TaxTMI 
TaxTMI 
2026 (2) TMI 438
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...., Kolkata rejecting IA(IB) No.896/KB/2022 filed by the Appellant. 2. Brief facts of the case necessary to notice for deciding the Appeal are: (i) SREI Equipment Finance Ltd. is a financial service provider. The Appellant - National Bank for Agriculture & Rural Development is a statutory body constituted and established under NABARD Act, 1981 provides credit for rural and agricultural development, including providing refinancing facilities to financial institutions. (ii) The CD had availed refinance facility to the extent of Rs. 2,212.5 crores from the Appellant, which facilities were sanctioned vide letter dated 16.03.2017, 15.06.2017, 07.05.2016, 27.06.2018, 24.08.2018 and 04.03.2019. In accordance with the sanction letters, six General Refinance Agreements were executed between the Appellant and the CD. The CD also executed Deeds of Assignment of Book Debts in favour of the Appellant, including the Deed of Assignment dated 06.03.2019. (iii) A default was committed by the CD in its repayment obligation to the Appellant. The Appellant declared the CD as Non-Performing Asset ("NPA") and as on 08.10.2021, the total outstanding of the CD towards the Appel....
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....istribution mechanism will then be distributed to assenting secured financial creditors. (ix) Order on IA (IB) No.896/KB/2022 was reserved on 29.06.2023. By a subsequent order dated 11.08.2023, the NCLT approved the Resolution Plan. Under the Resolution Plan Rs. 122 crores were credited to the account of the Appellant as payment to dissenting Financial Creditor. On 01.02.2024, the Adjudicating Authority rejected the IA (IB) No.896/KB/2022 filed by the Appellant. Aggrieved by which order, this Appeal has been filed. 3. We have heard Shri Abhijeet Sinha, learned Senior Counsel with Shri Anand Varma, learned Counsel appearing for the Appellants; and Shri Krishnendu Datta, learned Senior Counsel appearing for Respondent No.3 (CoC). 4. Learned Senior Counsel for the Appellant in support of the Appeal submits that the Appellant by virtue of statutory entitlement under Section 29 of the NABARD Act, 1981 ("NABARD Act") is entitled to receive the amount in priority. The amount is held in Trust by the CD for the benefit of the Appellant. It is submitted that the Appellant has provided refinance facility to the CD and as per the General Finance Agreement executed between the CD....
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.... 6. Learned Counsel appearing for Respondent No.3 refuting the submissions of learned Counsel for the Appellant submits that the Appellant having filed its claim in Form-C as Financial Creditor and having filed a claim of Rs. 883 crores as a financial debt with securities mentioned in the Claim Form, is entitled to be treated as per the Resolution Plan. The Appellant has been treated as dissenting Financial Creditor and Rs. 121 crores in terms of the Resolution Plan has already been paid to the Appellant. The security interest in the receivables and the book debts of the CD as per Assignment Agreement executed between the Appellant and the CD. The Appellant has only security interest in the various receivables and the book debts. The Appellant cannot claim the receivables from different loan accounts of the CD as its own assets held in Trust with the CD. No account has been identified by the Appellant claiming it to be third-party assets. The Administrator has never admitted the claim of the Appellant in reply filed before the Adjudicating Authority that the Appellant was entitled for Rs. 317 crores, which was received from different loan accounts of the CD. The Appellant has parti....
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....of the NABARD Act or the Appellant was only entitled for distribution being a dissenting Financial Creditor. The Appellant is a National Bank for Agriculture and Rural Development constituted under the NABARD Act, 1981. The Preamble of the Act provides as follows: "An Act to establish a development bank to be known as the National Bank for Agriculture and Rural Development for providing and regulating credit and other facilities for the promotion and development of agriculture, micro-enterprises, small enterprises and medium enterprises, cottage and village industries, handlooms handicrafts and other rural crafts and other allied economic activities in rural areas with a view to promoting integrated rural development and securing prosperity of rural areas and for matters connected therewith or incidental thereto." 9. Under Section 25 of the NABARD Act, it may provide such financial assistance as it may consider necessary for promoting agriculture and rural development by making loans and advances, by way of refinance, on such terms and conditions as NABARD may think fit. Section 25 sub- section (1) sub-clause (a) of the NABARD Act is as follows: "25. Other inve....
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....ing institution in any contract, security or other document obtained by borrowing institution is a reference to the National Bank and accordingly, the National Bank shall be entitled to recover the balance sums due under such loans and advances from the constituents of borrowing institution and any discharge given by the National Bank to such constituent shall be a valid discharge and the liquidator shall, on demand made by the National Bank, deliver to it all such contracts, securities and other documents, for due enforcement thereof by the National Bank. Explanation.-For the purposes of this sub-section, the word "liquidator" shall include liquidator or a provisional liquidator or any person or authority entrusted with the duty of liquidating the borrowing institution." 11. The NABARD by special sanction letters has sanctioned refinance to the CD. All sanction letters as well as acceptance by the CD of the terms and conditions, including the Agreement for Assignment of Book Debts were filed by the NABARD along with its claim in Form-C to the Administrator. It is useful to notice one of the General Refinance Agreement dated 06.03.2019 and relevant Clause 10, which prov....
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....tcy (Insolvency and Liquidation Proceedings of Financial Service Providers and Application to Adjudicating Authority) Rules, 2019 ("FSP Rules"). Rule 5 provides for provisions of the IBC relating to CIRP of the CD shall, mutatis mutandis apply, to the insolvency resolution process of a financial service provider. Rule 10, which is relevant for the present case, deals with assets of third parties, provides as follows: "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 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 only for the purpose of dealing with them in the manner, as may be notified by the Central Government under section 227." 14. ....
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.... Explanation.- For the purpose of this item, any fee received by the financial service provider as a servicing or collection agent shall not be transferred to the account referred to in item (c) and it shall be dealt with by the Administrator as forming part of the assets of such financial service provider. 2. Assets of Third Parties Where the financial service provider has, as on the insolvency commencement date, in its custody or possession assets 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) prepare a statement of such assets and the respective contracts; (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 financial service provider; (c) return or transfer such assets to the person entitled to receive it in accordance with the terms and conditions of such contract: Provided that when such assets shall not be returned by....
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....ontract and till so paid over to NABARD, the amounts shall be held by the SEFL in the manner specified by Section 29 of NABARD Act, 1981. With these statutory and contractual obligation, SEFL cannot dilute or create interest on the securities assigned to NABARD and as a part of the contract, SEFL is required to repay our outstanding loans and advances sanctioned by way of refinance out of realization of such securities. In the circumstances as stated above, we request you to ensure priority of repayments to NABARD and pass on the recoveries out of the assets assigned to NABARD. We also request your good self to kindly provide us at your earliest convenience, a suitable date and time to meet you in person. We await eagerly a line in confirmation from your good office. Thanking You Yours faithfully Sd/- (R K Srivastava) Chief General Manager Encl. As above" 17. Again on 14.10.2021 and 20.10.2021, NABARD wrote to the Administrator. In letter dated 14.10.2021, again the entitlement of NABARD and protection of his right was stated. On 21.10.2021, the NABARD filed its claim to Administrator, claiming an amount of Rs. 883,63,31,295/....
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....nt has submitted it claim in Form-B, in place of Form-C, the Hon'ble Supreme Court held that once the claim is submitted with proof, it could not have been overlooked merely because it was in a different Form. In Paragraph 54, following was observed: "54. In our view the resolution plan did not meet the requirements of Section 30(2) of the IBC read with Regulations 37 and 38 of the CIRP Regulations, 2016 for the following reasons: a. The resolution plan disclosed that the appellant did not submit its claim, when the unrebutted case of the appellant had been that it had submitted its claim with proof on 30.01.2020 for a sum of Rs. 43,40,31,951/- No doubt, the record indicates that the appellant was advised to submit its claim in Form B (meant for operational creditor) in place of Form C (meant of financial creditor). But, assuming the appellant did not heed the advice, once the claim was submitted with proof, it could not have been overlooked merely because it was in a different Form. As already discussed above, in our view the Form in which a claim is to be submitted is directory. What is necessary is that the claim must have support from proof. ...." 20. As no....
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.... Equipment Financial Limited do hereby unconditionally and irrevocably agree, declare and undertake: .....(vii) That each of the debt is free from any lien, encumbrance, claim, assignments, charges, etc., except the charge created in favour of your Bank...." 6. Each of the Deed of Assignment of book debts records the SEFL covenant that the repayment of the loan shall be secured by a 'first charge' on all present and future book debts and receivables of SEFL. At all material times, no lender of SEFL sought sharing of the charge under the Deeds of Assignment. 7. SEFL has also executed various other loan and security document in favour of NABARD securing the above financial assistance provided by NABARD by way of refinance under the refinancing scheme. Copies of Demand Promissory Notes (DPN) for each of the sanctions made by NABARD are annexed as Annexure- 5 Colly . Copies of Take delivery Letter to DPN issued by SEFL in favour of NABARD are annexed as Annexure- 6 Colly . Copies of each of the Letter of Authority (6 Nos.) executed and issued by SEFL to its Bank, i.e. Syndicate Bank (then) authorizing them to debit their current account (Mandate) are annexed as Annexu....
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....21 and also in person on 18 October 2021. Copy of the letter dated 07 October 2021, 14 October 2021 and 20 October 2021 are annexed as Annexure- 18 Colly . 21. When along with claim Form, all relevant transactions, including the claim of the Appellant to get the receivables from the accounts of the CD, which it refinanced, the claim of the Appellant, cannot be said to be in any manner diminished by filing its claim in Form-C. 22. In any view of the matter, the Appellant has filed IA(IB) No.896/KB/2022 before the Adjudicating Authority, much before the approval of the Resolution Plan, where the Appellant after giving the sequence of facts, prayed for following reliefs: "a. That this Hon'ble Tribunal be pleased to pass appropriate orders directing the Administrator / Respondent to confirm and ensure priority of repayments of NABARD in full over all other payments by SEFL and pass on the recoveries out of the assets assigned to NABARD by SEFL in respect of the refinanced loans in view of the statutory provisions under NABARD Act; b. That pending the hearing and final disposal of this Application, this Hon'ble Tribunal be pleased to restrain the Administ....
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.... and which amounts have not been paid to the Applicant. 51. As per the SEFL's records, the total amount collected from such loan accounts which have not been paid to the Applicant is Rs. 317.12 Crores for the period October 28, 2020 to August 31, 2022. Out of the above amounts received/realized, the amount received/realized by SEFL during the pre-CIRP period (October 28, 2020 to October 7, 2021) is Rs. 197.54 Crores whereas the amount received/realized by SEFL during the CIRP period (till August 31, 2022) is Rs. 119.58 Crores." 25. One of the submissions, which has been pressed by learned Counsel for the Respondent that in event the case of the Appellant was that receivables from account which were refinanced by the Appellant, was not assets of the CD, the Appellant ought to have filed an application before the Adjudicating Authority to keep the said assets out of the CIRP of the CD. No such application was filed by the Appellant, hence, it is not open for the Appellant to contend that receivables from refinance accounts need to be treated as third-party assets and should be solely handed over to the Appellant. The above submission cannot be accepted for more than o....
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....ned 2.71% vote shares, the claim of the NABARD was noticed and flagged. The Minutes of the CoC Meeting have been brough on record along with rejoinder affidavit, where with respect to IA filed by NABARD, the CoC in its 7th Meeting held on 24.06.2022 noticed as follows: "On IA filed by National Bank for Agriculture and Development: The representative of the NABARD informed it has filed an application with Hon'ble NCLT in order to protect its right under the NABARD act, more specifically Sec. 25(1)(a) of the NABARD Act. The representative of the SBI stated that subject to legal opinion and view in this matter, NABARD should either be a member of the CoC as Financial Creditor or choose to exercise its exclusive rights under its Act, in which case it would seize to be a Financial Creditor and the assets would be treated as third party assets under the Code. representative of Bank of India concurred with the views of SBI and stated that NABARD should either be part of CoC or should take right of exclusive charge on the assets. The legal counsel of the Administrator and CoC clarified that it is important for NABARD to clarify its position failing which....
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....take a decision and move forward lest it will affect the resolution process. The Administrator requested both the legal counsel of Administrator and CoC to examine the legal position in both scenarios i.e., in the event where NABARD and SIDBI decide to go along with CoC till implementation and in the event where they exercise their rights under their respective statutes. Both the legal counsel of the Administrator and CoC agreed to look into the matter and provide their views to the CoC at the earliest. The CoC took note of the same." 29. The Appellant, thus, always claimed before the CoC about its exclusive receivables from the tagged account. The CoC, however, in 37th Meeting has noticed that NABARD having abstained from voting on the Resolution Plan, shall be treated as dissenting Financial Creditor. The CoC in its reply filed in this Appeal has stated that distribution resolution, which was approved in 37th CoC Meeting held on 03.03.2023, in Exhibit R-3, the CoC has brought on record the Note to Resolution No.2. Under Sl. No.6, 'setting aside for NABARD in view of pending IA before NCLT' was noticed and decided. It is useful to notice Item No.6, which is as....
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....the Adjudicating Authority on 11.08.2023 has also been affirmed by this Tribunal and the Hon'ble Supreme Court. Learned Counsel for the Appellant has rightly contended that there can be no grievance with regard to approval of Resolution Plan, since Appellant is claiming entitlement only as per the approved Resolution Plan and as per approved distribution mechanism. It is submitted that the Appellant having already filed an application, which was liable to be allowed by Adjudicating Authority, hence, the amount set apart for the Appellant is to be handed over to the Appellant as per the distribution mechanism and present is not a case for any separate distribution or calculation of the amount of receivables. The CoC in its commercial wisdom has already set apart the amount, which could have been claimed by the NABARD relying on Section 29 of the NABARD Act. 31. Shri Krishnendu Datta, learned Senior Counsel appearing for the Respondent has made one more submission that the security interest was created in favour of NABARD with respect to accounts, where refinance facility was extended by the CD and when security interest was created, the said security interest can be released by t....
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....by National Housing Bank relying on Section 16B of the National Housing Bank Act, 1987. Against which order, the CoC of DHFCL through Union Bank of India filed an Appeal. This Tribunal had occasion to consider the statutory provisions of Section 16B of the National Housing Bank Act, 1987 and has also occasion to consider FSP Rules. The issues were framed by this Tribunal in Paragraph 18.6, which are as follows: "18.6 Based on the pleadings of the parties following points arise for the determination of this appeal; a). Whether the Adjudicating Authority erred in holding that NHB is entitled to any rights under section 16 B of the NHB Act after commencement of 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? 33. The provisions of Section 16B were noticed in Paragraph 18.7, which are as follows: "18.7 In response to the issues r....
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....19. The Central Government, in consultation with the Reserve Bank of India, hereby notifies the manner of dealing with the third party assets in custody or possession of such financial service providers, as referred to in the notification vide No. S.O. 4139 (E), dated 18th November 2019 by the Administrator appointed under clause (a) of Rule 5 of the said rules, as under: 1. Receivables for Third Parties: Where a financial service provider is contractually obliged, as on the insolvency commencement date, to act as a servicing or collection agent on behalf of third parties in respect of a transaction such as securitization or lending arrangement, the Administrator shall- (a) ...... (b) continue to discharge the obligation of the financial 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....
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.... these tagged loans, Respondent 'NHB' had already passed on the consideration in the form of refinancing to the Corporate Debtor. Under a clear mandate of Section 16 B(1) of the NHB Act, any realization from the said loans shall be deemed to be held by the Corporate Debtor in trust for the benefit of the refinancing institution, i.e. the Respondent NHB. 18.13 Therefore, the Corporate Debtor cannot use these tagged loans or recoveries for its purposes or uses or treat them as its property, disregarding the statutory Provision under Section 16B of the NHB Act. Thus, the realisations under the tagged loans and securities held thereunder are held by the Corporate Debtor only as an intermediary/custodian in trust for the benefit of the Respondent NHB, as it has refinanced these tagged loans." 35. The Appeal was ultimately dismissed. Against the order passed by this Tribunal on 07.02.2022 in the above case, an Appeal was filed by the CoC of DHFCL before the Hon'ble Supreme Court, where the Hon'ble Supreme Court has passed various interim directions, directing for release of the amount to National Housing Bank, which was to be subject to the result of the final outcome of the ....
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.... is akin to a preferential treatment, cannot be sustained being in clear contravention of the Code. 21. Under the Resolution Plan, NABARD has received certain amount as proposed by the Successful Resolution Applicant in full and final payment. Hence in view of the observation made in Anuj Jain supra. it can be said that NABARD as a secured Financial Creditor had an important role to play in the revival of SEFL. NABARD cannot be allowed to sail in two boats, claiming the benefit from wherever it is possible. 22. In view of the above circumstances and observations, we are of the view that NABARD cannot be given the right to claim his dues being a secured financial creditor any differently than other financial creditors notwithstanding their claim that the Financial Service Provider had kept aside his claim in a trust fund. The same would amount to res judicata." 39. Learned Counsel for the Appellant had submitted that the Appellant is in no manner aggrieved by the Resolution Plan, since the Resolution Plan itself under the distribution mechanism has protected the interest of the NABARD, which amount has been set apart. The application filed by the Appellant being....