TaxTMI 
TaxTMI 
2022 (2) TMI 1414
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....amaniakumar Administrator of Dewan 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 agg....
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.... Appellant's Submissions 9. The present Appeal impugns Order 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. W....
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....he risk appetite of the Appellants with banks and financial institutions. The Tribunal proceeded to accord approval to the discriminatory 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 ....
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.... read with Insolvency and Bankruptcy (Insolvency and Liquidation Proceedings of Financial Service Providers and Application to Adjudicating Authority) Rules 2019 ("FSP Rules"). 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 F....
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....C meetings attended by the Authorized Representative on behalf of the entire class of public depositors. 14. Further, the Appellants through the Authorized Representative have 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 thereu....
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....btor. The object behind section 14 of IBC is to maintain the status quo concerning the Corporate Debtor's assets. Since IBC is a time-bound process and every delay is the death 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 for....
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....s a going concern and not for out of turn or pre-resolution process claims, that too outside the scheme of the IBC. If payments were to be made to fixed deposit holders whose fixed deposits have matured, it would result in a situation where matured fixed deposit holders would obtain a preference 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 (....
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....tain non-obstante clauses the later statute must prevail." Solidaire India Ltd. v. Fairgrowth Financial Services Ltd. [2001] 30 SCL 59 (Paras 8 to 10)]. Therefore, IBC, a latter statute, must prevail 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 t....
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....ii) The same has also been acknowledged by the Reserve Bank of India ("RBI") in its replies to the Writ Petitions filed by F.D. Holders before the Hon'ble Delhi High Court and the Hon'ble Bombay High Court (Refer to Annexure R-1 (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 ....
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....t Appellants being F.D. Holders are entitled to the same rights and protections as every other Financial Creditor as per the terms of the Code and thus, cannot claim any preferential treatment under the duly approved Resolution Plan. D. There is no provision under the Code providing any preferential treatment to the F.D. Holders (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 C....
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....ry powers and that there is no residual equity-based jurisdiction with the Hon'ble NCLT or this Hon'ble Appellate Tribunal. (v) The Code is a beneficial legislation that envisages equitable treatment of all creditors. But, further, the legislature, in its wisdom, has not granted priority treatment to any Financial Creditor under the express provisions of the Code. Therefore all Financial Creditors must be 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 s....
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....udicial review on any grounds. In its commercial wisdom, the CoC had decided, voted, and approved the distribution mechanism, which had a provision for certain small-scale F.D. Holders to be paid over and above the liquidation value if the F.D. Holders were assenting Financial Creditors. (iv) However, the F.D. Holders voted against the Resolution Plan as a class and thus are being paid as dissenting Financial Creditors. H. Without prejudice and in addition thereto, the CoC as a body has voted against 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.....
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....g process, the Appellants cannot now maintain an independent challenge to the Resolution Plan nor could be treated as carrying any legal grievance. Case-Jaypee Kensington Boulevard Apartments Welfare Assn. (supra) (Para 435). 2. The present case does not warrant any interference from this Hon'ble Appellate Tribunal 2.1 The Ld. Tribunal in the Impugned Order disposing of I.A. No. 625 of 2021(as filed by the Appellants praying for declaration of the Resolution Plan as illegal) directed the CoC to reconsider the amount payable to F.D. holders. This direction is in line with the decision 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 Ap....
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....all creditors, including the Appellants (i.e. dissenting financial creditors), to receive payments will be governed by section 30(2)(b) of the Code. They cannot claim any priority/special treatment under any other law. It is clarified that neither the RBI Act nor NHB Act contains any provision that would entitle the Appellants to any priority payment. 3.3 The purported rights of the Appellants to receive payments instead of their deposits under the predated NHB Act and the RBI Act will have to yield to the distribution mechanism for payment to creditors under the Code due to the overriding effect of section 238 of the Code. (Case 5: M/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 Appella....
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....nism) as agreed upon by the CoC. The CoC has decided upon a distribution Mechanism without Piramal Capital & Housing Finance Limited's. It is pertinent to note that in the 18th meeting of the CoC, two different resolutions were discussed and considered among the members of the CoC, i.e., one for approval of Piramal's Resolution Plan under Option I and the other for approval of the Distribution Mechanism. These resolutions were approved by a majority of 93.65% and 86.95%, respectively, by the members of the CoC. Therefore, the process for approval of the Resolution Plan by the CoC was independent of that of the approval of the Distribution Mechanism by the CoC. Moreover, as per clause 1.7 of 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 ....