments Welfare Association v NBCC(India) Ltd. has observed that; "210. To put in a nutshell, the Adjudicating Authority has limited jurisdiction in the matter of approval of a resolution plan, which is well-defined and circumscribed by Sections 30(2) and 31 of the Code read with the parameters delineated by this Court in the decision....
X X X X Extracts X X X X
X X X X Extracts X X X X
....design of the insolvency law and the corresponding institutional infrastructure by observing: "27. While the institutional framework is not discussed in any detail in the Legislative Guide, some of the issues are touched upon below. Notwithstanding the variety of substantive issues that must be resolved, insolvency laws are highly procedural in nature. The design of the procedural rules plays a critical role in determining how roles are to be allocated between the various participants, in particular in terms of decision-making. To the extent that the insolvency law places considerable responsibility upon the institutional infrastructure to make key decisions, it is essential that infrastructure be sufficiently developed to enable the required decisions to be made." 116. Any claim seeking an exercise of the Adjudicating Authority's residuary powers under Section 60(5)(c) of the IBC, the NCLT's inherent powers under Rule 11 of the NCLT Rules 2016 or even the powers of this Court under Article 142 of the Constitution must be closely scrutinized for broader compliance with the insolvency framework and its underlying objective. The adjudicating mechanisms which....
X X X X Extracts X X X X
X X X X Extracts X X X X
....t interfere on merits with the commercial wisdom taken by the Committee of Creditors, the limited judicial review available is to see that the Committee of Creditors has taken into account the fact that the Corporate Debtor needs to keep going as a going concern during the Insolvency Resolution Process; that it needs to maximise the value of its assets; and that the interest of all the stakeholders including operational creditors has been taken care of. 107. It is pertinent to mention that the Hon'ble Supreme Court has explicitly clarified the scope of interference by the Adjudicating Authority under Section 60 (5) (c) of the IBC in the case of Ebix Singapore (supra). Hon'ble Supreme Court has clarified that the matters like the completion of the COC, the method and percentage of its voting, the timelines for and the obligation to explain to the Adjudicating Authority reasons for any diversions 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 resolution process. This process invariably impacts the conduct of the Resolution Applicant wh....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ble to the RBI under the RBI Act and the FSP rules. However, the appellants wishes to advise the Regulator as to the course of action that ought to have been followed by the Regulator. This is legally impermissible, misconceived and untenable. 112. After elaborate discussion, we have concluded that the F D holders are Financial Creditors of the DHFL and have been treated accordingly as per the provisions of the Code. It is also found that section 45Q of the RBI Act has no applicability in the facts of the present case. The decision about payments to the creditors falls within the commercial wisdom of the COC, subject to fair and equitable play, i.e. payment of minimum liquidation value to creditors. The commercial wisdom of COC is not amenable to judicial review of any kind. 113. The I & B Code being a subsequent enactment, overwrites the provisions of the NHB Act, NHB directions and RBI Act. No right of full payment exists under the NHB Act or the RBI Act or under any other subordinate legislation. Even if it exists, any such right would be wholly repugnant to the provisions of the Code, which provide for a specific manner in priority of payment and sets out the right. The m....