National Bank For Agriculture And Rural ... vs Srei Equipment Finance Ltd And Ors. & Ors

NATIONAL COMPANY LAW APPELLATE TRIBUNAL, PRINCIPAL BENCH, NEW DELHI Company Appeal (AT) (Insolvency) No. 532 of 2024 (Arising out of Order dated 01.02.2024 passed by the Adjudicating Authority (National Company Law Tribunal), Kolkata Bench (Court-I) Kolkata in IA (IB) No.896/KB/2022 in CP(IB) No.294/KB/2021)

IN THE MATTER OF: National Bank for Agriculture & Rural Development ...Appellant

Versus

SREI Equipment Finance Ltd. & Ors. ...Respondents

Present:

For Appellants : Mr. Abhijeet Sinha Sr. Advocate with Mr. Anand Varma, Ms. Apoorva Pandey, Mr. Ayush Gupta, Mr. Shaunak Mitra and Ms. Joveria Sabbah, Ms. Heena Kochar, Advocates. For Respondents : Mr. Krishnendu Datta Sr. Advocate with Mr. Anoop Rawat, Mr. Saurav Panda, Ms. Shaly Bhasin, Mr. Prateek Gupta, Ms. Arushi Chandra, Ms. Snigdha Saraff, Ms. Rachna Dubey and Ms. Mahek Khuranna, Ms. Rashi Sharma, Mr. Harsh Gurbani and Mr. Yash Tandon, Advocates.

JUDGMENT

ASHOK BHUSHAN, J.

This Appeal by a Financial Creditor of the Corporate Debtor ("CD") -

SREI Equipment Finance Ltd. has been filed challenging the order dated

01.02.2024 passed by National Company Law Tribunal, Kolkata Bench

(Court-I), 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:

Company Appeal (AT) (Ins.) No.532 of 2024 1

(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 Appellant was Rs.883,63,31,295/-.

(iv) The Reserve Bank of India ("RBI") vide order dated

08.10.2021 superseded the Board of the CD. The CIRP

commenced against the CD by an order dated

Company Appeal (AT) (Ins.) No.532 of 2024 2 08.10.2021 passed by Adjudicating Authority in CP(IB)

No.294/KB/2021. Respondent No.2 was appointed as

an Administrator, who was to act as an Resolution

Professional ("RP") for carrying out the CIRP against the

CD.

(v) The Appellant wrote to Administrator in October 2021

claiming applicability of Section 29 of the NABARD Act,

1981 and stating that Appellant is entitled to the entire

receivable with respect to refinance loans in priority to

all other payments. On 21.10.2021, the Appellant filed

its claim in Form-C as Financial Creditor of the CD for

an amount of Rs.883,63,31,296/-. Even after filing of

the claim, the Appellant requested the Administrator to

confirm priority of its exclusive claim over other claims

against the CD. The Appellant's entire claim was

admitted in the CIRP.

(vi) The Committee of Creditors ("CoC") was constituted. In

the 7th CoC Meeting held on 24.06.2022, where

Financial Creditor claim of Rs.883,63,31,296/- was

noticed with voting share of 2.71%. Apart from

NABARD, there were several public sector Bank and

other Financial Creditors, who were allocated different

vote shares.

Company Appeal (AT) (Ins.) No.532 of 2024 3

(vii) On 16.06.2022, the Appellant filed IA(IB)No.896/

KB/2022 praying for direction to the Administrator to

confirm and ensure priority of repayment of NABARD in

full over all other payments by SEFL and pass on the

recoveries out of the assets assigned to NABARD by

SEFL. The Appellant before the Administrator as well

as the CoC has claimed priority payment relying on the

judgment of this Tribunal in Union Bank of India on

behalf of the Committee of Creditors of Dewan

Housing Finance Corporation Ltd. vs. National

Housing Bank - Company Appeal (AT) (Ins.) no.461

of 2021. To the IA filed by the Appellant, a reply was

filed by the Administrator. The Adjudicating Authority

also allowed the CoC (Respondent No.3) through UCO

Bank to intervene in IA (IB) No.896/KB/2022.

(viii) In the 37th CoC Meeting held on 03.03.2023, it was

resolved that in case outcome of the application filed by

NABARD is in favour of Administrator/ CoC then the

remaining amount including NCD and OCDs pertaining

to the claim of NABARD which is set aside as per the

approved distribution 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,

Company Appeal (AT) (Ins.) No.532 of 2024 4 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 and the Appellant, the CD was to hold the

outstanding amount and realized monies from the ultimate borrowers, in

the manner specified under Section 29 of the NABARD Act. By virtue of

Section 29 of the NABARD Act, deemed Trust is created. The plea of

Respondent No.3 that NABARD has failed to identify any loans and

advances granted by SEFL that it has refinanced, is incorrect. The

Adjudicating Authority in the impugned order has erroneously arrived at

Company Appeal (AT) (Ins.) No.532 of 2024 5 the conclusion that the Appellant having filed its claim in Form-C and

being a secured creditor, has to be treated in accordance with the

provisions of the Code. The amount of Rs.883 crores was outstanding on

the date of initiation of CIRP and it was imperative for the Appellant to

submit a claim to the Administrator. The Appellant even prior to filing of

its claim vide letters dated 07.10.2021, 14.10.2021 and 20.10.2021 has

duly requested the Administrator to ensure priority in repayment to the

Appellant in accordance with Section 29 of the NABARD Act. The Claim

Form also contained detailed submission of facts where all relevant facts

were pleaded. The Appellant has been requesting the Administrator as

well as the CoC about its priority in repayment. The act of filing a claim

in Form-C did not in any way impinge on the Appellant's statutory rights.

The claim of the Appellant was fully covered by the judgment of this

Tribunal in National Housing Bank's matter. In National Housing Bank

matter, in the Appeal filed against the order of this Tribunal, the Hon'ble

Supreme Court has directed by interim order to release the amount to

National Housing Bank. The Appellant had no reason to challenge the

Resolution Plan, since it has duly incorporated the distribution

mechanism, whereby the entirety of the Appellant's claim has been set

aside separately. There is no question of Appellant's sailing in two boats

vis-à-vis its repayment. The Appellant from the very beginning was

claiming its priority under Section 29 of the NABARD Act.

5. The Administrator in its reply to IA (IB) No.896/KB/2022 filed by

the Appellant stated that amount of Rs.317.12 crores was admittedly

Company Appeal (AT) (Ins.) No.532 of 2024 6 received between 28.10.2020 to 31.08.2022, which amount was required

to be directly remitted to the Appellant, since the said amount do not form

part of the assets of the CD and was held in fiduciary capacity with no

beneficial interest therein.

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

participated in all CoC Meetings as Financial Creditor. The status of the

Appellant was clarified in the Minutes of the CoC as that of Financial

Creditor. NABARD has not identified any specific list of loan assets

Company Appeal (AT) (Ins.) No.532 of 2024 7 refinanced and instead security interest was created in favour of

NABARD. The Appellant is secured Financial Creditor of the CD. Under

Deed of Assignment it has been mentioned that "all present and future

debt, receivable etc. and also future loans and advances" were assigned to

the Appellant. Learned Counsel for the Respondent has referred to the

Deed of Assignment dated 06.03.2019 entered between NABARD and the

CD, which Schedule-II refers to "present and future book debts of SEFL"

are being assigned by way of Deed of Assignment. The present was a case

where security interest was created in favour of the Appellant. The

Appellant's case is that receivables, third party assets, i.e. assets of

Appellant held in Trust with the CD, cannot be accepted. The case relied

by the Appellant of National Housing Bank is clearly distinguishable. In

the case of National Housing Bank there were identified assets, whereas

the Appellant has failed to place on record any evidence of the identified

tagged assets. In National Housing Bank refinance was granted to

Dewan Housing Finance Corporation Ltd. against identified tagged loans,

recoveries from the said tagged loans were identified as third-party assets

and to the extent of the tagged loans were held in Trust of DHFCL. The

loan account referred to in the affidavit of the Administrator are the loan

accounts marked as security for NABARD, which were subject to change

and were not tagged assets. It is further submitted that in event NABARD

is owner of the third-party assets allegedly the receivables of the loans

and advances refinanced by it, its claim would be the receivables that are

actually received towards the loans and advances and not the amount of

Company Appeal (AT) (Ins.) No.532 of 2024 8 Rs.883 crores. Reliance on Rule 10 of the Financial Service Provider

Rules as well as Notification of the Central Government dated 30.01.2020

are not applicable in the present case.

7. We have considered the submissions of learned Counsel for the

parties and have perused the records.

8. The main issue which arises for consideration in this Appeal is as to

whether NABARD was entitled to claim rights with respect to receivables

from its refinance as per Section 29 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:

Company Appeal (AT) (Ins.) No.532 of 2024 9

"25. Other investment credit.--(1) The National Bank may provide such financial assistance as it may consider necessary for promoting agriculture and rural development by--

(a) making loans and advances, by way of refinance, on such terms and conditions as the National Bank may think fit to impose, to a State land development bank or a State co-operative bank or a scheduled bank or any other financial institution approved by the Reserve Bank in this behalf, and also rescheduling the payment of such loans and advances: Provided that the maximum period for which any such loan or advance may be granted, whether originally or by rescheduling the payment thereof, shall not exceed twenty-five years;"

10. The provision on which the Appellant has placed reliance is Section

29, which deal with 'Amounts and securities to be held in trust'. Section

29 of the Act is as follows:

"29. Amounts and securities to be held in trust.--(1) Any sums received by a borrowing institution in repayment or realisation of loans and advances refinanced either wholly or partly by the National Bank shall, to the extent of the accommodation granted by the National Bank and remaining outstanding, be deemed to have been received by the borrowing institution in trust for the National Bank, and shall accordingly be paid by such institution to the National Bank, as per the repayment schedule fixed by the National Bank.

(2) Where an accommodation has been granted to a borrowing institution, all securities held, or which may be held, by such borrowing institution, on account of any transaction in respect of which such accommodation has been granted by the National Bank, shall be held by such institution in trust for the National Bank.

(3) Notwithstanding anything to the contrary contained in any law for the time being in force, where a liquidator is appointed for winding up a borrowing institution, it shall be the duty of the liquidator to forthwith pass on to the National Bank the sums recovered by the borrowing institution or the liquidator, as the case may be, in repayment or realisation of the loans and advances refinanced either wholly or partly by the National Bank to the extent the refinance is outstanding and the National Bank shall be entitled to enforce the securities held by the borrowing institution in trust for the National Bank as if every reference to the borrowing 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

Company Appeal (AT) (Ins.) No.532 of 2024 10 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 provides as

follows:

"10. The Financing Institution agrees that if and whenever it realises any of the securities held by it either alone or jointly with the NABARD, as security for the said loans and advances or whenever any repayment is received or recovery made by the Financing Institution from the ultimate borrowers, the Financing Institution will pay over to the NABARD all such realisations or recoveries to the extent required to repay the Financing Institution's obligations hereunder and till so paid over to NABARD, the amounts shall be held by the Financing Institution in the manner specified by Section 29 of the National Bank for Agriculture and Rural Development Act, 1981."

12. Agreement for Assignment of Book Debts was also entered on the

same date i.e. 06.03.2019, where the CD has assigned its book debts by

"all present and future Book Debts" in favour of the NABARD. Thus, the

present is a case where we are considering a CIRP initiated at the

instance of RBI against SREI Equipment and Finance Ltd. (CD), which is

a financial service provider. Section 227 of the IBC provides for initiation

of CIRP against financial service providers. Under Section 227, the

Company Appeal (AT) (Ins.) No.532 of 2024 11 financial service provider has been notified, which admittedly includes the

CD. Section 227 also provides for conduct of insolvency and liquidation

proceedings against financial service providers in such manner as may be

prescribed. Section 227 of the IBC provides as follows:

"227. Power of Central Government to notify financial sector providers etc.-

Notwithstanding anything to the contrary contained in this Code or any other law for the time being in force, the Central Government may, if it considers necessary, in consultation with the appropriate financial sector regulators, notify financial service providers or categories of financial service providers for the purpose of their insolvency and liquidation proceedings, which may be conducted under this Code, in such manner as may be prescribed.

Explanation.- For the removal of doubts, it is hereby clarified that the insolvency and liquidation proceedings for financial service providers or categories of financial service providers may be conducted with such modifications and in such manner as may be prescribed."

13. Under Section 227 of the IBC the Central Government has notified

the Insolvency and Bankruptcy (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

Company Appeal (AT) (Ins.) No.532 of 2024 12 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. The above Rule provides that 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. Sub-Rule (2) enjoins that the Administrator shall

take control and custody of third-party assets for the purpose of dealing

with them in the manner, as may be notified by the Central Government

under Section 227.

15. The Central Government has also issued a Notification dated

30.01.2020, which Notification dealt with receivables from third parties.

Notification dated 30.01.2020 is as follows:

"MINISTRY OF CORPORATE AFFAIRS NOTIFICATION New Delhi, the 30th January, 2020

S.O. 464(E).-- In exercise of the powers conferred by section 227 of the Insolvency and Bankruptcy Code, 2016 (31 of 2016) and in pursuance of rule 10 of the Insolvency and Bankruptcy (Insolvency and Liquidation Proceedings of Financial Service Providers and Application to Adjudicating Authority) Rules, 2019, 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 securitisation or lending arrangement, the Administrator shall-

(a) prepare a statement of such transactions and respective agency contract;

Company Appeal (AT) (Ins.) No.532 of 2024 13 (b) continue to discharge the obligations of the financial service provider as a servicing or collection agent;

(c) ensure that the receivables, in respect of such transactions, collected are deposited and maintained in a separate account and are not merged with the funds or other assets of such financial service provider;

(d) oversee the operation of the account referred to in item (c);

(e) transfer such receivables collected and deposited in the account referred to in item (c) in accordance with the terms and conditions of such contract:

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 the Administrator, due to breach of the terms of the contract, the financial service provider has become entitled to retain such assets for itself or dispose of the same to realise its dues.

[F. No. 30/01/2020-Insolvency] GYANESHWAR KUMAR SINGH, Jt. Secy."

16. The present is a case where the CIRP against the CD commenced

on an application filed by RBI by order dated 08.10.2021. The RBI had

appointed Mr. Rajneesh Sharma as an Administrator for the CD. A letter

dated 07.10.2021 was written by the Appellant to the Administrator

intimating about the entitlement of the Appellant under Section 29 of the

NABARD Act and priority of repayments to NABARD was informed by the

Company Appeal (AT) (Ins.) No.532 of 2024 14 said letter. It is useful to notice entire letter dated 07.10.2021, which is

as follows:

"Ref. No. NB. RMD/ 238/RMD 7D/SREI /2021-22 07 October 2021 Sri Rajneesh Sharma Administrator SREI Equipment Finance Limited Vishwakarma 86C, Topsia Road (South), Kolkata 700 046.

Dear Sir, NABARD refinance to SREI Equipment Finance Limited (SEFL)

-Outstanding - priority of repayments to NABARD - regarding We are happy to note your appointment as Administrator of SREI Equipment Finance Ltd., by RBI. As you would be aware, National Bank for Agriculture and Rural Development (NABARD) is a statutory body and is fully owned by Government of India. As a part of its credit functions and under the provisions of NABARD Act, 1981, NABARD sanctioned loans and advances by way of refinance to SEFL subject to the terms and conditions mentioned in the General Refinance Agreement (GRA) read with other security documents executed between NABARD and SEFL. The outstanding dues to NABARD as on 30/09/2021 is Rs.819.26 crore. SEFL has also submitted the statement of book debts assigned to NABARD as on 30.06.2021 duly certified by its Chartered Accountant certifying that these book debts are exclusively charged to NABARD (copy enclosed).

Under the contractual terms, SEFL agreed that if and whenever it realises any of the securities held by it either alone or jointly with NABARD, as security for the said loans and advances or whenever any repayment is received or recovery made by the SEFL from the ultimate borrowers, the SEFL will pay over to NABARD all such realisations or recoveries to the extent required to repay NABARD's obligations under the contract 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

Company Appeal (AT) (Ins.) No.532 of 2024 15 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/-. It was further mentioned that claimed amount is

covered by security interest. Column-IV of the Form-C provides as

follows:

"4. Details of claim, if it is made (i) Rs.883,63,31,295/-

against corporate debtor (Rupees eight hundred principal borrower: as and eighty three crore, sixty three lakhs, thirty

(i) Amount of claim one thousand, two

(ii) Amount of claim covered by hundred and ninety five security interest, if any only) i.e Principal amount (Please provide details of of Rs. 819,26,16,507/-

security interest, the value of the and Interest amount of security, and the date it was Rs.64,37,14,788/- as on given) 8th October 2021.

(iii) Amount of claim covered by (ii) Amount of claim guarantee, if any covered by security interest : Rs.

(Please provide details of 1060,35,97,554/- (For guarantee held, the value of the date please refer to guarantee, and the date it was documents enclosed at given) S.No.2 under

(iv) Name and address of the 'Declaration') guarantor(s) (iii) Nil

(iv) Not Applicable"

18. Along with Form-C, a declaration was also given, where detailed

brief statement of facts regarding the transaction between NABARD and

Company Appeal (AT) (Ins.) No.532 of 2024 16 the CD with sanctioned letters, acceptance letters, General Refinance

Agreement and all relevant documents were mentioned.

19. One of the submissions, which has been pressed by learned

Counsel for the CoC is that the Appellant having filed claim as a Financial

Creditor in Form-C, it has accepted itself as a Financial Creditor of the

CD and is entitled to receive its entitlement only as dissenting Financial

Creditor, since it abstained from voting on the Resolution Plan. As noted

above, the CIRP against the CD, who has been financial service provider,

is to be conducted as per FSP Rules as noted above. Form-C, under

which the claim was filed by the Appellant was in reference to IBBI

(Insolvency Resolution Process for Corporate Persons) Regulations, 2016,

which Regulations are not strictly applicable to CIRP of the financial

service providers. The mere fact that the claim was filed in a wrong Form

by the Appellant, cannot act to its prejudice in any manner. Learned

Counsel for the Appellant has relied on the judgment of the Hon'ble

Supreme Court in Civil Appeal Nos.7590-7591 of 2023 - Greater

Noida Industrial Development Authority vs. Prabhjit Singh Soni &

Anr., where the Appellant 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

Company Appeal (AT) (Ins.) No.532 of 2024 17 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 noted above, even prior to submission of its claim in Form-C, the

Appellant has written to the Administrator claiming its statutory

entitlement of receivables from the CD, which were to be handed over to

the NABARD. By submitting claim in Form-C, the Appellant has not

given up any of its rights, which flow from statutory provisions. In any

view of the matter, along with Form-C, the Appellant has given all details

of transactions. Along with rejoinder affidavit, the Appellant has brought

on record entire Form-C, including the relevant documents, statement of

facts, which were part of Form-C. It is useful to notice some of the

averments made in the statement of facts. In Paragraphs 5 to 8, 14 and

15 in statement of facts, following have been pleaded:

"In accordance with the required terms of each of the said Sanction Letters, SEFL executed separate General Refinance Agreements ("GRA") in favour of NABARD. Copies of each of the General Refinance Agreement ("GRA") respectively dated 21 March 2017, 23 June 2017, 11 May 2018, 28 June 2018, 28 August 2018 and 06 March 2019 are annexed as Annexure - 3 Colly . Each of the said GRA contain an identical clause 10, which reads as under:

"10. The Financing Institution agrees that if and whenever it realizes any of the securities held by it either alone or jointly with the NABARD, as security for the said loans and advances or whenever any repayment is received or recovery made by the Financing Institution from the ultimate borrowers, the Financing Institution will pay over to the NABARD all such realisations or recoveries to the extent required to repay the Financing Institution's obligations hereunder and till so paid over to NABARD, the amounts shall be held by the Financing Institution in the manner specified by Section

Company Appeal (AT) (Ins.) No.532 of 2024 18 29 of the National Bank for Agriculture and Rural Development Act, 1981."

5. In accordance with the required terms of each of the said Sanction Letters, SEFL executed separate Deeds of Assignment of the book debts in favour of NABARD, equivalent to an aggregate sum of Rs.2572 crores. Copies of each of the Deeds of Assignment of book debts dated 21 March 2017, 23 June 2017, 11 May 2018, 28 June 2018, 28 August 2018 and 06 March 2019 are annexed as Annexure- 4 Colly .. Each of the said Deeds contain an identical clause [Clause 6 (vii)] inter alia that:

"6. .... We, SREI 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 Annexure- 7 Colly . Charge has been created with the relevant authority on the assets hypothecated/assigned to NABARD by SEFL. Copies of each of the charge creation document are annexed as Annexure- 8 Colly . Copies of Certificates of creation of charge are annexed as Annexure- 9 Colly . Copies of Disbursement request letters issued by SEFL for refinance from NABARD are annexed as Annexure- 10 Colly . Copies of the Resolution passed at the meeting of the Board of Directors of SEFL are annexed as Annexure- 11 Colly .

8. NABARD, accordingly disbursed an aggregate sum of Rs 2212.50 crore to SEFL by way of refinance of its loans to its customers. Copies of Acknowledgment of Debt signed by the Authorised signatory of SEFL are annexed as Annexure- 12 Colly.

14. It is relevant to mention that at the various meetings of the Committee of Creditors held prior to supersession of Board of SEFL, NABARD, inter alia, pointed out the provisions of law (Section 29 of the NABARD Act) and the contractual stipulations and called upon the Lead Bank to ensure NABARD's priority in the matter of repayments from SEFL and to proceed on the basis that there was deemed statutory trust in favour of NABARD u/s 29 of the said Act in regard to the sums received by SEFL in repayment

Company Appeal (AT) (Ins.) No.532 of 2024 19 or realisation of loans and advances refinanced by NABARD to the extent of the accommodation granted by NABARD and remaining outstanding. In this regard, it is relevant to note that the entire outstanding amount in respect of the refinanced loans were due and payable to NABARD in full in priority to all other payments and did not form part of the common pool. These amounts were held by SEFL in trust for NABARD. NABARD is the beneficial owner of the same. The said outstanding amounts are impressed with a trust, whereunder SEFL can legally use the said amounts only for the purposes of the trust viz to pay over the same to NABARD, and for no other purpose. By reason of the statutory trust, the same do not form part of the assets of the Borrower (SEFL) for distribution among Term loan lenders and such sums received, receivables, if any under the refinance scheme formulated by NABARD shall be treated as out of the purview of the CIRP.

15. NABARD also brought the aforesaid position to the notice of Hon'ble Administrator of SEFL by its letters dated 07 October 2021, 14 October 2021 and 20 October 2021 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 Administrator / Respondent from dealing with or dispose of

Company Appeal (AT) (Ins.) No.532 of 2024 20 or in any manner affect the refinanced receivables of NABARD held by SEFL in trust for the sole benefit of NABARD;

c. That this Hon'ble Tribunal be pleased to pass ad-interim reliefs in terms of prayer (b) above;

d. For such further and other reliefs as this Hon'ble Tribunal may deem fit and proper in the facts and circumstances of the present case in the best interest of justice and equity..

23. In the application, a reply was also filed by the Administrator. The

Administrator itself has pleaded that the Appellant by six sanctioned

letters and General Refinance Agreement had advanced loans to the CD in

the form of refinance. In Paragraph 14 of the reply, following is pleaded:

"14. Pursuant to the aforesaid Sanction letters and its acceptance by SEFL, the Applicant and SEFL entered into 6 (six) General Refinance Agreements ("GRA") dated March 21, 2017, June 23, 2017, May 11, 2018, June 28, 2018, August 28, 2018 and March 6, 2019. The Applicant advanced loans to SEFL in form of refinance i.e. to enable SEFL to further advance monies to its constituents / borrowers. For the purpose of securing the loans granted by the Applicant to SEFL, the Applicant and SEFL also entered into Deed of Assignment of Book debts dated March 21, 2017, June 23, 2017, May 11, 2018, June 28, 2018, August 28, 2018 and March 6, 2019."

24. The Administrator further pleaded that Rule 10 of the FSP Rules as

well as Notification dated 30.01.2020 are not applicable in the case of

NABARD and it was further pleaded that Section 29 of the NABARD Act is

in conflict with the IBC. In Paragraphs 50 and 51 following were pleaded:

"50. By way of the present application, the Applicant has sought to contend that the "trust" provided under Section 29 of NABARD Act is applicable to the entire amount for which the refinance was provided by it. This contention is totally misconceived. Without prejudice to the aforesaid contentions regarding the non- applicability of Section 29 of the NABARD Act after the initiation of CIRP of SEFL, on a bare reading of Section 29 of the NABARD Act itself, it is clear that even if the said provision is found to be

Company Appeal (AT) (Ins.) No.532 of 2024 21 applicable to proceedings under the IBC, it would only apply to the amounts actually received by SEFL from its borrowers out of Applicant's refinance facility 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 one reason. Firstly, even before filing of claim in Form-C,

the Appellant vide its letters dated 07.10.2021, 14.10.2021 and

20.10.2021 has written to the Administrator claiming its rights on

receivables from refinance accounts as per Section 29 of the NABARD Act

and in the Form-C also, again the same plea was reiterated. We have also

noticed the statement of facts, which is part of the Form-C, where the

Appellant reiterated its claim from receivables, exclusively by the

Appellant from the refinance accounts. Secondly, an application was filed

by the Appellant before the Adjudicating Authority being IA (IB)

Company Appeal (AT) (Ins.) No.532 of 2024 22 No.896/KB/2022 much before the approval of Resolution Plan, where the

said prayers were made. The Adjudicating Authority infact has heard the

application and reserved the orders on 29.06.2023, i.e. prior to approving

the Resolution Plan, which Plan was approved subsequently on

11.08.2023. The order approving the Resolution Plan came to be affirmed

by this Tribunal as well as the Hon'ble Supreme Court.

26. One more submission, which has been pressed by learned Counsel

for the Respondent is that the Appellant has not specified which are

tagged accounts from which the receivables were to be paid to the

Appellant. There are two aspects of the matter, which need to be noticed

in respect of above submissions. The provisions of FSP Rules, wherein

under Rule 10, sub-rule (2), the Administrator is obliged to take control

and custody of third-party assets, which were to be held in Trust for the

benefit of third parties only. Thus, it was obligation of the Administrator

to take control and custody of the third-party assets or properties and it

being the statutory obligation of the Administrator, it is not open for the

CoC to contend that it was the duty of the Appellant to identify the tagged

accounts. Further in Paragraphs 50 and 51 of the reply filed by the

Administrator to the application, the Administrator itself has given certain

amounts with respect to "such loan accounts", which obviously referred to

refinance accounts and according to the Administrator, prior to CIRP,

from such account an amount of Rs.197.50 crores was received and

during the CIRP Rs.119.58 crores were received. Thus, Administrator

was well aware of the amounts received from the said accounts.

Company Appeal (AT) (Ins.) No.532 of 2024 23

27. It is further relevant to notice that in the CoC Meeting in which the

Appellant was assigned 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 distribution of proceeds of Resolution Plan would be a problem. The representative of the Catalyst Trusteeship stated that if NABARD and SIDBI chose to exercise their exclusive rights on the assets charged to them and earmarked those assets and they should no longer be part of CoC. Also, while SIDBI has withdrawn its application before Hon'ble NCLT but has reserved its right to file it again. Further, this issue relating to exclusivity being claimed by NABARD and SIDBI is pending for more than 5-6 months now and the same should be resolved at the earliest.

The representative of SBI then stated that unless NABARD and SIDBI explicitly give their consent to be treated at par with other CoC members, then legal view would have to be taken for including NABARD and SIDBI in the CoC as FCs. The representative of Catalyst Trusteeship concurred with the views of representative of SBI. Further, since in the next CoC meeting the avoidance transaction will be discussed, the decision on NABARAD and SIDBI should decide before the presentation on avoidance transactions to ensure confidentiality.

The representative of NABARD took note of the same and informed that he will consult his management and provide a response shortly in the matter."

Company Appeal (AT) (Ins.) No.532 of 2024 24 28. Again in 8th CoC Meeting held on June 30, 2022, NABARD's claim

of exclusive of assets tagged to them for purpose of distribution has been

noticed under Paragraph-3, Clause-B, following has been noticed:

"B. Update on NABARD and SIDBI Claims and their position:

The Administrator enquired from the representative of NABARD to clarify their position with respect to exclusivity of assets since the previous CoC it was discussed that NABARD would inform their decision on continuation with the legal proceedings in the Hon' NCLT.

The CoC advised SIDBI also convey their decision in this regard. Representatives of both NABARD and SIDBI further requested for 2-3 days' time to discuss with their respective management and communicate their decision to the CoC on whether they would go along with the CoC throughout the entire process (till implementation) or seek claim of exclusivity on assets tagged to them for purposes of distribution.

The representative of SBI and Catalyst Trusteeship suggested that this issue has been pending for several months and it is imperative for the CoC to 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

Company Appeal (AT) (Ins.) No.532 of 2024 25 before NCLT' was noticed and decided. It is useful to notice Item No.6,

which is as follows:

S.No. Particulars Details/ Principle "6. Setting aside for i. NABARD Admitted Claim Amount of NABARD in view of Rs. 883.63 Cr to be prorated in the pending IA before ratio of Upfront Cash : Future Value of NCLT Committed Instruments :

Uncommitted Instruments available for distribution after adjustments made in Step 1-5 above.

ii. The Resolution Plan Payments remaining after computation under Step (i) above will then be distributed to all creditors (including to NABARD) as per steps detailed below.

iii. The Resolution Plan Payments distributed to NABARD in step "Payment to Assenting FCs" shall be reduced from the amounts computed under Step (i) above and such reduced portion shall be set aside in an interest bearing no-lien account and other account as applicable, to be maintained by UCO Bank ("NABARD Set Aside Amount"). It may be noted a circularity is built here at the time of calculation of the NABARD Set Aside Amount and iterations are kept at 10,000.

iv. In the event the NABARD Application is decided in NABARD's favour by the Hon'ble NCLT (or the Hon'ble NCLAT or the Supreme Court, as the case may be in case of any appeal against the order of the NCLT or the NCLAT), the NABARD Set Aside Amount will be paid to NABARD [along with all interest earned/recovery thereon].

v. In the event the NABARD Application is not decided in favour of NABARD by the Hon'ble NCLT (or the Hon'ble NCLAT or the Supreme Court, as the case may be in case of any appeal against the order of the NCLT or the NCLAT), the NABARD Set Aside Amount along with all interest earned/recovery thereon shall be

Company Appeal (AT) (Ins.) No.532 of 2024 26 distributed to the Secured FCs (including NABARD) in proportion to their admitted claim amounts.

vi. Any amounts arising for payment under the instruments issued to NABARD prior to the final non-

appealable judgement should be kept aside with UCO Bank along with the set aside Upfront Cash to that extent."

30. The CoC and Resolution Applicant were conscious about the

pendency of IA (IB) No.896/KB/2022 filed by the NABARD before the

Adjudicating Authority and has taken a decision to set aside for NABARD

the amount. The CoC consisted of public sector Banks and they being

well aware of claims of NABARD, have taken the said decision, which is

part of the Resolution Plan. As noted above, in the present case, the

Resolution Plan has been approved by 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.

Company Appeal (AT) (Ins.) No.532 of 2024 27

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 the Appellant only as per the

IBC. The Appellant having filed claim as Financial Creditor in Form-C,

the Appellant has accepted itself to be a Financial Creditor of the CD.

There can be no dispute that by virtue of Assignment Agreement executed

by the CD in favour of the NABARD as noticed in the detailed statement of

facts given in Form-C, security interest was created in all book debts of

the CD. Thus, there can be no dispute that security interest was created,

but present is a case where the Appellant was claiming rights by virtue of

Section 29 of the NABARD Act and Rule 10 of FSP Rules. It was statutory

obligation of the Administrator to take control and custody of third-party

assets to be held in Trust for the benefit of third-parties. The submission

of the CoC is that since the Appellant has filed claim in Form-C as a

Financial Creditor, its resolution, specially when security interest is

claimed on assets, has to be treated as per the IBC. The present is a case

where the Appellant from the very beginning has been claiming right by

virtue of Section 29 of the NABARD Act, which letters were submitted by

the Appellant both before initiation of CIRP against the CD as well as

subsequent to the initiation of CIRP. We have already held that by mere

filing of claim in Form-C, which Form was not applicable with regard to

CIRP of financial service providers, none of the rights of the Appellant,

Company Appeal (AT) (Ins.) No.532 of 2024 28 can be said to be waived. Moreso, when detailed statement of facts, giving

all details of transactions and claims of the Appellant were reflected as

noted above. We have further noticed that in the Meeting of the CoC, the

claim of the NABARD was also flagged and taken note of.

32. Learned Counsel for the Appellant has placed reliance on the

judgment of this Tribunal in Company Appeal (AT) (Ins.) no.461 of

2021 - Union Bank of India on behalf of the Committee of Creditors

of Dewan Housing Finance Corporation Ltd. vs. National Housing

Bank. The above was a case where the CRIP had commenced against a

financial service provider, i.e. Dewan Housing Finance Corporation Ltd.

(DHFCL). In CIRP an MA was filed by the National Housing Bank relying

on Section 16B of the National Housing Bank Act, 1987, claiming that

sums received by DHFCL in repayment or release of loans refinanced by

the National Housing Bank be paid to it. The Adjudicating Authority

allowed the application filed 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

Company Appeal (AT) (Ins.) No.532 of 2024 29 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 raised in the Appeal, the Respondent NHB emphasized the relevant provisions necessary for considering the present dispute between the parties:

A. National Housing Bank Act, 1987 Section 16B - Amount and Security to be held in trust:

(1) Any sums received by a borrowing institution in repayment or realization of loans and advances financed or refinanced either wholly or partly by the National Housing Bank shall, to the extent of the accommodation granted by the National Housing Bank and remaining outstanding, be deemed to have been received by the borrowing institution in trust for the National Housing Bank and shall accordingly be paid by such institution to the National Housing Bank. (2) Where any accommodation has been granted by the National Housing Bank to a borrowing institution, all securities held, or which may be held, by such borrowing institution on account of any transaction in respect of which such accommodation has been granted, shall be held by such institution in trust for the National Housing Bank.

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.

Company Appeal (AT) (Ins.) No.532 of 2024 30 C. Notification, S.O. 464 (E), Dt 30th January 2019 issued by Ministry of Corporate Affairs.

In exercise of the powers conferred by Section 227 of the Insolvency and Bankruptcy Code, 2016 (31 of 2016) and in pursuance of rule 10 of the Insolvency and Bankruptcy (Insolvency and Liquidation Proceedings of Financial Service Providers and Application to Adjudicating Authority) Rules, 2019. 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 Administrator shall-

(a) ....

(b) ensure that such assets are maintained in a separate and distinct manner, capable of identifying them contract wise, and are not merged with those of the financial service provider ......"

34. This Tribunal considering the provisions of Section 16B held that

CD cannot use these tagged loans or recoveries for its purpose or treat

them as its property, disregarding the statutory provisions under Section

16B. It is useful to notice Paragraphs 18.8 to 18.13, which are as follows:

"18.8 From a perusal of the above provisions, it is clear that the provisions of Section 16B of the NHB Act unequivocally provide that any sums received by the borrowing institution would be received by such borrowing institution in trust for RespondentNo.1,

Company Appeal (AT) (Ins.) No.532 of 2024 31 NHB, and would be accordingly, required to be paid to the Respondent, NHB.

18.9 What is pertinent is that the funds with the Corporate Debtor to the extent they relate to the earmarked/flagged loans refinanced by this Respondent NHB are impressed with a trust and are held "in trust" for the benefit of Respondent NHB, hence a beneficial owner of the trust created under the statue. The amount (that stands admitted under the resolution plan) is thus 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 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

Company Appeal (AT) (Ins.) No.532 of 2024 32 to the result of the final outcome of the Appeal pending in the Hon'ble

Supreme Court. The Appeal filed by the CoC is still pending before the

Hon'ble Supreme Court.

36. The CoC in the present case was well aware of the above order of

this Tribunal passed in case of National Housing Bank, which judgment

was also taken note in the Minutes of the CoC Meeting.

37. The above judgment of this Tribunal does support the submissions

advanced by the Appellant. The provisions of Section 29 of the NABARD

Act as well as Rule 10 of FSP Rules do support the contention of the

Appellant that receivables from the accounts relating to refinancing done

by the CD are assets of the Appellant, i.e. third-party assets and cannot

be held to be assets of the CD. It is to be noted that judgment of this

Tribunal in National Housing Bank's case is under consideration before

the Hon'ble Supreme Court. However, the claim of the Appellant is fully

supported by statutory provisions of Section 29 of the NABARD Act and

Rule 10 of FSP Rules. We have also noticed the Notification issued by the

Central Government dated 30.01.2020, which also supports the claim of

the Appellant. The Adjudicating Authority in the impugned order held

that Section 29 of NABARD Act read with Rule 10 is not in contravention

of the Code. In Paragraph 9 of the judgment, the Adjudicating Authority

made following observations:

"9. Section 29 of the NABARD Act can be read with rule 10 of the FSP Rules and hence the NABARD Act is not in contravention with the Code, but it is also important to consider till what aspect."

Company Appeal (AT) (Ins.) No.532 of 2024 33 38. The Adjudicating Authority in the impugned order held that since

NABARD is Member of the CoC as a secured Financial Creditor and is well

aware of the terms and conditions of the Plan and once the Resolution

Plan has been approved, the Resolution Plan is binding on all. In

Paragraphs 20 to 22, the Adjudicating Authority made following

observations:

"20. In the present circumstance NABARD was a part of the CoC and was well aware of the terms and conditions envisaged in the Resolution Plan. Once the Resolution Plan has been approved by the Adjudicating Authority, the Resolution Plan is binding on all the stakeholders, which includes the Applicant as well. The applicant as a member of the CoC have not raised the issue of Section 29 of NABARD act before the CoC and now that after the Plan has been approved, this plea which 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 IA (IB) No.896/KB/2022 was pending consideration

at the time when Plan was approved. Hence, the Resolution Plan has

taken care of the claim of the Appellant and provided for distribution

Company Appeal (AT) (Ins.) No.532 of 2024 34 mechanism as noted above. The Adjudicating Authority committed error

in holding that since the Appellant is Member of the CoC, it is bound by

Resolution Plan and the amount proposed by the SRA is for full and final

payment. There can be no dispute to the proposition that Plan binds all,

but present is a case where distribution mechanism, which is approved

by the CoC, itself takes care of claim of the Appellant, which has been set

apart as noted above. Thus, the fact that Appellant was treated as part of

the CoC as secured Financial Creditor, does not negate the claim of the

Appellant in any manner and Adjudicating Authority although noticed the

relevant provisions of Section 29 of the NABARD Act and Rule 10 of FSP

Rules, has not adverted to the said statutory provisions, which obliged the

Administrator to keep apart third-party assets, which was its statutory

obligation. We, thus, are satisfied that Adjudicating Authority committed

error in rejecting IA (IB) No.896/KB/2022 and the Appellant has made

out a case for granting the reliefs as prayed in the application.

40. It has been submitted by learned Counsel for the Respondent that

as a dissenting Financial Creditor, the Appellant has been paid an

amount of Rs.121 crores and Plan is implemented. In the present Appeal,

we had passed an interim order on 04.04.2024 "Implementation of the

Plan is in pursuance of the Impugned Order shall abide by the result of the

Appeal". Moreso, the distribution mechanism as approved by the CoC

has noted that if the NABARD application (IA (IB) No.896/KB/2022) is

decided in NABARD favour by NCLT or NCLAT or the Hon'ble Supreme

Court, the NABARD set aside amount will be paid to NABARD as noticed

Company Appeal (AT) (Ins.) No.532 of 2024 35 above. Thus, the CoC has already approved the distribution mechanism

in event the application is allowed, the NABARD shall be paid the amount

set apart.

41. In result, we allow the Appeal, set aside the impugned order dated

01.02.2024 rejecting IA (IB) No.896/KB/2022. IA (IB) No.896/KB/2022

is allowed. The Appellant shall be entitled for the amount set apart for

NABARD as per distribution mechanism noted and approved in 37th CoC

Meeting, as noted above. The amount already paid to the Appellant as

dissenting Financial Creditor is also liable to be adjusted in the amount

set apart and to be paid to the Appellant under the distribution

mechanism. Parties shall bear their own costs.

[Justice Ashok Bhushan] Chairperson

[Barun Mitra] Member (Technical)

NEW DELHI

6th February, 2026

Ashwani

Company Appeal (AT) (Ins.) No.532 of 2024 36