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2022 (2) TMI 1414
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....n Housing Finance Corporation Limited., Committee of Creditors of Dewan Housing Finance Corporation Ltd., Piramal Capital & Housing Finance Limited. M. VENUGOPAL, MEMBER (J), V.P. SINGH AND DR. ASHOK KUMAR MISHRA, MEMBERS (T) For the Appellant : Dhruv Gupta, Adv. For the Respondent : Ashish Bhan, Ketan Gaur, Chitra Rentala, Aayush Mitruka, Kaustub Narendran, Samriddhi Shukla, Lisa Mishra, Vishal Hablani, Raunak Dhillon, Animesh Bisht, Saloni Kapadia, Madhavi Khanna, Shubhankar Jain and Aniruddh Gambhir, Advs. JUDGMENT PER : V.P. SINGH, MEMBER (T) 1. The present Appeal is being filed by Fixed Deposit holders of the Corporate Debtor who are seriously aggrieved by the treatment meted out to them under the Resolution Plan submitted by the Successful Resolution Applicant and the distribution mechanism approved by the CoC in its 18th meeting of the members of CoC on 24th-25th December 2021 which gives them the biggest haircut despite being the most vulnerable class. The Appellants have been recognised as Financial Creditors and equated on their risk appetite with Financial Institutions and Banks purely arbitrarily. The Appellants are aggrieved by the blatant abusive treatment being....
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....der dated 7-6-2021 passed by Hon'ble NCLT, Mumbai Bench, disposing of IA No. 625/2021, on the following grounds: (a) Resolution Plan does not pass muster under section 30(2)(e) being in contravention of the provisions of NHB Act, read with the NHB Directions. (i) A perusal of the provisions of section 36A of the NHB Act makes it amply clear that the deposits have to be repaid strictly by the terms of such deposit. The entire scheme of the NHB Act aims to secure the interests of depositors, as evidenced by a perusal of the provisions of sections 29B, 29C, 30A, 31, and 33A of NHB Act, 1987. (ii) Further, the NHB Directions make it incumbent upon every Housing Finance Company to secure repayment of the total amount of public deposits. Specifically, a reference may have to the provisions in Directions Nos. 3, 6, 14, 15. Directions 18 and 39, wherein full cover for public deposits has been mandated under the NHB Directions, 2010. (iii) A perusal of the statement of objects of the NHB Act makes it amply clear that it is aimed at regulating and promoting housing finance institutions. Whereas the I.B. Code is aimed at Insolvency Resolution of Corporate Persons. It is one thing ....
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....iminatory treatment of the F.D. holders despite suggesting that the F.D. holders have not been given their fair share of money under the Resolution Plan. (iv) The treatment of the Appellants under the Resolution Plan runs afoul of Explanation I to section 30 of the I.B. Code, wherein the legislature's intention has been codified explicitly to state that the distribution should be fair equitable. The Appellants include ailing, senior citizens who have invested their life savings on the strength of AAA ratings provided by the credit rating agencies. (v) Finally, treatment of the Appellants, by the provisions of the NHB Act, read with the Directions, shall also be consistent with the observations of the Hon'ble Supreme Court in the case of Vinay Kumar Mittal v. Dewan Housing Finance Corporation Ltd. (Civil Appeal No. 654-660 of 2020)], wherein the Hon'ble Apex Court expressed hopes of redressal of the concerns of the depositors and their rights by law. In terms of the same, the present claims must be considered by the provisions of the NHB Act read with the Directions. (c) The Corporate Debtor being a Financial Service Provider must be treated on a different footing ....
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....ules"). On November 29, 2019, RBI, in its capacity as the appropriate regulator' filed an application for initiation of Corporate Insolvency Resolution Process ("CIRP") of DHFL before the NCLT, Mumbai Bench under the provisions of IBC. On December 3, 2019, the NCLT admitted the application above filed by RBI against DHFL; confirmed the Administrator's appointment as the Resolution Professional and ordered that 'moratorium' will commence with effect from November 29, 2019, i.e. on the date of filing of the application. 12. In the present case, the Resolution Plans were received from Prospective Resolution Applicants on December 21, 2021. During the meeting of the CoC held on December 24 and 25 of 2021, all legally compliant Resolution Plans were put before the CoC for voting. The voting on the Resolution Plans submitted by Prospective Resolution Applicants concluded on January 15, 2021. On January 15, 2021, the resolution plan of the Successful Resolution Applicant, i.e. Piramal Capital & Housing Finance Limited ("Respondent No. 3/Piramal"), was approved by the Committee of Creditors ("CoC") with 93.65% votes cast in its favour. Additionally, the distribution of pro....
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....ave also participated in the voting. While exercising their voting rights by section 25A(3A) of IBC, they have dissented with the Resolution Plan and the manner of distribution of proceeds under it. Therefore, the Appellate Tribunal ought not to sit in judgment over the commercial wisdom of the CoC and the reasoned Order passed by the NCLT after taking into account the provisions of the IBC. 15. The Hon'ble Supreme Court in Essar Steel (para 88) has reinforced the position that the CoC is the key decision-maker in the rehabilitation of Corporate Debtors. It observed that the commercial wisdom of the CoC in accepting a Resolution Plan by a majority must drive decisions, including the distribution of proceeds under a Resolution Plan. The CoC may approve a Resolution Plan by a vote of not less than 66% of the voting share of the Financial Creditors after considering the 'feasibility and viability of such Resolution Plan and other requirements as may be prescribed under IBC and regulations framed thereunder. Such evaluation considers all aspects of the plan, including distributing funds among various creditors. It is submitted that having participated in the CIRP, the Appellan....
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....h knell for the Corporate Debtor, the object behind imposing moratorium under section 14 is to introduce statutory freeze qua the Corporate Debtor so that CIRP can be resolved quickly without any disposal of assets of Corporate Debtor. This, in turn, would lead to maximisation of value of assets and larger recovery to the creditors of Corporate Debtor. Therefore, it is respectfully submitted that any payment to the Appellants (whether payment regarding matured fixed deposits or interest) would violate section 14 of IBC. 17. Respondent contends that one class of creditors cannot be paid in preference to other creditors during CIRP. The Hon'ble Supreme Court in the case of Chitra Sharmav. Union of India [2018] 96 taxmann.com 216/148 SCL 833 (Paras 48.1 and 48.2) held that it is impermissible for the Court to direct a preferential payment being made to a particular class of Financial Creditors, whether secured or unsecured [Para 46, Pgs. 15-16, Reply). It is submitted that once the moratorium is in force as in the present case (on November 29, 2019), it is not open for any Financial Creditor to recover any amount from the account of the Corporate Debtor, nor is it an appropriate ....
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....have matured, it would result in a situation where matured fixed deposit holders would obtain a preference and a special dispensation as opposed to fixed deposit holders whose fixed deposits have not matured, thereby resulting in a differential and unequal treatment within similarly situated creditors. Therefore, it is humbly submitted that no special dispensation ought to be granted outside the mechanism/process envisaged under the IBC, which provides for the commercial wisdom of the CoC to reign supreme for distribution of funds' [Para 47, Pg. 16, Reply). 19. Respondent further submits that after the initiation of CIRP of DHFL, the rights and issues of the Appellants will be governed as per the provisions of IBC. IBC has been enacted with the objective of the revival of the Corporate Debtor. The same is a complete code in itself and exhaustively deals with the rights of all stakeholders [Para 27, Pg. 9, Reply). The Hon'ble Supreme Court in the case of Embassy Property Developments (P.) Ltd. v. State of Karnataka [2019] 112 taxmann.com 56/[2020] 157 SCL 445 (Para II) has held that IBC is a unified umbrella Code, covering the entire gamut of the law relating to insolvency ....
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....ail over the NHB Act and the directions issued thereunder. 22. It is contended that once the statute has conferred a power to do an act and has laid down the method in which the power is to be exercised, it necessarily prohibits the doing of the act in any other manner than that which has been prescribed. The terms of, the IBC are unambiguous, especially dealing with the facts in the present matter. Therefore, this Hon'ble Appellate Tribunal ought not to divulge from the settled provisions of law. It is submitted that the IBC guarantees a minimum of liquidation value to dissent financial creditors like the Appellants herein. In the present case, the fixed deposit holders are provided with the liquidation value of their debt, which is by the provisions of the IBC. Hence for the Appellants to seek relief beyond the scheme of the IBC is not permissible and expressly barred as per the provisions of IBC. 23. It is submitted that neither the RBI Act nor the NHB Act gives any right to the depositors to be paid in full in case of insolvency. The RBI Act and the NHB Act merely provide that the license of an HFC or NBFC may be cancelled if the deposit holders are not paid. However, nei....
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.... (Colly) of the Reply @ Pgs. 20-76 @ 68-69]. (iv) Further, the Banning of Unregulated Deposit Schemes Act, 2019 ("BUD-SA") enacted on July 19, 2019 (being later than the Code) to protect the interests of the depositors also gives primacy to the Code and clearly states that the rights of the F.D. Holders will have priority save and otherwise as provided under the Code. (v) Thus, any doubts about the legislative intent as far as the rights of F.D. Holders are concerned have been entirely laid to rest as per the provisions of BUDSA. (vi) Accordingly, since no provision in the law requires F.D. Holders are to be paid in full; there is no infirmity in the Impugned Order or the approved Resolution Plan. B. The Code being a subsequent enactment, overrides the provisions of the NHB Act and RBI Act (i) No full payment right exists under the NHB Act, the RBI Act, or other legislation. Moreover, any such right, even if it exists, would be wholly repugnant with provisions of the Code which provides for a specific manner and priority of payment and sets out the right and extent to which a creditor is mandatorily required to be paid in a resolution plan, i.e. the liquidation value. (....
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....including the Appellants) (i) No payment can be made to any creditor during the CIRP period due to the moratorium. Further, the Appellants as F.D. Holders can only be paid by the Resolution Plan approved by Order dated June 07, 2021, passed by the Hon'ble Adjudicating Authority in I.A. No. 449 of 2021 in Company Petition (I.B.) No. 4258 of 2019. (ii) The AR is aware that the Code does not allow payments to F.D. Holders, during the moratorium, addressed a letter dated January 17, 2020, to the Insolvency and Bankruptcy Board of India (IBBI) and RBI requesting that the relevant regulations be amended so that the F.D. Holders can be paid. (iii) During the 2nd and the 3rd CoC meetings, the Administrator maintained that claims of the F.D. Holders can only be by the provisions of the law. (iv) Further, in the 6th CoC Meeting held on July 29, 2020, upon request by A.R. for payment of dues, the Administrator again expressed his inability given that deviation from the applicable rules and regulations of the Code would result in non-compliance. (v) The same stand was also taken by the Administrator in his letter dated February 13, 2020, to the Authorised Representative. Further,....
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.... paid per the approved distribution mechanism and Resolution Plan. (vi) It is a well-established principle of law that for payments to creditors under the Code, what is fair and equitable must be determined within the framework of the Code, which is the commercial wisdom of the Committee of Creditors, subject to certain minimum guidelines to be observed, i.e. that minimum liquidation value must be given to creditors. (CoC of Essar Steel (supra) paras 36, 88). The Appellants are being paid more than the minimum liquidation value, which is in line with the concept of fairness and equitability incorporated under Explanation 1 of section 30 of the Code. (vii) Other creditors of DHFL comprise retail debenture holders, including individuals and public sector banks who are custodians of public money. They are also similarly placed and have all been treated equally. (viii) Priority payment to the Appellants on the grounds of equity alone would be discriminatory and gravely prejudicial to the other similarly placed creditors of DHFL and would result in the breakdown of the entire CIRP, which is directly contrary to the objectives of the Code. F. Sections 14, 20 and 25 of the Code ha....
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.... granting any further amounts to the F.D. Holders (i) Pursuant to the direction of the Hon'ble NCLT vide the Plan Approval Order to reconsider the distribution mechanism and give F.D. Holders equal benefits as the assenting secured Financial Creditors, CoC deliberated to vote on a partial modification to the distribution mechanism on June 17, 2021. (ii) The resolution for modification of distribution mechanism inter alia provided for enhanced payment of an amount to the Appellants. The resolution was voted upon and rejected by 89.19% of the voting share of the CoC. It is pertinent that the F.D. Holders themselves have voted against the resolution. Thus, the Appellants being F.D. Holders are now bound by the resolution passed by the CoC and cannot be permitted to challenge the distribution mechanism before this Hon'ble Appellate Tribunal. I. The jurisdiction of the NCLT and this Appellate Tribunal is limited (i) Without prejudice to all those above, it is now a settled position of law that neither the NCLT nor this Appellate Tribunal has been endowed with the jurisdiction to reverse the commercial wisdom of the CoC on any ground, much less on the opinion of minority ....
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....ion of the Hon'ble Supreme Court in Jaypee Kensington Boulevard Apartments (supra) [Case 1: (Para 278)] that states that the Ld. Tribunal does not have the power to modify the terms of the resolution plan but can direct the CoC to reconsider altering the terms of the resolution plan. Under the said direction, in its 20th meeting dated June 17, 2021, CoC put to the vote the resolution for maintaining parity between the Appellants/F.D. Holders and secured financial creditors. However, this resolution was rejected by 89% (approx.) of the voting members of the CoC. (@Pg. 203 of the Appeal) 2.2 Given the above, the Hon'ble Appellate Tribunal ought to adopt a "hands-off approach" and should not act as a court of equity or exercise plenary powers while dealing with objections to the Resolution Plan that an overwhelming majority has approved of the CoC. [Case 2: K. Sashidhar (supra) (Paras 55-56); Case 3: Maharashtra Seamless Ltd. v. Padmanabhan Venkatesh [2020] 113 taxmann.com 421/158 SCL 567 (Para 30)]. Moreover, the treatment of recoveries arising out of avoidance applications is a matter of commercial wisdom of the CoC and ought not to be interfered with by the Ld. Tribunal o....
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..../S Innoventive Industries Ltd. V. ICICI Bank, (2018) 1 SCC 407 (Para 61); Case 6: Embassy Property Developments Pvt Ltd. v State of Karnataka & Ors., 2019 SCC OnLine SC 1542 (Para 11); Case 7: Employees Organisation v Jaipur Metals & Electricals Ltd., (2019) 4 SCC 227 (Para 20); Case 8: Duncans Industries Ltd. v AJ Agrochem, (2019) 9 SCC 725 (Para 7.4)] 4. Resolution Plan is by the Code and the allied regulations 4.1 Section 30(2) of the Code assures only liquidation value to dissenting Financial Creditors such as the Appellants and not any higher amounts. Clause 1.2 of the Financial Proposal of the Resolution Plan provides for the same. [Annexure 3: Relevant provisions of the Resolution Plan] 5. Appellants cannot be allowed to bypass the distribution mechanism under the Code and seek preferential treatment 5.1 F.D. holders have been recognised as financial creditors under the Code. The Appellants have also categorised themselves as financial creditors (@ Para 7.16/Pgs. 35-36 of the Appeal). Naturally, the Appellants ought to be subjected to the rights and treatment available to Financial Creditors under the Code even in insolvency involving a non-banking financial institut....
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.... Part A-Financial Proposal of the Resolution Plan, the manner of distribution of the "Total Resolution Amount" was to be under the exclusive discretion of the CoC. 6.2 Moreover, this is not the first instance wherein a sub-class of creditors has been created based on their admitted claims. Committee of Creditors of Essar Steel India Ltd. (supra) (Para 132). Analysis 28. We have heard the arguments of the Learned Counsels for the parties and perused the record. Based on the Pleadings following issues arise under the present set of Appeals; I. Whether the Adjudicating Authority erred in approving the Resolution Plan, which proposes extinguishing claim to the Fixed Deposit Holders without discharging their payments in full, contravenes the statutory provisions of the NHB Act and RBI Act? II. Whether the NHB Act or RBI Act, as the case may be, mandate the total payment to the Fixed Deposit Holders even though the corporate debtor is undergoing CIRP under the I & B Code, 2016? III. Whether section 238 of the Insolvency and Bankruptcy Code, 2016, overrides the RBI Act and NHB Act? Is the approved Resolution Plan stipulates extinguishment of the claims to the Fixed Deposits with....