TaxTMI 
TaxTMI 
2022 (2) TMI 1412
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....ainst 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 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 Dewan Housing Finance Limited for the benefit of the Applicant and that the same be paid to the Applicant; (b) That this Hon'ble Tribunal be pleased to declare that under Notification dat....
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....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 matter. We have also perused the contents of the IA, Reply and written submissions of all the parties. We have carefully examined the issue involved in the present IA, and our observations/findings are as under:- I. By following the doctrine of the Harmonious construction of both the statute e.g. National Housing Bank Act (NHB) and Insolvency and Bankruptcy Code, 2016 (I & B Code), we are of the Confirmed view that there....
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....lause (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 National Housing Bank Act, 1987 ("NHB Act") despite that the CoC had made elaborate and detailed submissions before the NCLT. The Appellant challenges the finding of Adjudicating Authority/NCLT that NHB is the owner of DHFL's funds or property by Section 16B of the NHB Act. However, submissions have not even been considered in the Impugned Order. Further, the Impugned Order is contrary to the express provisions of the I & ....
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.... 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 share and has participated and exercised all rights as available to a Financial Creditor of DHFL [Dewan Housing Finance Limited]. 4.9 On January 30, 2020, Notification No. S.O. 464 (E) was issued by the MCA. NHB [National Housing Bank] filed the Application IA 1104 of 2020 in the main Company Petition 4258 of 2020 along with an Additional Affidavit dated August 07, 2020. Applicant/Respondent No. 1, relying primarily on S....
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....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 were purely borrowing and lending transactions, where DHFL applied to NHB. The NHB agreed to provide financial assistance for housing or refinance the housing loans. The NHB decided to grant financial assistance to DHFL by way of sanction letters. Under the sanction letters, there were specific repayment schedules for repayment to NHB of the loans given by NHB to DHFL. 4.16 The loans above granted by NHB were secured b....
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....ority, 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 the claim of Rs. 2,436.67 crores submitted by NHB after verification. NHB is a member of CoC, having 2.81% of the voting share and participating and exercising all rights as available to a Financial Creditor of DHFL. 4.23 By the provisions of the Code, the Administrator issued an advertisement on January 28, 2020, inviting 'Expressions of Interest ("EoIs") relating to the Corporate Debtor and 24 such EOI's were rec....
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....mended 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 declaratory reliefs, as mentioned above. 4.29 By order dated August 3, 2020 ("August Order") passed in the Application, the Learned AA/ NCLT directed that formal notice be issued to all the respondents, including "members of the CoC" of DHFL. The NCLT vide the August Order had also directed, among other things, that "R.P./Administrator is expected to maintain status quo as of today so far (sic) it relates to....
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.... 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 aside in the manner contemplated in the Arrangement pending disposal of the proceedings as set out in Arrangement, it will not be necessary to incorporate the statutory right asserted by the Applicant about the 'Tagged Accounts' under Section 16B in any resolution plan which may be submitted or approved by this Tribunal. 4.31 By way of order dated December 3, 2020,....
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....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, pdf pages 156 - 158 of Vol. II of the Appeal). The Arrangement is also part of the Resolution Plan and Distribution Mechanism approved by the CoC. As per terms of the Arrangement, inter alia NHB is not entitled to receive any payment other than as set out in the Arrangement, and any other payment will only be made subject to the outcome of the present Appeal or outcome....
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.... 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 and cannot be given any special creditor status by the NHB Act. 5.8 NHB and DHFL have a contractual relationship under which NHB has lent amounts to DHFL for time value, and if Section 16B is constructed to give a special right to NHB, it will run contrary to the Code. 5.9 NHB being a statutory body, does not give NHB a better right than any other finan....
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....heme 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 Code will prevail. [Innoventive Industries Ltd. v. ICICI Bank and Ors. [(2018) 1 SCC 407] (Paragraphs 13, 59-61).; Rajendra K. Bhutta v. Maharashtra Housing and Development Authority & Ors. [(2020) 13 SCC 208] (paragraphs 25, 27); Principal Commissioner of Income Tax v. Monnet Ispat and Energy Limited, [(2018) 18 SCC 786) (paragraph 2); Pioneer Urban Land and Infrastr....
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....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 trust property is not with the beneficiary and always remains with the Trustee. Therefore, the beneficiary is only entitled to the obligation annexed to such property and does not become the owner of the Trust Property. i) Under Section 5 and Section 6 of the Trusts Act, a trust is created when the author of the tr....
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....OA 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 in those cases where the asset is owned by a party other than the FSP. E. Without prejudice to the above, all creditors have a pari passu charge over the 'tagged receivables'. 5.19 NHB has pleaded that the receivables of DHFL are not secured pari passu w....
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....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 any reasons as to how, despite the Tagged Receivables being an asset of DHFL as recorded in its books and recognised as such by the Administrator as well, ought now to be considered as a third party asset by operation ....
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....hat 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/ NCLT, has sought to compare the securitisation transactions undertaken by DHFL to the relationship between NHB and DHFL. It is clarified that the securitised loans have been sold to the banks/ ....
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....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 Thus, once earmarked to NHB, against the refinance facility, they cannot be dealt with and changed without prior consent, as long as they continue to remain in the books of the Corporate Debtor. Thus, the ....
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.... 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 Act and Code must be read harmoniously. This is, in fact, the finding of the NCLT in its Judgment and Order dated 7th June 2021. Moreover, the FSP Rules, 2019 as well as the Notification dated 30th J....
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.... 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 as financial creditors, the same could be contrary to the provisions of (i) NHB Act; (ii) Insolvency and Bankruptcy (Insolvency and Liquidation Proceedings of Financial Service Providers and Applicati....
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....he 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 special statute, i.e., National Housing Bank Act, 1987 ("NHB Act") under which the NHB has special rights and thus, NHB cannot be equated with other Financial Creditors; (iii) The NHB Act....
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.... 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 manner stipulates any priority being given to any creditor. 8.5 Hence, it is clear that the Code and the law for the time being in force do not provide for any prio....
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....ot 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. The Deeds of Hypothecation entered into to secure the loans granted by NHB unequivocally state that the hypothecated assets, which would include the 'Tagged Receivables', are ....
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.... 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 held by NHB. 11.1 The contention of NHB that 'Form C' filed by NHB contains a stipulation that it is "in addition to the rights of the NHB under Section 16B" is incorrect and mis....
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....en 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, between 2012 and 2018, the creditors, including NHB (directly or through the Security Trustee), created a pari passu charge over all the assets of DHFL. Therefore, it is stated that NHB itse....
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....ted 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 the November 17 Order, the CoC in its meeting on November 17, 2020, was of the view that an amicable arrangement may be reached with NHB to facilitate and expedite the process of insolvency res....
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....n 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 Assistance from the Housing Bank shall furnish a certificate as at September 30 and March31 every year, duly countersigned by their Statutory Auditor, confirming that the NHB Loan Assistance out....
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....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 'Tagged Receivables'. The pleas taken by NHB are hence mutually destructive. 16.5 It is clear from the language of Section 16 B that the rights of NHB thereunder are only in the nature of an ....
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....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. Consequently, while passing Impugned Order, the Adjudicating Authority has overlooked the central question of law that arose in the present case. Thus, the Impugned Order is not reasoned and is aga....
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....ct 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 housing finance institutions and underwriting the issue of stocks, shares, bonds, debentures and securities of every other description of housing finance in....
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....e 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 Housing Bank on the security of any immovable property belonging to him or to that institution or on the s....
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....nstitution 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 apply in certain cases.-(1) The provisions of this Chapter shall not apply to deposits accep....
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....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 institutions either generally or for such period as may be specified, subject to s....
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....f 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 Housing Bank. (2) Where any accommodation has been granted by the ....
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....al 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 this Respondent NHB are impressed with a tru....
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.... 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 amount as per the approved Resolution Plan. ....
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....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 a refinancing institution is empowered t....
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....takable 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 these rights. The other conditions governin....
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....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 counsel for NHB submits that the Claim 'Fo....