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2022 (2) TMI 1412
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.... 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 dated 30th January 2020, whereat the Ministry of Corporate A....
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....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 seems to be No Conflict between Section 16B of NHB Act 1987 and Section 14 of the I.B. Code read with Sec 238 of....
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....3.12.2020 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 & B Code, 2016, (for brevity 'Code') explicitly Section 238 of the Code. 4.2 Further, the Impugned Order erroneously places reliance on Rule....
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....any 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 Section 16B of the NHB Act and the 'MOA' [Memorandum of Understanding] entered into between DHFL and NHB, wherein the NHB had agreed that all the loan recei....
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....21. 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 by way of pari passu charge inter alia over the movables including receivables of DHFL with the other lenders inter alia by way of Joint Deed of Hypothecation dated July 24, 2010 ("JDoH 2010"), ....
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.... 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 received from interested applicants. 4.24 On January 30, 2020, Notification No. S.O. 464 (E) was issued by the MCA, which inter alia provides as under: "1. Receivables for Third Parties: Where a financial ser....
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....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 major disbursement of amount amongst Creditors. However, it is also made clear that such status quo would not affect and prevent the R.P./Administrator from meeting urgent and necessary expenses for day to day operation of the Corporate Debtor Company as a going concern." 4.30 Replies, Rejoin....
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....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, the Arrangement was taken on record by the NCLT. 4.32 The Resolution Plan dated December 22, 2020 ("Resolution Plan") submitted by Piramal Capital & Housing Finance Limited ("Piramal") in relation to DHFL, was approved by a majority of 93.65% of the CoC members by voting share. The Administrator then filed the IA No. 449 of 2021 (in the Company....
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....n 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 of any further appeal before the Hon'ble Supreme Court. A. The transaction with NHB is a purely commercial lending transaction, and there is a debtor-creditor relationship between DHFL and NHB. 5.4 The NCLT erred in not appreciating that DHFL and NHB are purely lending and borrowing commercial transactions. 5.5 DHFL entered into the MOA with NHB for availing fi....
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....clude 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 financial creditor. NHB cannot, on the one hand, claim to be a statutory body (in which case its debts would be crown debts) and at the same time claim its entire outstanding as a creditor having special rights. Various other creditors of DHFL, including Life Insurance Corporation, State Bank of India etc., are statutory bodies and are given no priority under the Code. Hence, there is no basis to treat NHB different....
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....6 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 Infrastructure Limited and Ors. vs Union of India (UOI) and Ors. [(2019) 8 SCC 416) (paragraphs 29 and 30); Duncans Industries Ltd. v. A.J. Agrochem [(2019) 9 SCC 725] (paragraphs 91 to 103); ICICI Bank Ltd. v. ABG Shipyard Ltd. [2017 SCC Online NCLT 12031] (paragraph 9 and 12); Kalparaj Dharamsheel v. Kotak Investments (Civil Appeal. 2933-44/2020) decided by the Hon'ble Supremer Court on March 10, 2021 (paragraph 7.4); Allahabad....
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....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 trust indicates with reasonable certainty by any words or acts: (i) an intention on his part to create a trust; (ii) the purpose of the trust; (iii) the beneficiary; (d) the trust-property; and (iv) Transfers the trust-property to the trustee (unless the author is the Trustee himself). Thus, under the Trust Act, only the Trustee can be the owner of the trust property. j) From all the above, it is clear and unmistakable that ownership of property by the trustee is a sine qua non of a valid tru....
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..... 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 with other lenders as the NOC dated September 25, 2012 ("NOC Letter") given by NHB to GDA Trusteeship Limited (now known as Catalyst Trusteeship Limited) was subject to the covenants and restrictions in the MOA. However, the case of NHB cannot be sustained in law or fact: a. Section 16B neither (i) contemplates exclusion of any rights that DHFL has to create security over the Tagged Receivables; nor (ii) does it take away DHFL's legal ownership over the Tagged Receivables; nor (iii) excludes or precludes NHB's ability as a beneficiary to allow the creation of ....
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....CLT 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 of a statue, i.e. Section 16B when the Code provides that all assets of DHFL have to deal with under the Code. Any other statute creating any other right to the contrary must give way to the Code. 5.26 The NCLT has not dealt with this fundamental de novo question in the first insolvency relating to financial service providers. Accordingly, the NCLT has incorrectly proceeded to presume that NHB and not DHFL own the Tagged Receivable. G. The NCLT has passed the impugned order by incorrectly relying on the ABHILAS judgment and Manoj Kumar judgment 5.27 The NCLT erred in relying on the MCGM V/s Abhilasha Lal & Ors. [Civil Appeal 6350 of 2019]....
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.... 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/ financial institutions on a "true sale" basis. Therefore, the loans are now a property of the said assignee banks/ financial institutions and not the property/asset of DHFL. DHFL is merely a collection and service agent and not the owner. 5.31 The FSP Rules and January 30 Notification expressly cover such assets, which are third party assets in the hands of the corporate debtor or where the corporate debtor is acting as a collection and servicing agent. Hence, such transactions are expressly permitted under the FSP Rules and January 30 Notification. Accordingly, the trade with NHB is not covered by Rule 10 of the FSP Rules and January 30 Notification. 5.32 Appellant further contends that the prese....
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.... 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 said earmarked and tagged loans were required to stay unencumbered until the amount refinanced remained outstanding. However, between the period 2018-2019, the Corporate Debtor started committing defaults in payment of the amounts refinanced by the Respondent NHB. Given the same, this Respondent NHB called upon the Corporate Debtor under various letters to make good the defaults; however, due to failure to do so, the Respondent, NHB, finally recalled the entire outstanding amounts as due and payable by the Corporate Debtor. 6.6 Further, the provisions of the Code read along with the provisions of the NHB Act are harmonious, and there is no inconsistency in the provisions of both the statutes. The Respondent NHB sta....
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....inanced 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 January 2020, framed under the Code specifically contemplate that a Financial Service Provider ("FSP") may have custody or possession of third-party funds, securities or other assets and seeks to ring-fence the same from general effects of the Moratorium under Section 14 of the Code. Thus, once Rule 10 of the FSP Rules, 2019 excludes the amounts/funds held in trust by FSP from the moratorium under Section 14 of the Code, Rule 5 of the FSP Rules, 2019, there can be no question of any "conflict" between the Code and the NHB Act. In the present case, once the trust funds are excluded under Rule 10(2) of the FSP Rules, 2019, the manner of dealing with such third-party trust funds and properties is provided in Section 16B of the ....
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....iquidation, 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 Application to Adjudicating Authority) Rules, 2019; and (iii) Notification bearing S.O. 464 (E) - 30th January 2019 issued by Ministry of Corporate Affairs. Furthermore, Respondent NHB is serving as a development finance institution for the growth of the housing sector in the country. Therefore, considering the larger objective behind setting up Respondent NHB, it cannot be equated with other Financial Creditors. Hence, Respondent NHB is a sui generis financial creditor with vested statutory rights. 6.14 The above said statute mandate ought to be respected. When Section 16B provides certain rights to this Respondent in clear, unambiguous terms, then assuming/suggesting to the contrary would be a fallacious proposition. There is no conflict....
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....as 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 and the Insolvency and Bankruptcy Code, 2016 (" IBC / Code") can and should be read harmoniously, and as such, there is no conflict between the provisions of the two statutes; (iv) The Form C filled by NHB to file its claim as well as the agreements entered into between DHFL and NHB contain a stipulation that the same are in addition to Section 16B of the NHB Act; (v) Rule 10 of the Insolvency and Bankruptcy (Insolvency and Liquidation Proceedings of Financial Service Providers and Application to Adjudicating Authority) Rules, 2019 ("FSP Rules") applies to funds held in trust under Section 16Bof the NHB Act and therefore, such funds must be returned to NHB as Tagged Receivables are assets held in trust by DHFL; (vi) Section 51 of the Trust Act, 1882 provid....
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....ory 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 priority of NHB, and the said special status that NHB is seeking cannot be provided under the express terms of the Code. 9. The relationship between DHFL and NHB is that of a lender and borrower 9.1 The contention raised by NHB in the Reply is that the exposure norms of the Reserve Bank of India ("RBI") applicable to a commercial bank is not applicable to a refinance portfolio of a refinancing institution like NHB. Hence, finance and refinance actions by NHB to DHFL is not purely commercial transaction. The said contention raised by NHB is untenable in law. 9.2 The RBI Master Circular on Exposure Norms for Financial Institutions dated July 1, 2015 ("RBI Exposure Norms") provides that exposure norms are also applicable to refinancing institutions like NHB and other institutions, however, given refina....
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....eated 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 to continue to be the absolute property of the borrower. 10.2 Further, once DHFL was admitted into insolvency, any rights of a creditor, including NHB under any other prior statute, were overridden by the provisions of the Code. Therefore, the Tagged Receivables are assets of DHFL and must be dealt with in the same manner as any other asset of DHFL by the FSP Rules and Notification No. S.O. 464 (E) dated January 30, 2020 ("Notification") read with the provisions of the Code. 10.3 Rule 10 of the FSP Rules only exclude assets owned by a third party in the hands of the corporate debtor under a contract. However, in the case of NHB, the 'Tagged Receivables' have always remained the assets of DHFL, and at no point in time, the ownership was transferred to NHB. In the absence of NHB being the owner of the Tagged Receivab....
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....s. 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 misconceived. The purpose of filing 'Form C' before the Administrator of DHFL is to be admitted and recognized as a Financial Creditor of DHFL. 11.2 It is stated 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 in 'Form C', NHB has itself identified the alleged rights under Section 16B as a 'security'. Accordingly, having taken the correct position in the Claim above Form C that its rights under Section 16B of the NHB Act amount to a security interest over the monies received from the tagged accounts, NHB is precluded by estoppels from subsequently taking the position that the monies received from the tagged accounts constitute a third-party asset, i.e. an asset belong....
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.... 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 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 alleged additional privilege. 12.4 Appellant submits that NHB has desired to exclude properties of DHFL from the pari passu charge in recognition of statutory provisions by specifically excluding Section 29A of the NHB Act under the Joint Deeds of Hypothecation. The contention raised by NHB in the Reply that the exclusion made to Section 29A was only made so that the liquid assets remain unencumbered is misconceived and raised as an afterthought. Without prejudice to the above, if specific exclusion to Section 29A could have been provided, the same ought to have been for Section 16B of the NHB Act had the parties intended to exclude the Tagged Receivables. In this regard, even Section 16B of the....
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....e 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 resolution for maximisation of value for all creditors and stakeholders. However, NHB is now seeking to misinterpret the Arrangement and mislead this Tribunal. 14.3 The Arrangement itself contemplates that NHB shall 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 any appeal against the order of the NCLT or the NCLAT). In the Arrangement, it was also clarified that (i) the Arrangement is without prejudice to the right of recourse available against sureties/guarantors for recovery of debt on account of default by DHFL; and (ii) since the entire amount claimed by NHB is agreed to be kept aside in the manner contemplated in the Arrangement pending disposal of the proceedings as set out in Arrangement, it would not be necessary....
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....hich 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 outstanding does not exceed the total outstanding housing loans, in respect of which the NHB Loan Assistance has been disbursed. The said certificate should be accompanied by a complete list of the housing loans (i.e. book debt statement) in respect of which the NHB Loan Assistance has been availed. In case of such Balance is adverse, the Housing Bank will advise the Financing Institution regarding the needful as per its policy. The Housing Bank's policy in this regard will be intimated to the Financing Institution from time to time." 15.3 It is submitted that a bare reading of the clause itself shows that there is no requirement for the certificate to state whether the 'Tagged Receivables' are unencumbered/free of charge. 15.4 Without prejudice to the aforesaid, the documents produced in the Appeal clearly and unequivocally establish that all the lenders, including NHB, have a pari p....
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....s 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 obligation attached to assets of DHFL (i.e. the Tagged Receivables) to repay NHB from such assets to the extent any amount is outstanding and the repayment is required to be made. The fact that Section 16 B provides for the right to be repaid is admitted by NHB in the NHB UBI Rejoinder. Hence, Section 16B creates only a right of repayment (therefore, security for repayment in case DHFL has not been able to make payments in the ordinary course in favour of NHB from certain assets of DHFL. Therefore, any effect given to Section 16 B requiring repayment of dues to NHB from the 'Tagged Receivables' during the moratorium or in priority to other Financial Creditors would conflict with the provisions of the Code. 16.6 In light of those above, it is amply clear that rights under Section 16B of the NHB Act is only for repayment and hence akin to security and do not create any ownership over the Tagged Receivable....
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....ssue, 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 against the principles of natural justice. 17. STATUTORY PROVISIONS National Housing Bank Act, 1987 [Act 53 of 1987 as amended up to Act 23 of 2019] [23rd December, 1987] An Act to establish a bank to be known as the National Housing Bank to operate as a principal agency to promote housing finance institutions both at local and regional levels and to provide financial and other support to such institutions and for matters connected therewith or incidental thereto. Be it enacted by Parliament in the Thirty-eighth Year of the Republic of India as follows:- Prefatory Note-Statement of Objects and Reasons.- Housing is a basic need and serves to fulfil the fundamental objective of providing shelter. The existing institutional framework for providing housing finance is yet to develop fully. It is, therefore, necessary to create a housing finance structure, through establishment of appropriate institutions ....
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....s of housing finance institutions and underwriting the issue of stocks, shares, bonds, debentures and securities of every other description of housing finance institutions; (e) drawing, accepting, discounting or rediscounting, buying or selling and dealing in bills of exchange, promissory notes, bonds, debentures, hundies, coupons and other instruments by whatever name called; [(ea) buying, selling or otherwise dealing in any loans or advances secured by mortgage or charge of the immovable property relating to scheduled banks or housing finance institutions; (eb) creating one or more trusts and transferring loans or advances together with or without securities therefor to such trusts for consideration; (ec) setting aside loans or advances held by the National Housing Bank and issuing and selling securities based upon such loans or advances so set aside in the form of debt obligations, trust certificates of beneficial interest or other instruments, by whatever name called, and to act as trustee for the holders of such securities; (ed) setting up of one or more mutual funds for undertaking housing finance activities; (ee) undertaking or participating in housing mort....
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....to him or to that institution or on the security of the property of some other person whose property is offered as a collateral security for such assistance, such person or institution or, as the case may be, such other person may execute a written declaration in the form set out in the Third Schedule to this Act stating therein the particulars of the immovable property which is proposed to be offered as security or, as the case may be, collateral security, for such assistance and agreeing that the dues relating to the assistance, if granted, shall be a charge on such immovable property and, if on receipt of such declaration, the National Housing Bank grants any financial assistance to the person or institution aforesaid, the dues relating to such assistance shall, without prejudice to the rights of any other creditor holding any prior charge or mortgage in respect of the immovable property so specified, be, by virtue of the provisions of this section, a charge on the property specified in the declaration aforesaid. (2) Where any further immovable property is offered by a person or an institution as security for the financial assistance referred to in sub-section (1), such perso....
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....ed by a housing finance institution which is a firm or an unincorporated association of individuals. (2) For the removal of doubts, it is hereby declared that the firms and unincorporated associations of individuals referred to in sub-section (1) shall continue to be governed by the provisions of Chapter III-C of the Reserve Bank of India Act, 1934 (2 of 1934). [30-A. Power of Reserve Bank to determine policy and issue directions.-(1) If the Reserve Bank is satisfied that, in the public interest or to regulate the housing finance system of the country to its advantage or to prevent the affairs of any housing finance institution which is a company being conducted in a manner detrimental to the interest of the depositors or in a manner prejudicial to the interest of such housing finance institutions, it is necessary or expedient so to do, it may determine the policy and give directions to all or any of the housing finance institution which is a company relating to income recognition, accounting standards, making of proper provision for bad and doubtful debts, capital adequacy based on risk weights for assets and credit conversion factors for off balance-sheet items and also rel....
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.... as it may think fit to impose. (2) Every notification made under this section shall be laid, as soon as may be after it is made, before each House of Parliament.] 36. Chapter V to override other laws.-The provisions of this Chapter shall have effect notwithstanding anything inconsistent therewith contained in any other law for the time being in force or any instrument having effect by virtue of any such law. 18. Analysis 18.1 We have heard the argument of the learned counsel for the parties and perused the record. 18.2 The appellant emphasises that the transaction with NHB is a purely commercial lending transaction, and there is a debtor-creditor relationship between the DHFL and NHB. 18.3 Per contra, the National Housing Bank, Respondent No. 1, is emphasising that all the loan receivables of 'Piramal Housing Finance Corporation limited' (erstwhile DHFL), where such loans have been financed or refinanced wholly or partly ("tagged receivables"), are held in trust on behalf of the NHB by DHFL does not form part of the Assets DHFL. Thus it should be returned to NHB. 18.4 It is undisputed that during CIRP, NCLT vide its order dated 17 November 2020 had restrained the voti....
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....nstitution 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. B. Insolvency and Bankruptcy (Insolvency and Liquidation Proceedings of Financial Service Providers and Application to Adjudicating Authority) Rules, 2019 Rule 10 - Assets of third parties, etc. (1) For Removal of doubts, it is clarified that the provisions of clause (b) of Rule 5 and section 14 shall not apply to any third-party assets or properties in custody or possession of the financial service provider, including any funds, securities and other assets required to be held in trust for the benefit of third parties. (2) The Administrator shall take control and custody of thirdparty assets or properties in custody or possession of the financial service provider, including any funds, securities and other assets required to be held in trust for the benefit of third parties only for the purpose of dealing with them in the manner, as may be notified by the Central Government under Section 227. C. Notification, S.O. 464 (E), Dt 30th January 2019 issued by Ministry of Corporate Affairs. In exercise ....
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.... required to be paid to this Respondent NHB. Moreover, these are third-party assets, i.e. they belong to this Respondent NHB; the Corporate Debtor was collecting the same from its owners in trust for this Respondent. 18.10 In the present case, both the factors stated in Section 16B are satisfied viz. the amounts held in trust by the Corporate Debtor (i) are to the extent of the accommodation granted by this Respondent; and (ii) are remaining outstanding. Accordingly, these are bound to be paid to this Respondent NHB in the plain and unambiguous terms of Section 16B of the National Housing Bank Act. 18.11 Under Section 16B of the NHB Act, the Corporate Debtor is statutorily deemed to hold these funds as a 'Trustee' for this Respondent NHB. Although it is elementary and a matter of the first principle that a Trustee never has the Trust property for its use or purpose, such funds can be used solely for the Trust, i.e. only to be paid to this Respondent. 18.12 In the instant case, being a refinance transaction, the Corporate Debtor availed refinance against a pool of tagged loans. Towards these tagged loans, Respondent 'NHB' had already passed on the consideration in the for....
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....National Housing Bank directions and the RBI Act. No full payment right exists under the NHB, the RBI Act, or subordinate legislation. Even if it exists, any such right would be wholly repugnant to the provisions of the Code, which provides for a specific manner in priority of payment and sets out the right. The minimum amount a creditor is mandatorily required to be paid in the resolution plan, i.e. the liquidation value. 18.17 It is also held that section 238 of the IB code overrides the RBI and NHB Act. Therefore the approved resolution plan that stipulates extinguishment of the claims to the FD's without discharging their payments in full is valid and legal under the Code. 18.18 However, the appellant has argued that the present appeal is not connected with the appeal filed by the fixed deposit holders or any other appeal filed in connection with the CIRP of the DHFL. Therefore, there is no commonality between the present appeal and the appeal filed by the fixed deposit holders. Therefore, the present appeal should not be tagged and decided with any other appeals. 18.19 The appellant emphasized that NHB is a financial creditor and cannot be given any special creditor status ....
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.....23 If NHB were to be treated at par with any other financial creditors/commercial lenders, hypothetically, any CIRP against a Housing Finance Companies who had borrowed amounts totalling to NHB's net-worth would lead to a situation where NHB may be forced into liquidation, as it could then legally result in the entire net-worth of NHB being extinguished. This is not and could never have been the legislative intent. 18.24 It is pertinent to note that Section 54 of the NHB Act makes special provision for its liquidation: "Liquidation of National Housing Bank - No provisions of law relating to the winding-up of companies shall apply to the National Housing Bank, and the National Housing Bank shall not be placed in liquidation save by order of the Central Government and in such manner as it may direct." 18.25 In these circumstances, the provision of another legislation like the IBC cannot be interpreted in such a manner as to result in a situation that would force liquidation of NHB in a manner otherwise than as provided in the NHB Act. This is also consistent by excluding NHB's trust funds held by DHFL from the moratorium, as provided in Rule 10 of the FSP Rules. 18.26 Equ....
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....19 of the NHB Act does not dilute or extinguish or vary the rights vested in NHB under Section 16 B. The Act does not say so. Section 16 B and Section 19 coexist in the statute, giving NHB the full right and liberty to exercise its rights. 18.31 The submission that Section 16 B does not exclude or preclude NHB's ability as a beneficiary to create security over the 'Tagged Receivables'. Accepting this position as correct, it is clear that by doing so, NHB did not, and has not, carved out exclusions to its rights under Sec. 16 B. In this regard, there is no answer to the Memorandum of Agreement (MOA), each Sanction Letter issued by NHB; the NOC dated 25th September 2012 (for appointment of GDA Trustee). Moreover, every Joint Deed of Hypothecation (which is relied upon by the CoC for claiming pari passu rights) stipulates in express terms that they are subject to the terms of the respective Loan Agreements; the Loan Agreements expressly stipulate that NHB's rights under S.16 B shall not be affected; thus, NHB's right under section 16 B as provided under the Loan Agreements is not affected, and all creditors recognize the same. 18.32 The reference to section 29 B of the N....
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....aim Form. This is not a relinquishment of any rights by Respondent NHB, as contended by the Appellant, but a reiteration of its statutory rights under Section 16 B of the NHB Act. Similarly, in the Agreements executed by NHB, it is made clear that nothing contained in the Agreement or sanction letters shall prejudice or in any way affect the rights vested in NHB under the NHB Act. These same conditions and clauses have been accepted. Accordingly, the claim of Respondent NHB in the Claim 'Form C' submitted by Respondent NHB has been admitted in its entirety in the Resolution Plan that has been approved, accepted and implemented. 18.37 Further, it is important to mention that the learned NCLT has passed the impugned order based on the judgement of the Hon'ble Supreme Court in the case of Municipal Corporation of Greater Mumbai versus Abhilash Lal reported in (2020) 13 SCC 234. In this case, Hon'ble Supreme Court has clearly held that Section 238 of the Code could be of importance when the properties and assets are of a debtor and not when a third party like MCGM is involved. Hon'ble Supreme Court's observation in paragraph 47 of the above-mentioned case is as under; "47. In the op....