Uttar Pradesh State Power Sector ... vs Dewan Housing Finance Corporation Ltd & ...

S. CONTENTS PARA PAGES NO. 1. Factual Background 2 4-6

2. Appellants Submission 3 7-19

i Monies invested by FD Holders 3.1 7-9

ii NHB Act is the special statute 3.3 9-11

iii The impugned Order are passed without keeping in mind 3.3 12-13 the going concern status of DHFL

iv The AA/NCLT failed to consider the repayment 3.4 13-15 obligations

v The Hon'ble NCLT ought to have appreciated that the 3.5 16-17 public depositors are separate from secured / unsecured creditors

vi Implementation of the approved Resolution Plan 3.6 17

vii The Resolution Plan ought not have been put to the 3.7 17-18 vote before the CoC

viii The Resolution Plan has been implemented and a 3.8 18-19 new entity has been formed

ix Prejudice caused to the Appellant 3.9 19-20

3. Ist Respondent Submission 4 20-21

4. The Appellants do no possess the locus standi to 5 21-22 file the Appeals

Company Appeal (AT) (Insolvency) No. 759 & 760 of 2021 B 5. The claims of the Appellants are governed by the 6 22-23 IBC alone

6. Provisions of IBC prevails over the NHB 7 23-24

7. The Appellants were not entitled to payment 8 24-29 matured FDs during CIRP

8. The Appellants are not entitled to full payment 9 29-30

The instant case does not warrant any 10 30-31 interference

The Resolution plan is compliant 11 31

5. Analysis 12 31-64

i Appellant contention 12.9 38-39

ii Respondent Response to the Appellants 12.13 40-55 contention

6. Finding 12.35 55-64

7. Order 65

Company Appeal (AT) (Insolvency) No. 759 & 760 of 2021 NATIONAL COMPANY LAW APPELLATE TRIBUNAL PRINCIPAL BENCH, NEW DELHI Company Appeal (AT) (Insolvency) No. 759 & 760 of 2021 [Arising out of Order dated June 7, 2021, in MA No. 415 of 2020 in Company Petition (IB.) No.4258 of 2019 passed by the Adjudicating Authority/National Company Law Tribunal, Mumbai Bench, Mumbai]

1. Company Appeal (AT) (Insolvency) No. 759 of 2021 IN THE MATTER OF: Uttar Pradesh State Power Sector Employees Trust 2nd Floor, Shakti Bhawan Extension 14-Ashok Marg, Hazratganj Lucknow - 226001 Appellant

Versus

1. Dewan Housing Finance Corporation Limited Through its Administrator Warden House, 2nd Floor Sir P.M. Road, Fort, Mumbai - 400001 Respondent No.1

2. Committee of Creditors of Dewan Housing Finance Corporation Ltd Warden House, 2nd Floor Sir P.M. Road, Fort, Mumbai - 400001 Respondent No.2

Present: For Appellant : Mr Divyam Agarwal, Mr Ahsan Allana, Mr Ashish Joshi, Advocates

For Respondent : Mr Arun Kathpalia, Sr Advocate with Mr Ashish Bhen, Mr Ketan Gaur, Ms Chitra Rentala, Mr Aayush Mitruka, Mr Kaustub Narendran, Ms Samriddhi Shukla, Ms Lisa Mishra and Mr Vishal Hablani, Advocates for Intervenor (Piramal Capital & Housing Finance Ltd., SRA).

Mr Raunak Dhillon, Mr Animesh Bisht, Ms Saloni Kapadia, Ms Madhavi Khanna, Mr Shubhankar Jain, Mr Aniruddh Gambhir, Advocates for COC.

Company Appeal (AT) (Insolvency) No. 759 & 760 of 2021 1 of 65 With 2. Company Appeal (AT) (Insolvency) No. 760 of 2021

IN THE MATTER OF:

Uttar Pradesh State Power Corporation Contributory Provident Fund Trust 2nd Floor, Shakti Bhawan Extension 14-Ashok Marg, Hazratganj Lucknow - 226001 Appellant

Versus

1. Dewan Housing Finance Corporation Limited Through its Administrator Warden House, 2nd Floor Sir P.M. Road, Fort, Mumbai - 400001 Respondent No.1

2. Committee of Creditors of Dewan Housing Finance Corporation Ltd Warden House, 2nd Floor Sir P.M. Road, Fort, Mumbai - 400001 Respondent No.2

Present:

For Appellant : Mr Divyam Agarwal, Mr Ahsan Allana, Mr Ashish Joshi, Advocates

For Respondent : Mr Ashish Bhan, Mr Ketan Gaur, Ms Chitra Rentala, Mr Aayush Mitruka, Mr Kaustub Narendran, Ms Samriddhi Shukla, Ms Lisa Mishra and Mr Vishal Hablani, Advocates for Intervenor (Piramal Capital & Housing Finance Ltd., SRA). Mr Raunak Dhillon, Mr Animesh Bisht, Ms Saloni Kapadia, Ms Madhavi Khanna, Mr Shubhankar Jain, Mr Aniruddh Gambhir, Advocates for COC.

Glossary

FSP Rules Financial Service Providers

NCLT National company Law Tribunal

NCLAT National Company Law Appellate Tribunal

Company Appeal (AT) (Insolvency) No. 759 & 760 of 2021 2 of 65 I&B Code/ Code Insolvency and Bankruptcy Code

CIRP Corporate Insolvency Resolution Process

CoC Committee of Creditors

NHB National Housing Bank

Impugned Order Impugned Order dated June 7, 2021

MA 415 Miscellaneous Application No. 415 of 2020

M.A. 416 Miscellaneous Application No. 416 of 2020

UP Applications MA 415 and M.A. 416 collectively

NCLT Petition C.P(IB) No. 4285/MB/2019

UPPCL Uttar Pradesh Power Corporation Limited

FD Fixed Deposit

AA Adjudicating Authority

PCHF Piramal Capital & Housing Finance

Erstwhile CD Erstwhile Corporate Debtor

Appeals Appeal No. 759 of 2021 and 760 of 2021

Resolution Plan Resolution Plan dated 22.12.2020

Plan Approved order Interlocutory Application No. 449 of 2021 in Company petition No 4258 of 2019

RBI Reserve Bank of India

RERA Real Estate (Regulation and Development) Act, 2016

Administrator Erstwhile Administrator

CORAM: Hon'ble Mr Justice M. Venugopal, Member (J) Hon'ble Mr V. P. Singh, Member (T) Hon'ble Dr Ashok Kumar Mishra, Member (T)

Company Appeal (AT) (Insolvency) No. 759 & 760 of 2021 3 of 65

(Virtual Mode)

[Per; V. P. Singh, Member (T)]

1. The Appellants have filed the present Appeals under Section 61 of the

Insolvency and Bankruptcy Code, 2016 ("Code"), impugning the Order dated

June 7, 2021 ("Impugned Order") passed by the AA1/ National Company Law

Tribunal, Mumbai Bench in the Miscellaneous Application No. 415 of 2020

("MA 415") and MA. No. 416 of 2020 ("M.A. 416") (collectively referred as "UP

Applications") in C.P.(IB) No. 4285/MB/2019 ("NCLT Petition").

2. FACTUAL BACKGROUND:

2.1 The Appellant in CA (AT) (Ins) No. 759 of 2021 is UP State Power Sector

Employees Trust which is a General Provident Fund Trust set up for Uttar

Pradesh Power Corporation Limited ("UPPCL"). Since March 2017, the said

Appellant had invested Rs. 2631.20 crores in the form of 319 Fixed Deposits

("FD ") with DHFL.

2.2 The Appellant in CA 760/AT/INS /2021 is Uttar Pradesh State Power

Corporation Contributory Provident Fund Trust, set up for Uttar Pradesh

Power Corporation employees Limited ("UPPCL"). Since March 2017, the said

Appellant had invested Rs. 1491.50 crores in the form of Fixed Deposits

("FD2") with DHFL3, which in turn, issued fixed deposit receipts thereof.

1 Adjudicating Authority 2 Fixed Deposit 3 Dewan Housing and Finance Company

Company Appeal (AT) (Insolvency) No. 759 & 760 of 2021 4 of 65 2.3 On December 3, 2019, the Hon'ble NCLT admitted DHFL into CIRP4 and

appointed Respondent No. 1 as the Administrator. The AA/ NCLT imposed a

moratorium under the Code read with the 'FSP Rules'5 in the Admission

Order.

2.4 The Appellants submitted their claims to Respondent No.1 concerning

the matured FDs, vide 'Form CA'. The Applicant in Miscellaneous Application

415 of 2020 claimed an amount of Rs. 1535,56,68,260/-, out of which a claim

of Rs. 1531,68,36,412/- was admitted, and an amount of Rs. 3,88,31,848/-

was rejected.

2.5 The Applicant in Miscellaneous Application 416 of 2020 submitted a

claim of Rs. 869,21,28,672/-, out of which claim of Rs. 867,92,89,737/- was

admitted, and a claim of Rs. 1,28,38,935)- was rejected.

2.6 Vide representations dated December 16, 2019, the Applicants called

upon Respondent No. 1 to release the amounts of the matured FDs within 48

hours from the receipt of the said representations. However, vide letters dated

December 20, 2019, Respondent No. 1 stated that it could not release the

matured FD amounts owing to the moratorium imposed under Section 14 of

the Code. Being aggrieved by the same, on January 16, 2020, the Applicants

filed their Applications before the AA/ NCLT inter alia seeking payment of the

entire amounts of the matured FDs.

4 Corporate Insolvency Resolution Process 5 Financial Service Provider Rules

Company Appeal (AT) (Insolvency) No. 759 & 760 of 2021 5 of 65 2.7 After that, on May 31, 2021, Respondent No. 1 filed an application

seeking approval of the Resolution Plan for DHFL. The Applicants were not

made a party to that application. On June 7, 2021, the AA/ NCLT pronounced

the Impugned Order wherein the NCLT, without considering any of the

submissions on behalf of the FD. Holders disposed of the Appellants

Applications and directed Respondent No. 2 to consider enhancing the

payment percentage made to the FD holders. On the same date, the AA/ NCLT

also passed an order approving the Resolution Plan for DHFL.

2.8 Accordingly, Respondent No. 2, during its 20th meeting held on June

17, 2021, deliberated and considered a resolution to revise the amounts

allotted to the FD. Holders and treat the FD holders at par with the secured

Financial Creditors. Predictably, the said resolution was rejected by

Respondent No. 2 with a majority of 89%.

2.9 Being aggrieved by the Impugned Order, the Appellants have

approached this Appellate Tribunal. However, pending the hearing of the

present Appeal, on September 29, 2021, the Applicant in Miscellaneous

Application 415 of 2020 received Rs. 353,57,55,029/- under the approved

Resolution Plan against its admitted claim of Rs. 1531,68,36,412/- and the

Applicant in Miscellaneous Application 416 of 2020 received Rs.

200,35,36,599/- under the approved Resolution Plan, against its admitted

claim of Rs. 867,92,89,737/-. The said amounts were retained by the

Appellants/Applicants towards part discharge of the amounts claimed by the

Appellants, without prejudice to its rights to receive the entire amount.

Company Appeal (AT) (Insolvency) No. 759 & 760 of 2021 6 of 65

3. Appellants Submission

3.1 Monies invested by the FD. Holders are held in Trust by DHFL:

(a) Rule 10 of the Insolvency and Bankruptcy (Insolvency and

Liquidation Proceedings of Financial Service Providers and Application

to Adjudicating Authority) Rules, 2019 ("FSP Rules") provides that Rule

5(b) (Moratorium) of the FSP Rules and Section 14 of the Code does 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.

Further, the Explanation appended to Section 18 of the Code

categorically provides that assets for the Section would not include

"assets owned by a third party in possession of the Corporate Debtor

held under trust or contractual arrangements including bailment".

(b) It is a settled position of law that monies deposited by the FD

holders are not like a loan but a deposit to be held in trust by the

Company till the time of maturity ( Deepak Insulated Cable Corporation

Ltd v. Union of India (2000 SCC OnLine Kar 8311 paragraph 2).

Therefore, the monies deposited by the FD holders were not the monies

of DHFL but were deposited in trust, as per law, thereby making DHFL

liable to repay such deposits in full.

(c) A similar argument made by the National Housing Bank was

allowed by the National Company Law Tribunal, Mumbai Bench

("NCLT"). Accordingly, the monies advanced by NHB to DHFL were

Company Appeal (AT) (Insolvency) No. 759 & 760 of 2021 7 of 65 allowed to be kept aside as an interim arrangement. The arrangement

was later made absolute by the NCLT by Order dated June 7, 2021,

passed in IA No. 1104 of 2020.

(d) It is also well-settled that there may be a special relationship

arising from particular circumstances and requirements of a deposit,

which impress it with trust. In such cases, notwithstanding insolvency,

the money is to be refunded to the beneficiary in full (see: Reserve Bank

of India v. Bank of Credit and Commerce International (1993 (78) Com

Cas 207 (Bom) paragraphs 13, 23 and 33). Such special relationship

can also be inferred if the deposited amount is earmarked or segregated

from the general assets of the recipient.

(e) In the present case:

(i) The deposits are accompanied by special circumstances -

the NHB Act prescribes specific circumstances and requirements

governing these FDs.

(ii) DHFL is not free to use the funds as it sees fit - the deposits

were made with the specific purpose of making investments.

(iii) The deposits are not mixed with the general assets of DHFL

- they reflect as independent liabilities in DHFL's balance sheet.

Moreover, even if the funds were combined, the same would be

immaterial in light of the aforesaid exceptional circumstances

attending the deposits and impressing them with trust.

Company Appeal (AT) (Insolvency) No. 759 & 760 of 2021 8 of 65

(f) Thus, the deposits are impressed with trust and must be repaid

in full.

3.2 NHB Act is the special statute governing the investments of the FD

holders:

(a) There is no overlap or contradictions between the Code and the

NHB Act. Hence, the overriding clause as contained in Section 238 of

the Code doesn't apply. While ordinarily, the Code is a special statute,

in the present case, the special statute governing DHFL and, thereby,

the deposit holders' investment is under the NHB Act. The same is

evident from a plain reading of the provisions of the NHB Act (Chapter

V).

(b) It is trite law that is even assuming there was an inconsistency,

where a general statute and a specific statute relating to the same

subject matter cannot be reconciled, the special or specific statute must

prevail. Therefore, the principle is that general law yields to special law

provided they operate in the same field, on the same subject, and if

there is any inconsistency. In the present case, the subject is deposits

made by the FD holders in specifically regulated institutions such as

DHFL. In contrast, the subject of the Code is overall debt restructuring,

insolvency and bankruptcy for, generally, all corporate persons and

individuals, respectively. (Ref: Order dated February 19, 2014, in

Commercial Tax Officer, Rajasthan v. M/s Binani Cement Ltd. & Anr.

(2014) 8 SCC 3191)

Company Appeal (AT) (Insolvency) No. 759 & 760 of 2021 9 of 65

(c) It is also pertinent to note that there can be a situation in law

where the same statute is treated as a special statute vis-à-vis one

legislation and again as a general statute vis-à-vis another legislation.

Such situations do arise as held in LIC of India v. DJ Bahadur (Ref:

(1981) 1 SCC 315 paragraph 52). It was there observed: "... for certain

cases, an Act may be general and for certain other purposes, it may be

special and the court cannot blur a distinction when dealing with the finer

points of law." Additionally, in the case of two statutes containing non-

obstante clauses, the later Act will normally prevail; however, where the

former Act is a special statute, and the later Act is a general statute,

the special statute will prevail. [Ref: Order dated March 1, 2021, in A.

Navinchandra Steels Private Limited v. SREI Equipment Finance

Limited & Ors. (2021)4 SCC 435]

(d) The fact that the NHB Act is a particular act has been admitted

by Auditors of DHFL as late as April 2018 (even after the enactment of

the Code). In addition, the Auditors of DHFL have in their Secretarial

Audit Report dated April 30, 2018, for the financial year 2017-2018

stated that:

"6. Based on the nature of business of the Company, the following specific Act / Laws /Rules / Regulations are applicable to the Company:

(a) The National Housing Bank Act, 1987 and all the Rules, Regulations, Circulars, Directions und Guidelines prescribed thereunder and The Housing Finance Companies (NHB) Directions, 2010 and Housing Finance Company

Company Appeal (AT) (Insolvency) No. 759 & 760 of 2021 10 of 65 Issuance of Non-Convertible Debentures on Private Placements (NHB) Directions, 2014 for Housing Finance Companies."

From the above, it is clear that the NHB Act would be a special statute

in a matter concerning the fixed deposits, even when compared to a

latter act, i.e. Companies Act, 2013.

(e) Therefore, the Code is a general law in the present case, and the

NHB Act is a special law. In this regard, Section 2(b) of the Code makes

it abundantly clear that the provisions of the Code would apply, inter

alia, to any other companies governed by any special Act for the time

being in force, except in so far as the said provisions are inconsistent

with the provisions of such special Act. Therefore, the Code itself

accepts that it will not apply where its provisions are inconsistent with

the provisions of the special Act. The relevant extract of Section 2(b) of

the Code is set out below:

"2. Application.

The provisions of this Code shall apply to-

(a) any company incorporated under the Companies Act, 2013 (18 of 2013) or under any previous company law;

(b) any other company governed by any special Act for the time being in force, except in so far as the said provisions are inconsistent with the provisions of such special Act: ..."

(emphasis supplied)

Company Appeal (AT) (Insolvency) No. 759 & 760 of 2021 11 of 65 3.3 The Impugned Orders are passed without keeping in mind the going concern status of DHFL

(a) The acceptance of public deposits and servicing them when

repayments become due is an essential part of a housing finance

institution's ordinary course of business. Therefore, for DHFL to

maintain its status as a going concern, DHFL needed to discharge its

liability towards public depositors like the Appellants as and when it

arose.

(b) DHFL, in blatant violation of Sections 29 (a)A(6) and 29 A(4)(a) of

the NHB Act, is continuing its Lending Business without repaying the

public depositors. Section 29 (A) of the NHB Act categorically provides

that to continue carrying on its business, a housing finance institution

ought to be able to pay its present or future depositors in full as and

when their dues arise. This specific requirement also forms part of the

license granted by NHB to DHFL and thus, ought to have been complied

with.

(c) Following Section 23(2) read with 17(2)(e) of the Code, Ist

Respondent Administrator ought to have taken actions to ensure that

DHFL had complied with the requirements under any law for the time

being in force. Therefore, the Code itself mandates that if there are any

other laws applicable to a Corporate Debtor/Financial Service Provider,

the same ought to be complied with. Further, Clause 39 of the NHB

Directions states that a housing finance company (like DHFL), which

fails to pay a public deposit upon maturity, is prohibited from making

Company Appeal (AT) (Insolvency) No. 759 & 760 of 2021 12 of 65 loans or investments until the public depositors are repaid. Similarly,

Clause 39 of the RBI Master Directions on 'Non-Banking Financial

Companies Acceptance of Public Deposits (Reserve Bank) Directions',

2016, provides that a non-banking financial company (like DHFL),

which fails to pay a public deposit upon maturity, is prohibited from

making loans or investments till the public depositors are repaid.

(d) Given the above, DHFL could not have continued its lending

business without paying public deposits as the same would violate the

NHB Act read with the NHB Directions that govern DHFL. Therefore, it

was imperative that the obligations of DHFL to its deposit holders,

including the Appellant, were met before continuing its operations.

(e) Further, the principles of justice and equity required Respondent

No. 1 to order the release of and continue payment of matured amounts

to the Appellants as part of its ongoing business. In any event, the dues

payable to the Appellants form part of the liabilities of DHFL. As such,

the release of the dues would help reduce the liabilities of DHFL and

improve its financial health.

3.4 The AA/ NCLT failed to consider the repayment obligations under

the National Housing Bank Act, 1987

(a) DHFL is a deposit receiving housing finance company that

provides financial services in terms of the license granted by National

Housing Bank and RBI. As per the terms of the said license, DHFL is

bound by the directions of the NHB and RBI. Further, the payment

Company Appeal (AT) (Insolvency) No. 759 & 760 of 2021 13 of 65 made to the FD holders falls within the definition of current dues'

arising for the use of continuation of the license issued by the NHB.

Therefore, it was incumbent on DHFL to repay the FD holders in full as

per the terms of their deposit. The fact that the FD. Holders ought to

have been paid as per the terms of their deposit forms parts of the 'Notes

forming part of the consolidated financial statement for the year ended

March 31, 2018, of DHFL.

(b) In addition, DHFL was required to maintain the entire cover of

the FDs under the NHB and RBI Directions. Despite the said cover and

the security provided to the FD Holders, they were not extended. Being

a public deposit holder, the Appellant has a statutory right to be repaid

by DHFL and such right overrides any other right, contractual, or

otherwise.

(c) Section 36 of the NHB Act provides for a non-obstante clause that

states that the NHB Act provisions have an overriding effect on any

other inconsistent law or instruments. Further, Section 36A of the NHB

Act provides that every deposit by a housing finance company is

required to be repaid by the terms and conditions thereof. Thus, as per

the provisions of the NHB Act, the interest of the deposit holders is

paramount, and the financial service provider is obligated to repay the

public deposits under the NHB Act, notwithstanding any other law.

(d) Thus, it is the statutory obligation of DHFL to continue repaying

its deposit holders as and when their dues have matured. A similar

Company Appeal (AT) (Insolvency) No. 759 & 760 of 2021 14 of 65 commitment is cast on the financial service provider even under Section

45QA of the RBI Act. In this regard, the minuscule allotment to public

depositors under the approved Resolution Plan is nothing but a naked

attempt to ensure that losses/haircut is shifted from the other creditors

of DHFL to the shoulders of the public depositors. It is tantamount to a

brazen theft of the property of FD holders/ public depositors.

(e) Further, the Banning of Unregulated Deposit Schemes Act, 2019

(for brevity "BUDSA") (enacted on July 19, 2019) deals with banning

unregulated deposit schemes and is wholly irrelevant in the present

context. A bare perusal of the 'BUDSA' makes it abundantly clear that

it does not apply to deposits made with an entity registered under the

NHB Act. Therefore, the legislative intent of the NHB Act cannot be

drawn from an entirely unconnected legislature, such as the 'BUDSA'.

It is trite law that each legislation is to be read and interpreted

independently unless otherwise stated in the legislature.

(f) In this regard, the commercial wisdom of the CoC finds no place.

The commercial wisdom of the CoC cannot override applicable law,

which, in the present case, is the NHB Act read with the NHB

Directions. The Appellants did not seek to challenge the approved

Resolution Plan in the Applications filed before the Adjudicating

Authority. Still, they had sought that the FD holders be repaid in full in

accordance with the applicable law, as set out hereinabove.

Company Appeal (AT) (Insolvency) No. 759 & 760 of 2021 15 of 65 3.5 The Hon'ble NCLT ought to have appreciated that the public

depositors are separate from secured / unsecured creditors

(a) Public depositors are neither secured nor unsecured creditors

but constitute the third class of creditors who stand on a higher footing

than secured/unsecured creditors with a statutory right to repayment.

In this regard, it is pertinent to note that even the form prescribed for

public depositors to make their claim is distinct and separate from the

other creditors of DHFL.

(b) Given the above, the claim of the public deposit holders ought not

to be equated with that of any other creditor of DHFL and ought to be

repaid in full as statutorily mandated. However, in complete violation of

the statutory requirement, the approved Resolution Plan allotted Rs.

1300 - 1500 crores, despite having an admitted aggregate claim of Rs.

Five thousand three hundred seventy-five crores constitute merely 23%

to 26% of their claim amount. The said payment is only marginally

higher than the liquidation value that the public holders would be

entitled to in the event of liquidation of DHFL.

(c) Without prejudice to the rights and contentions of the Appellants

that the Appellants ought to have been paid 100% of its claimed

amount, the Appellants submit that the Respondents submitted that

the public deposit holders were nothing but financial creditors of DHFL.

However, despite the admission that the public deposit holders were

financial Creditors of DHFL, the public depositors were given the same

Company Appeal (AT) (Insolvency) No. 759 & 760 of 2021 16 of 65 treatment as the other financial creditors', including the debenture

holders. The unjust ill-treatment of Respondent No. 2 towards the

public deposit holders is evident from the fact that, under the approved

Resolution Plan, the other financial creditors were allotted around 40%

to 45% of their claim, and the public depositors were allotted merely

23% to 26% of their claim. This ill-treatment is also clear that even the

NCLT had requested the CoC to treat the public deposit holders at par

with the financial creditors in the Impugned Order. In any event, it was

inappropriate on the part of the Learned AA/ NCLT to make a 'request',

and the same ought to have been, at the very least, a binding direction.

Respondent No. 2 promptly and overwhelmingly rejected the

suggestion/ request made by the AA/ NCLT when the same was put to

the vote.

3.6 Implementation of the approved Resolution Plan:

(a) Merely because the approved Resolution Plan is implemented

does not mean that the Appellants has lost its statutory right to appeal.

In any event, the implementation of the approved Resolution Plan does

not bear the relief sought by the Appellants in the present Appeal, which

is to set aside the Impugned Order to the extent of non-repayment to

the extent FD holders in total. Therefore, DHFL is still able to repay the

FD Holders in full as mandated by the NHB Act and the NHB Directions.

3.7 The Resolution Plan ought not to have been put to the vote before

the CoC:

Company Appeal (AT) (Insolvency) No. 759 & 760 of 2021 17 of 65

(a) The approved Resolution Plan could have never been put to the

vote before the CoC, as the said plan was in contravention of the

provisions of the NHB Act and the NHB Directions. Section 30(2)(e) of

the Code expressly states that the resolution professional

(Administrator in this case) ought to have confirmed that the plan so

submitted conformed with the requirements as set out in Section

30(2)(a) to (e). Section 30(2)(e) of the Code states,

"(e) does not contravene any of the provisions of the law for the time being in force."

(c) As the approved Resolution Plan is in contravention of the

provisions of the NHB Act, the same ought not to have been put forth

before the CoC for voting. Furthermore, Section 30(2)(e) provides that

the Code's provisions are read harmoniously with the requirements of

the other laws in force (i.e. NHB Act and its directions) and not in

supersession.

3.8 The Resolution Plan has been implemented, and a new entity has

been formed:

(a) During arguments, the advocates for the erstwhile Corporate

Debtor contented that under the Order passed by the Hon'ble NCLT

approving the Resolution Plan, the same was implemented. By way of a

reverse merger, the Successful Resolution Applicant merged into the

Corporate Debtor. Thus, a new entity, namely, Piramal Capital &

Housing Finance ("PCHF") was formed. Basis this development, PCHF

contended that the mandatory obligations under the NHB Act, which

Company Appeal (AT) (Insolvency) No. 759 & 760 of 2021 18 of 65 arose due to the failure of the Corporate Debtor, did not apply to SRA'

PCHF'.

(b) The Appellants submit that the said argument is flawed and

untenable as admittedly, by way of a reverse merger, the Successful

Resolution Applicant merged into the Corporate Debtor; thus, the

Corporate Debtor is till date in existence and thus, the obligations of

the Corporate Debtor to comply with the provisions of the NHB Act exist.

Furthermore, the Appellants Applications were filed before the reverse

merger and before the approved Resolution Plan was placed before the

CoC. Thus, any steps taken by the Respondents despite the pendency

of the UP Applications were subject to the orders of the Tribunal.

3.9 Prejudice caused to the Appellant:

(a) The Appellants are bona fide investors, and these investments

were made on behalf of the employees of UPPCL while keeping their best

interests in mind. The non-release of the payments due to the

Appellants will severely impact the employees' financial well-being and

the public at large since UPPCL is a public utility.

(b) For most of the employees of UPPCL, the investment made

through the Appellants are their only form of savings - which would

serve them in good stead during times of old age, medical emergency

and other necessities. As such, the livelihood and welfare of around

25,000 employees of UPPCL are at stake. Consequently, these

employees and their families are gravely concerned about their future.

Company Appeal (AT) (Insolvency) No. 759 & 760 of 2021 19 of 65

(c) Non-interference with the Impugned Order is likely to have a

domino effect that may lead to several other large entities being pushed

into insolvency. Any disruption in power supply will adversely impact

UPPCL's 2.70 crore consumers and the 23-crore population of Uttar

Pradesh. By way of the Impugned Order, the same yardstick is being

applied to strategic investors and FD holders under the Code without

regard to the fact that the nature and purpose of their investments differ

vastly.

(d) If the Impugned Orders are upheld, grave injustice will be caused

to the FD holders being low- and middle-income individuals, resulting

in complete unrest and loss of confidence. It is submitted that serious

prejudice will be caused to the Appellants and the other public

depositors if entire amounts qua the matured fixed deposits are not

paid.

4. Ist RESPONDENTS SUBMISSIONS

4.1 By of the captioned Appeal Nos. 759 of 2021 and 760 of 2021

(collectively to be referred to as "Appeals"), the Appellants are essentially

seeking a complete payment of their deposits with the erstwhile Corporate

Debtor ("Erstwhile CD").

4.2 On 07.06.2021, under Section 31 of the Insolvency & Bankruptcy Code,

2016 ("IBC/Code"), the Ld. National Company Law Tribunal ("Ld. NCLT")

approved the Resolution plan dated 22.12.2020 (Resolution Plan") vide Order

Company Appeal (AT) (Insolvency) No. 759 & 760 of 2021 20 of 65 passed in Interlocutory Application No. 449 of 2021 in Company Petition No.

4258 of 2019 ("Plan Approval Order"). An overwhelming majority had

approved the said Resolution Plan of 93.65% of the Committee of Creditors

("CoC") of the Erstwhile CD. In contrast, the distribution mechanism (which

was a separate voting item was approved by 86.95% of the voting share of the

CoC. Further, vide the Plan Approval Order, the Ld. NCLT directed the CoC to

reconsider the amount payable to fixed deposit ("FD ") holders. Under the said

direction, in its 20h meeting dated 17.06.2021, the CoC put to the vote the

resolution for maintaining parity between the Appellants/F.D. Holders and

secured Financial Creditors. However, this resolution was rejected by 89%

(approx.) of the voting members of the CoC.

4.3 Notably, the Appellants participated in the Corporate Insolvency

Resolution Process ("CIRP") in the Capacity of Financial Creditors and were

treated as such. They were represented as a class of Financial Creditors

through an authorised representative of their choice. Contrarily, they now

approach this Appellate Tribunal seeking untenable reliefs in law and militate

against their actions since the admission of the Erstwhile CD into insolvency.

5. The Appellants do not possess the locus-standi to file the Appeals

5.1 The Appellants are admittedly trusts registered under the Indian Trusts

Act, 1882, filed the Appeals in their name. It is settled that trust, not being a

legal person, is not entitled to sue in its name (Case 1: Kishorelal Asera v. Haji

Essa Abba Salt Endowments & Ors., 2003 SCC OnLine Mad 443 [Para 14]).

Company Appeal (AT) (Insolvency) No. 759 & 760 of 2021 21 of 65 Only trustees of a trust are legally entitled to sue on its behalf. In this case,

the Appellants' trusts are not even a party to the present Appeals.

6. The claims of the Appellants are governed by the IBC alone.

6.1 Due to significant mismanagement of the Erstwhile CD, the Reserve

Bank of India ("RBI") itself stepped in and initiated insolvency proceedings of

the Erstwhile CD under the IBC, read with the Insolvency and Bankruptcy

(Insolvency and Liquidation Proceedings of Financial Services Providers and

Application to Adjudicating Authority) Rules, 2019 ("FSP Rules"). It is a settled

position of law that once a company is admitted into insolvency, the IBC is a

complete and exhaustive code that governs the entire process after that. As

described in the preamble of the IBC, it is an "Act to consolidate and amend

the laws relating to reorganisation and insolvency resolution of corporate

persons". As such, it is evident that the legislature, in its wisdom and

complete awareness of statutory provisions that existed at the time of

enactment of the IBC, set the law for governing the insolvency process.

6.2 Despite such a statutory mandate under IBC, the Appellants contend

that the manner of distribution towards FD holders must uniquely be

governed in accordance with the National Housing Bank Act, 1987 ("NHB Act")

and the Reserve Bank of India Act, 1934 ("RBI Act"). On the contrary, it is

submitted that while the IBC is a self-contained code exclusively dealing with

insolvency, the NHB Act and the RBI Act operate in ordinary circumstances

when a company is not undergoing insolvency. As such, creditors of a

company under insolvency cannot seek to enforce the NHB Act and the RBI

Company Appeal (AT) (Insolvency) No. 759 & 760 of 2021 22 of 65 Act. In any event, it is amply clear that neither the requirements of the NHB

Act nor the RBI Act guarantees full repayment of deposits.

7. Provisions of the IBC prevail over the NHB Act and the RBI Act by

the non-obstante clause contained in Section 238 of the Code.

7.1 The Appellants erroneously argue that the NHB Act and RBI Act

provisions prevail over IBC due to the latter being a general statute and the

former two statutes being special statutes. As such, the Appellants seek full

repayment of deposits under the NHB Act and RBI Act, notwithstanding the

provisions of the IBC. This argument is incorrect and in ignorance of the

unique field occupied by the IBC.

7.2 At the outset, the argument of the Appellants directly contradicts their

pleading (Appeal No. 759 of 2021, Para D, Pg. 32-33; Appeal No. 760 of 2021,

Para 33-34), wherein it is pleaded that there is no inconsistency between the

IBC and the NHB Act.

7.3 Further, it is submitted that the IBC is the singular law governing the

entire insolvency process, irrespective of obligations that may exist between

debtors and creditors under any other statute, contract or otherwise. On the

other hand, the RBI Act and the NHB Act have not dedicated statutes meant

for the rights of depositors but rather constitute the institutions, i.e., the RBI

and the NHB. In any event, this same issue on the interplay between IBC and

another statute was considered by the Hon'ble Supreme Court in the case of

Pioneer Urban Land & Infrastructure Limited & Anr. v. Union of India, (2019)

8 SCC 416 [Para 29-30]. In this judgment, the Hon'ble Supreme Court

Company Appeal (AT) (Insolvency) No. 759 & 760 of 2021 23 of 65 considered whether provisions of the Real Estate (Regulation and

Development) Act, 2016 ("RERA") prevail over provisions of the IBC. It was

held therein that the provisions of RERA and IBC can co-exist, but in the

event of a clash, RERA must give way to the IBC. In this regard, the Hon'ble

Supreme Court further held that RERA operates in the realm of protecting the

interests of individual investors in real estate projects.

7.4 In contrast, IBC contemplates rehabilitation of the Corporate Debtor,

and in the event of a conflict, the IBC will prevail. Similarly, it is submitted

that the NHB Act, which establishes the NHB and the RBI Act, which

constitutes the RBI, cannot override the IBC. As is apparent from the

preambles of the two statutes, they occupy different fields altogether.

7.5 Moreover, a settled principle of law that a subsequent enactment

prevails over former legislation. The RBI and NHB Act pre-date the IBC and

the FSP Rules. (Ref: Life Insurance Corporation of India v. DJ Bahadur & Ors.,

(1981) 1 SCC 315 [Para 112-113]; Allahabad Bank v. Canara Bank & Anr.,

(2000) 4 SCC 406 [Para 40]). By the non-obstante clause contained in Section

238 of the IBC, the IBC shall prevail over any inconsistent provisions

contained in the NHB Act and the RBI Act; Innoventive Industries Limited v.

ICICI Bank & Anr., (2018) 1 SCC 407 [Para 34])

8. The Appellants were not entitled to payment of matured FDs

during CIRP.

Company Appeal (AT) (Insolvency) No. 759 & 760 of 2021 24 of 65 8.1 The Appellants have erroneously argued that the erstwhile

Administrator ("Administrator") of the Erstwhile CD was obligated to repay

deposits of the Appellant and other FD holders during the pendency of CIRP,

as part and parcel of the Administrator's obligation to keep the Erstwhile CD

as a "going concern". The response to this argument is two-fold:

(i) The FDs formed part of the Erstwhile CD's assets and therefore could not be alienated throughout CIRP.

8.2 The Appellants argue that an FD, like a "trust", cannot be considered

part of the Erstwhile CD's assets, and the Appellants are not technically

financial creditors. Further, they erroneously argue that under Rule 10 of the

FSP Rules, the obligation to repay FD holders is not hit by the effect of Section

14 of the IBC as the amount of the deposit to third-party assets. It is to be

noted that these arguments were advanced for the first time during oral

submissions without any basis in pleadings. This argument is flawed for the

following reasons.

8.3 Firstly, FD holders are classified strictly as Financial Creditors, i.e.,

persons to whom a "financial debt" is owed within the term's meaning under

Section 5(8) of the IBC. Time and again, the Hon'ble Supreme Court of India

has restated and cemented the position that an FD holder is a Financial

Creditor within the strict sense of the phrase. Accordingly, an FD holder is

entitled to initiate insolvency proceedings against a company and is also

entitled to participate in CoC meetings; Pioneer Urban Land and

Infrastructure Ltd. & Anr. v. Union of India & Ors. (2019) 8 SCC 416 [Para

43); Orator Marketing Pvt. Ltd. v. Samtex Desinz Pvt. Ltd., AIR 2021 SC 4040

Company Appeal (AT) (Insolvency) No. 759 & 760 of 2021 25 of 65 (Para 14); Insolvency Law Committee for Notification of FSP Sub-Committee

Report dated 04.10.2019 [Para 17]). Moreover, Appellants themselves filed a

claim before the Administrator in the capacity of Financial Creditors.

8.4 An amount held by a person cannot be classified as being a "debt" and

being held in "trust" simultaneously. Furthermore, it is settled law that a

depositor and bank relationship is not equivalent to one between a beneficiary

and trustee. Instead, it is a relationship of a creditor and debtor. ;

Commissioner of Income Tax v. Hindusthan Welfare Trust, 1991 SCC OnLine

Cal 361 [Para 12-15, 19); Shanti Prasad Jain & Anr. v. Director of

Enforcement, FERA & Anr., AIR 1962 1764 [Para 37]) Further, the Appellants

have failed to provide a single factual or legal basis for stating that their

deposits were like a trust.

8.5 Secondly, in furtherance of the argument that the deposits are like

trust, the Appellants attempted to argue that since FDs with the Erstwhile CD

are governed by the NHB Act and the RBI Act, there is a statutory guarantee

of full repayment. In doing so, the Appellants primarily rely upon Sections

36A of the NHB Act and Section 45QA of the RBI Act. It is submitted that FDs

cannot be like a trust merely because before CIRP, the Erstwhile CD was

governed by NHB Act and the RBI Act. Section 36A of the NHB Act and Section

45QA of the RBI Act both clearly state that every deposit shall be repaid "by

the terms and conditions of such deposit". Notably, the Appellants have failed

to point out a single term within their arrangement with the Erstwhile CD,

which guarantees full repayment of their FDs. Section 36A of the NHB Act

Company Appeal (AT) (Insolvency) No. 759 & 760 of 2021 26 of 65 and Section 45 QA of the RBI Act are no different, in essence, from Section

73(3) of the Companies Act, 2013, which states that every deposit shall be

repaid "by the terms and conditions of the agreement referred to in that sub-

section." There is absolutely nothing unique within the NHB Act or the RBI

Act, which elevates the status of an FD with a housing finance company over

and above any other FD. The NHB Act itself contemplates a redressal

mechanism where Section 36A is violated, i.e., under Section 36 A(2) read

with Section 49 (2A)(c). On a cumulative reading of the provisions, it is

apparent that the statute itself does not guarantee complete repayment of

deposits.

8.6 Furthermore, nothing is contained in the NHB Act or the RBI Act that

accords an FD's trust status with a housing finance company. Although the

legislator intended to identify a trust under the NHB Act, they unequivocally

expressed this within the provision's language. For instance, Section 16B of

the NHB Act speaks of amounts and securities "to be held in trust". There is

no such equivalent stipulation for depositors such as the Appellants.

(ii) The supposed terms of the license under the NHB Act and RBI Act do not, and cannot, govern the functioning of the Erstwhile CD during CIRP.

8.7 The Appellants have argued that as a part of its operations as a going

concern, the Erstwhile CD needed to repay deposits by the terms of its license.

In this regard, the Appellants primarily rely upon Sections 29 A(4)(a), 29 A(6)

of the NHB Act, Section 45-1A of the RBI Act, Directions 18, 39 of the Housing

Company Appeal (AT) (Insolvency) No. 759 & 760 of 2021 27 of 65 Finance Companies (NHB) Directions, 2010, and Directions 38, 39 of the Non-

Banking Financial Companies Acceptance of Public Deposits (Reserve Bank)

Directions, 2016. However, at the outset, it is clarified that none of these

provisions contemplates survival of the terms of the license where the

Company is undergoing CIRP as per IBC.

8.8 The provisions referenced by the Appellants are myopic. They do not

contemplate that a company undergoing CIRP may not fulfil the conditions of

the license to keep afloat as a going concern. For instance, Section 29 A of the

NHB Act requires a housing finance company to have "adequate capital

structure and earning prospects". In consideration of such terms and

conditions of a license that an FSP (such as the Erstwhile CD) may be unable

to fulfil, the FSP Rules specifically state in Rule 5(b)(ii), that "the license or

registration which authorises the financial service provider to engage in the

business of providing financial services shall not be suspended or cancelled

during the interim-moratorium and the corporate insolvency resolution

process." The only reason for including such a provision within the FSP Rules

is in contemplation of a scenario where the terms of the original license cannot

be fulfilled, and yet, the FSP must carry on as a going concern.

8.9 Given those above, it is stated that the deposits were hit by the

operation of Section 14 of the IBC. Therefore, alienation of the same militates

against the objective of having a calm period where the Corporate Debtor's

assets remain untouched. Further, to say that Corporate Debtor undertaking

actions to its benefit must also undertake activities to its detriment would be

Company Appeal (AT) (Insolvency) No. 759 & 760 of 2021 28 of 65 contrary to the principle of maximisation of the value of the Corporate

Debtor's assets. It is submitted that repayment of deposits to FD holders

cannot fall within the ambit of the "ordinary course of business." As such, on

a harmonious construction of Sections 14, 20 and 25 of the IBC, it is stated

that the Administrator was obligated to keep the Company as a going concern

while ensuring that the Erstwhile CD's assets remain protected. ; Power Grid

Corporation of India Ltd. v. Jyoti Structures Ltd., 2017 SCC OnLine Del 12189

[Para 10]; Case 10: P. Mohanraj & Ors. v. Shah Brothers Ispat Private Limited,

(2021) 6 SCC 258 [Para 30])

9. The Appellants are not entitled to full payment under the Resolution Plan, which is entirely compliant with the law.

9.1 As dissenting financial creditors, under Section 30(2) of the IBC, the

Appellants are only entitled to an amount not less than the amount they

would receive by Section 53 of the IBC in the event of liquidation of a

Corporate Debtor. Clause 1.2 of the Financial Proposal of the Resolution Plan

provides for the same.

9.2 Further, the Appellants, being Financial Creditors, cannot demand

preferential treatment under the Code or any allied rules and regulations. No

exception has been carved out for FD holders under the Code or otherwise to

claim preference or better rights of payments. Therefore, allowing a full refund

to one class of Financial Creditors will not be in the overall interest of the

composite resolution/ revival of the Corporate Debtor under the Scheme of

the Code. It would be contrary to the Code to accord such a superior status

Company Appeal (AT) (Insolvency) No. 759 & 760 of 2021 29 of 65 to FD holders alone. It would be untenable to grant different treatment to FD

holders, as this would create a separate sub-class of creditors. ( Chitra

Sharma v Union of India, (2018) 18 SCC 575 (Para 48.1, 48.2]). The Appellants

had been aware of the risks associated with their investment with the

Erstwhile CD. When making their investments, the Appellants were informed

that their deposits are unsecured and pari-passu with other unsecured

liabilities (except the floating charge created under Section 29 B of the NHB

Act) repayment of deposits is guaranteed by RBI or NHB.

10. The instant case does not warrant any interference of the Appellate

Tribunal in law or equity.

10.1 Under the framework of the IBC, the commercial wisdom of the CoC

reigns supreme. In view of this, the Hon'ble Supreme Court held that the Ld.

NCLT does not have the power to modify the terms of the Resolution Plan but

can direct the CoC to reconsider the terms of the Resolution Plan. (Jaypee

Kensington Boulevard Apartments v. NBCC India Ltd. & Ors., 2021 SCC

OnLine SC 253). Vide the Plan Approval Order, the Ld. NCLT has already

acted in line with the decision of the Hon'ble Supreme Court and directed the

CoC to reconsider repayment in full. However, the Coc, in its commercial

wisdom, was not inclined to do so. Without prejudice to the preceding, even if

there appear to be equitable considerations in the instant case, it is well

settled that neither the Ld. NCLT, nor this Appellate Tribunal ought to act as

a court of equity. This is more so where there has been a resounding decision

of the CoC, as in the instant case. ( K. Sashidhar v Indian Overseas Bank &

Ors., (2019) 12 SCC 150 (Para 55-56]). Moreover, the mismanagement of the

Company Appeal (AT) (Insolvency) No. 759 & 760 of 2021 30 of 65 Erstwhile CD has caused hardship to several stakeholders who have

expended time and effort in the CIRP of the Erstwhile CD. Such other parties'

legitimate expectation is that the culminated CIRP is not reopened after

implementing the approved Resolution Plan.

11. The Resolution Plan is compliant with Rule 5(1)(d) of the FSP Rules

11.1 The erstwhile Successful Resolution Applicant, by Rule 5(1)(d) of the

FSP Rules, has comprehensively showcased its expertise and experience in

engaging in the business of a financial service provider as contained in the

Analysis

12.1 Learned Counsel for the Appellant submits that Rule 5(d) of Financial

Service Providers Rules, 2019 mandates that the Resolution Plan include a

statement explaining how the Resolution Plan satisfies or intends to satisfy

the requirements of engaging in the business of the FSP. Resolution Plan fails

to include a message explaining how it plans to meet the needs of engaging in

the business of an FSP, especially concerning the repayment of deposits.

Further, the plan should comply with existing laws governing the entity's

actions --further, the interest as per the terms of the deposit made by the FD

Holders.

12.2 Further, the Resolution Plan must contain provisions for complete

repayment to poor and helpless depositors; otherwise, it would be held for any

oblique purpose, which cannot be countenanced in law. The Hon'ble Supreme

Court has held that the provisions of the RBI Act requiring payments to be

made to depositors in total are a mandatory provision of law, which cannot

Company Appeal (AT) (Insolvency) No. 759 & 760 of 2021 31 of 65 be contracted out. The Ld. Counsel refers to the case of Integrated Finance Co.

Ltd. v. RBI, reported in (2015) 13 SCC 772 wherein at para 52 and 56 Hon'ble

Supreme Court has observed that;

"52. We, therefore, endorse the opinion expressed by the High Court that the Scheme has been introduced only with a view to avoid repayment to the small depositors as it contemplates that instead of repaying of amount in accordance with the terms and conditions of the deposit, such amount shall be considered as convertible debentures with interest @ 6%, which would be converted into equity shares within a period of one year. Such a provision is clearly contrary to the mandatory requirements under Section 45-QA(1) which requires that:

"45-QA. (1) Every deposit accepted by a non-banking financial company, unless renewed, shall be repaid in accordance with the terms and conditions of such deposit."

This ingenious effort by the appellants in fact justifies the insertion of the amendment, which has been obviously incorporated with a view to protect the depositors and to avoid exploitation of these hapless and poor depositors from exploitation by the non-banking financial institutions, such as the Appellant. It is for this reason that Chapter III-B clearly provides that the provisions contained therein shall override all other laws, which are inconsistent with the same. This will also be applicable to Sections 391-394 of the Companies Act.

56. We are unable to accept the aforesaid submission. The aforesaid observations reiterate the settled position of law that a scheme duly sanctioned after fulfilling all the legal formalities would be binding on all the shareholders. In the present case,

Company Appeal (AT) (Insolvency) No. 759 & 760 of 2021 32 of 65 the Scheme is in the teeth of Section 45-Q and it has rightly not been approved by the High Court. This apart, the Scheme has been rightly held to be lacking bona fides, as well as being contrary to public policy. It has been proposed with the oblique purpose of avoiding the mandate of Section 45-QA(1) of the RBI Act."

12.3 The Appellants contended that the Hon'ble Supreme Court in the case

mentioned above has held that Sections 45Q and 45QA, Reserve Bank of India

Act, 1934, overrides Sections 391 and 394 of the Companies Act, 1956.

Hon'ble Supreme Court has held that Chapter IIIB of RBI Act inserted by Act

No. 55 of 1963 w.e.f. December 1 1964, being a later enactment, clearly has

to prevail over the Companies Act, 1956. Hon'ble Supreme Court has further

held that there is no justification for lessening the scope of the applicability

of the non-obstante clause in Section 45Q of the RBI Act.

12.4 The overriding effect extends to any other law for the time being in force

and to any instrument having effect by such law. The reasons for giving such

categorical overriding effect are evident from the objects and reasons given in

the amendment Act viz. the magnitude of the exploitations of the poor sections

of the society, leading to utter destruction of innumerable families was the

underlying impetus to bring NBFC under strict control of Companies Act,

1956. Accordingly, Hon'ble Supreme Court has held that Chapter III B of the

RBI Act is a self-contained Code.

12.5 Hon'ble Supreme Court has further held that submissions of the

Appellant that Section 45QA of the RBI Act is in pari materia if not identical

Company Appeal (AT) (Insolvency) No. 759 & 760 of 2021 33 of 65 with Section 58A of the Companies Act cannot be accepted. Further, suppose

a scheme of arrangement is not prohibited under the latter Section in that

case; it cannot be prohibited under the former, i.e. Section 45QA of the RBI

Act cannot also be accepted.

12.6 The allocation of the Resolution Amount is contrary to law, and the

Resolution Plan/resolutions passed by the CoC to the extent that the FD.

Holders are not required to be paid by the terms of their deposit are illegal.

Any stipulation under the Resolution plan or as per the approved minutes of

the CoC provides that the FD's claims. Holders shall be extinguished upon

payment as per the Resolution Plan, are entirely illegal, violative of law, and

cannot be sustained.

12.7 Appellants submit that the relevant parts of the Resolution Plan

extinguish the resolution applicant's liability to repay the depositors in full

are illegal and liable to be set aside. It was the statutory obligation of the RBI

and the National Housing Bank to ensure that the deposits of the Appellants

were protected. The newly inserted Sections 45-ID, 45-IE and 45-MBA of the

RBI Act empowers the RBI to secure the general public interest and take

action in the public interest. Importantly, to ensure the public interest, by

Section 45-MBA of the RBI Act, the RBI was also empowered to resolve an

NBFC without prejudice to the powers already existing other laws, including

not limited to the IBC. This power of the RBI under the Finance Act, 2019 was

included after the enactment of the IBC in part II-B of the RBI Act, which

contains a non-obstante clause. Thus, the statutory power of the RBI was

Company Appeal (AT) (Insolvency) No. 759 & 760 of 2021 34 of 65 coupled with a duty to protect the small investors, being the Appellants

herein, overriding anything to the contrary in IBC.

12.8 Relevant provisions of the RBI Act is given here for ready reference;

"45-Q. Chapter III-B to override other laws6.--The provisions of this Chapter shall have effect notwithstanding anything inconsistent therewith contained in any other law for the time being in force or any instrument having effect by virtue of any such law.

[45-QA. Power of Company Law Board to order repayment of deposit.--(1) Every deposit accepted by a non- banking financial company, unless renewed, shall be repaid in accordance with the terms and conditions of such deposit.

(2) Where a non-banking financial company has failed to repay any deposit or part thereof in accordance with the terms and conditions of such deposit, the Company Law Board constituted under Section 10-E of the Companies Act, 1956 (1 of 1956) may, if it is satisfied, either on its own motion or on an application of the depositor, that it is necessary so to do to safeguard the interests of the Company, the depositors or in the public interest, direct, by Order, the non-banking financial Company to make repayment of such deposit or part thereof forthwith or within such time and subject to such conditions as may be specified in the Order:

Provided that the Company Law Board may, before making any order under this sub-section, give a reasonable opportunity of being heard to the non-banking financial Company and the other persons interested in the matter.

6 45QA and 45QB inserted by Act No.23 of 1997 w.e.f. 09.01.1997

Company Appeal (AT) (Insolvency) No. 759 & 760 of 2021 35 of 65 [45-MB. Power of Bank to prohibit acceptance of deposit and alienation of assets.--(1) If any non-banking financial company violates the provisions of any section or fails to comply with any direction or Order given by the Bank under any of the provisions of this Chapter, the Bank may prohibit the non- banking financial Company from accepting any deposit.

(2) Notwithstanding anything to the contrary contained in any agreement or instrument or any law for the time being in force, the Bank, on being satisfied that it is necessary so to do in the public interest or in the interest of the depositors, may direct, the non-banking financial Company against which an order prohibiting from accepting deposit has been issued, not to sell, transfer, create charge or mortgage or deal in any manner with its property and assets without prior written permission of the Bank for such period not exceeding six months from the date of the Order.]

[45-MBA. Resolution of non-banking financial Company.--(1) Without prejudice to any other provision of this Act or any other law for the time being in force, the Bank may, if it is satisfied, upon an inspection of the Books of a non-

banking financial company that it is in the public interest or in the interest of financial stability so to do for enabling the continuance of the activities critical to the functioning of the financial system, frame schemes which may provide for any one or more of the following, namely--

(a) amalgamation with any other non-banking institution;

(b) reconstruction of the non-banking financial Company;

Company Appeal (AT) (Insolvency) No. 759 & 760 of 2021 36 of 65 (c) splitting the non-banking financial Company into

different units or institutions and vesting viable and non- viable businesses in separate units or institutions to preserve the continuity of the activities of that non- banking financial company that are critical to the functioning of the financial system and for such purpose establish institutions called "Bridge Institutions".

Explanation.--For the purposes of this sub-section, "Bridge Institutions" mean temporary institutional arrangement made under the Scheme referred to in this sub-section, to preserve the continuity of the activities of a non-banking financial company that are critical to the functioning of the financial system.

(2) Without prejudice to the generality of the foregoing provisions, the Scheme referred to in sub-section (1) may provide for--

(a) reduction of the pay and allowances of the chief executive officer, managing director, chairman or any officer in the senior management of the non-banking financial Company;

(b) cancellation of all or some of the shares of the non- banking financial Company held by the chief executive officer, managing director, chairman or any officer in the senior management of the non-banking financial Company or their relatives;

(c) sale of any of the assets of the non-banking financial Company.

(3) The chief executive officer, managing director, chairman

or any officer in the senior management of the non-banking financial Company whose pay and allowances are reduced or

Company Appeal (AT) (Insolvency) No. 759 & 760 of 2021 37 of 65 the shareholders whose shares are cancelled under the Scheme shall not be entitled to any compensation.]

[45-MC. Power of Bank to file winding-up petition.--(1) The Bank, on being satisfied that a non-banking financial company--

(a) is unable to pay its debt; or (b) has by virtue of the provisions of Section 45-IA

become disqualified to carry on the business of a non- banking financial institution; or

(c) has been prohibited by the Bank from receiving deposit by an order and such Order has been in force for a period of not less than three months; or

(d) the continuance of the non-banking financial Company is detrimental to the public interest or to the interest of depositors of the Company, may file an application for winding up of such non-banking financial Company under the Companies Act, 1956 (1 of 1956).

(2) A non-banking financial company shall be deemed to be unable to pay its debt if it has refused or has failed to meet within five working days any lawful demand made at any of its offices or branches and the Bank certifies in writing that such Company is unable to pay its debt.

(3) A copy of every application made by the Bank under sub- section (1) shall be sent to the Registrar of Companies. (4) All the provisions of the Companies Act, 1956 (1 of 1956) relating to winding-up of a company shall apply to a winding- up proceeding initiated on the application made by the Bank under this provision.] *******

Company Appeal (AT) (Insolvency) No. 759 & 760 of 2021 38 of 65 12.9 According to the Appellant stand of the RBI in other proceedings is not

relevant before this Appellate Tribunal. The RBI's stand in washing away its

obligation to repay the depositors in full and follow its mandate under the RBI

Act to protect depositors is contrary to law. The RBI is obligated by its duty

coupled with its power to ensure that the depositors are protected.

12.10 The Appellants contends that Section 238 does not override any

requirement that the law governing the actions of DHFL must be followed. The

CoC seeks to evade repayment to FD. Holders are claiming exemption under

the IBC and claiming that in terms of Section 238 of the IBC, the provisions

of IBC will override the other provisions of law. However, there is no provision

in the IBC that FD Holders are not required to be paid as per the terms

complying with the provisions of law. Therefore, there is no inconsistency

between the provisions of the IBC and other provisions of law requiring

repayment to deposit holders as per the terms and conditions of their deposit.

12.11 As such, the provisions of the NHB Act, 1987 and the RBI Act, 1935

expressly stipulate that every deposit taken by a housing finance institution

or a non-banking financial institution has to be repaid according to the terms

and conditions of the deposit. There is no provision in the IBC that provides

to the contrary, and therefore, there is no overlap in the requirements for

section 238 of the IBC to kick in. In any case, the Court would first endeavour

to give a harmonious construction to the seemingly inconsistent provisions

(MCGM v. Abhilash Lal, Civil Appeal No. 6530 of 2019 dated 15.11.2019 (p.

838, para 45 at p.892)]

Company Appeal (AT) (Insolvency) No. 759 & 760 of 2021 39 of 65 12.12 The Appellant contended that the Money of the Appellants was

deposited in trust with the Respondent. The FD. Holders have entrusted

their money with DHFL, which assets belong to the FD. Holders, which are in

the custody and possession of DHFL. The amounts held in trust for the benefit

of the Appellants cannot be illegally misappropriated. They cannot be

subjected to the moratorium or the resolution process (Rule 10, FSP Rules).

A deposit by the depositor is not a sum lent to the Company but is a sum

deposited with the Company to be held in trust until maturity. Therefore, it is

not a loan in the strict sense of the term. (Deepak Insulated Cable v. UOI,

2000 SCC Online Kar 831 (at p. 1288, para 9 at p. 1289 of compilation); Vijay

Mills Co v. State of Gujarat, 1989 SCC OnLine Guj 122 ( para 4).

12.13 In response to the argument of the Appellant, the Learned Senior

Counsel for Respondent CoC submits that there is no provision in the RBI

Act, the NHB Act, or any other law that mandates that depositors have to be

paid in full.

12.14 A plain reading of Sections 29 A(6), Section 29 A(4)a), 36 and 36 A of

the National Housing Bank Act, 1987 ("NHB Act"), read with para 39 of the

Housing Finance Companies (NHB) Directions, 2010 ("NHB Directions"), as

well as sections 45Q and 45QA of the RBI Act read with para 39 of RBI Master

Direction on Non- Banking Financial Companies Acceptance of Public

Deposits (Reserve Bank) Directions, 2016 ("RBI Directions") makes it amply

clear that none of the enactments guarantees full payment to the FD. Holders.

Company Appeal (AT) (Insolvency) No. 759 & 760 of 2021 40 of 65 12.15 RBI also acknowledged the same in its replies to the Writ Petitions

filed by FD. Holders before the Hon'ble Delhi High Court and the Hon'ble

Bombay High Court.

12.16 The RBI Act and the NHB Act merely provide that the license of an

HFC7 or NBFC8 may be cancelled if the deposit holders are not paid, and such

a decision can be taken only after allowing the concerned Housing Finance

Companies or NBFC to present its case. None of the legislation provides that

the FD. Holders are required to be paid in full, and hence the Appeals proceed

on an incorrect interpretation of law with a view to mislead this Tribunal.

12.17 Further, the Banning of Unregulated Deposit Schemes Act, 2019

("BUDSA") enacted on July 19, 2019, to protect the interests of the depositors

also gives primacy to the Code and clearly states that that the rights of the

FD Holders will have priority save otherwise as provided under the Code.

12.18 The Learned Senior Counsel for Respondent No. 3 submits that

amounts deposited by the FD Holders were not held in trust by DHFL. The

legal position of the FD Holders with DHFL are not akin to the National

Housing Bank. The FD Holders has not taken the said argument before the

NCLT. They are agitating an entirely new argument that ought not to be

permitted by this Tribunal.

12.19 Rule 10 of the FSP Rules9 is only applicable in situations where the

assets of third parties are held in trust by the Corporate Debtor. The Holders

7 Housing Finance Company 8 Non Banking Finance Company 9

Company Appeal (AT) (Insolvency) No. 759 & 760 of 2021 41 of 65 of FD have failed to produce any documentation or law which shows that FD

Holders deposited the funds are assets held in trust. Consequently, there is

no legal justification whatsoever given by the Appellants / FD Holders.

Instead, holders failed to show that the money deposited by them was held in

trust by DHFL or that the amounts held by DHFL were not assets of DHFL.

Thus Rule 10 of the 'FSP Rules' is inapplicable about the amounts deposited

by FD Holders.

12.20 Further, the Appellants' reliance on the Orders passed by the NCLT in

the IA 1104/2020 filed by the National Housing Bank ("NHB") is misplaced.

The Appellant contends that Section 16B of the NHB Act creates a statutory

trust favouring the NHB for the amounts advanced by NHB to DHFL as

Section 16B states that the amounts are being held in trust.

12.21 Further, Section 16B of the NHB Act is completely inapplicable to FD

Holders. Therefore, the Appellants have made a baseless claim.

12.22 Respondent No.3 represented the amounts deposited by the FD.

Holders in DHFL are shown as liabilities in the balance sheet of DHFL and

the FD. Holders are financial creditors of DHFL and have been treated

accordingly. Thus, the bald, unsupported and misleading contention of the

Appellants that the amount payable to FD Holders are held in trust by DHFL

is entirely fictional and ought not to be entertained.

12.23 It is pertinent to mention that there is no provision in either the RBI

Act, the NHB Act, or any other law that mandates that depositors have to be

Company Appeal (AT) (Insolvency) No. 759 & 760 of 2021 42 of 65 paid in full. Sections 29 A(6), 29 A(4)(a), 36 and 36 A of National Housing

Bank Act, 1987. The relevant statutory provision is given below for ready

reference:

"[29-A. Requirement of registration and net owned fund.-- [(1) Notwithstanding anything contained in this Chapter or in any other law for the time being in force, no housing finance institution which is a company shall commence housing finance as its principal business or carry on the business of housing finance as its principal business without--

(a) obtaining a certificate of registration issued under this Chapter; and

(b) having the net owned fund of ten crore rupees or such other higher amount, as the Reserve Bank may, by notification, specify.

(2) Every housing finance institution which is a company shall make an application for registration to the Reserve Bank in such form as may be specified by the Reserve Bank:

Provided that an application made by a housing finance institution which is a company to the National Housing Bank and pending for consideration with the National Housing Bank as on the date of commencement of the provisions of Part VII of Chapter VI of the Finance (No. 2) Act, 2019, shall stand transferred to the Reserve Bank and thereupon the application shall be deemed to have been made under the provisions of this sub-section and shall be dealt with accordingly:

Provided further that the provisions of this sub-section shall not apply to the housing finance institution which is a company and having a valid registration certificate granted under sub-section

Company Appeal (AT) (Insolvency) No. 759 & 760 of 2021 43 of 65 (5) on the date of commencement of the provisions of Part VII of Chapter VI of the Finance (No. 2) Act, 2019, and such housing finance institution shall be deemed to have been granted a certificate of registration under the provision of this Act.] [* * *]

(4) The [Reserve Bank], for the purpose of considering the application for registration, may require to be satisfied by an inspection of the books of such housing finance institution or otherwise that the following conditions are fulfilled:--

(a) that housing finance institution is or shall be in a position to pay its present or future depositors in full as and when their claims accrue;

(b) that the affairs of the housing finance institution are not being or are not likely to be conducted in a manner detrimental to the interest of its present or future depositors;

(c) that the general character of the management or the proposed management of the housing finance institution shall not be prejudicial to the public interest or the interests of its depositors;

(d) that the housing finance institution has adequate capital structure and earning prospects;

(e) that the public interest shall be served by the grant of certificate of registration to the housing finance institution to commence or to carry on the business in India;

Company Appeal (AT) (Insolvency) No. 759 & 760 of 2021 44 of 65

(f) that the grant of certificate of registration shall not be prejudicial to the operation and growth of the housing finance sector of the country; and

(g) any other condition, fulfilment of which in the opinion of the [Reserve Bank], shall be necessary to ensure that the commencement of or carrying on the business in India by a housing finance institution shall not be prejudicial to the public interest or in the interests of the depositors:

[Provided that the Reserve Bank may, wherever it considers necessary so to do, require the National Housing Bank to inspect the books of such housing finance institution and submit a report to the Reserve Bank for the purpose of considering the application.]

(5) The [Reserve Bank] may, after being satisfied that the conditions specified in sub-section (4) are fulfilled, grant a certificate of registration subject to such conditions which it may consider fit to impose.

(6) The [Reserve Bank] may cancel a certificate of registration granted to a housing finance institution under this Section if such institution--

(i) ceases to carry on the business of a housing finance institution in India; or

(ii) has failed to comply with any condition

subject to which the certificate of registration had been issued to it; or

(iii) at any time fails to fulfil any of the conditions referred to in clauses (a) to (g) of sub-

section (4); or

Company Appeal (AT) (Insolvency) No. 759 & 760 of 2021 45 of 65

(iv)

(a) fails to comply with any direction issued by the [Reserve Bank or the National Housing Bank] under the provisions of this Chapter; or

(b) to maintain accounts in accordance with the requirement of any law or any direction or Order issued by the 60[Reserve Bank or the National Housing Bank] under the provisions of this Chapter; or

(c) to submit or offer for inspection its books of account and other relevant documents when so demanded by an inspecting authority of the 61[Reserve Bank or the National Housing Bank];

or

(v) has been prohibited from accepting deposit by an order made by the National Housing Bank under the provisions of this Chapter and such Order has been in force for a period of not less than three months:

Provided that before cancelling a certificate of registration on the ground that the [housing finance institution which is a company] has failed to comply with the provisions of clause (ii) or has failed to fulfil any of the conditions referred to in clauses (a) to (g) of sub- section (4), the [Reserve Bank], unless it is of the opinion that the delay in cancelling the certificate of registration shall be prejudicial to public interest or the interest of the depositors or the [housing finance institution which is a company], shall give an opportunity to such

Company Appeal (AT) (Insolvency) No. 759 & 760 of 2021 46 of 65 institution on such terms as the [Reserve Bank] may specify for taking necessary steps to comply with such provision or fulfilment of such condition:

Provided further that before making any order of cancellation of certificate of registration, such institution shall be given a reasonable opportunity of being heard.

(7) A housing finance institution aggrieved by the Order or rejection of application for registration or cancellation of certificate of registration may prefer an appeal, within a period of thirty days from the date on which such Order of rejection or cancellation is communicated to it, to the Central Government and the decision of the Central Government where an appeal has been preferred to it, or of the 66[Reserve Bank] where no appeal has been preferred, shall be final:

Provided that before making any order of rejection of Appeal, such institution shall be given a reasonable opportunity of being heard.

Explanation.--For the purposes of this Section,--

(I) "net owned fund" means-- (a) the aggregate of the paid-up equity capital and free

reserves as disclosed in the latest balance sheet of the housing finance institution after deducting therefrom--

(i) accumulated balance of loss; (ii) deferred revenue expenditure; and (iii) other intangible assets; and (b) further reduced by the amounts representing-- (1) investments of such institution in shares of-- (i) its subsidiaries;

Company Appeal (AT) (Insolvency) No. 759 & 760 of 2021 47 of 65 (ii) companies in the same group;

[(iii) all other housing finance companies; and]

(2) the book value of debentures, bonds, outstanding loans and advances (including hire-purchase and lease finance) made to, and deposits with,--

(i) subsidiaries of such Company; and (ii) companies in the same group, to the extent such amount exceeds ten per cent of (a) above;

[(II) the expressions "subsidiaries" and "companies in the same group" shall have the meanings respectively assigned to them in the Companies Act, 2013 (18 of 2013):

Provided that the National Housing Bank shall, in consultation with the Reserve Bank, specify the companies to be deemed to be in the same group.]

29(4) The [Reserve Bank], for the purpose of considering the application for registration, may require to be satisfied by an inspection of the books of such housing finance institution or otherwise that the following conditions are fulfilled:--

(a) that housing finance institution is or shall be in a position to pay its present or future depositors in full as and when their claims accrue;

36. Chapter V to override other laws.--The provisions of this Chapter shall have effect notwithstanding anything inconsistent therewith contained in any other law for the time being in force or any instrument having effect by virtue of any such law.

Company Appeal (AT) (Insolvency) No. 759 & 760 of 2021 48 of 65 [36-A. Power to order repayment of deposit.--(1) Every deposit accepted by a housing finance institution which is a company unless renewed, shall be repaid in accordance with the terms and conditions of such deposit.

(2) Where a housing finance institution which is a company has failed to repay any deposit or part thereof in accordance with the terms and conditions of such deposit, such officer of the National Housing Bank, as may be authorised by the Central Government for the purpose of this Section (hereinafter referred to as the "authorised officer") may, if he is satisfied, either on his own motion or on any application of the depositor, that it is necessary so to do to safeguard the interests of the housing finance institution, the depositors or in the public interest, direct, by order, such housing finance institution to make repayment of such deposit or part thereof forthwith or within such time and subject to such conditions as may be specified in the Order:

Provided that the authorised officer may, before making any order under this sub-section, give a reasonable opportunity of being heard to the housing finance institution and the other persons interested in the matter."

12.24 Further, it is necessary to point out that RBI Act and the NHB Act

merely provide that the licence of a Housing Finance Corporation and Non-

Banking Finance Corporation may be cancelled if the deposit holders are not

paid. Such a decision can be taken only after giving the concern HFC or NBFC

and the opportunity to present its case. None of the legislation provides that

FD. Holders are required to be paid in full. Hence the Appellant's contention

is based on an incorrect interpretation of the law.

Company Appeal (AT) (Insolvency) No. 759 & 760 of 2021 49 of 65 12.25 The Learned Senior Counsel for the Appellant represented that the

amount deposited by FD. Holders were held in trust by DHFL. In response to

the above contentions, the Ld. Sr. Counsel for CoC submits that Rule 10 of

the Insolvency and Bankruptcy (Insolvency and Liquidation Proceedings of

FSPs and Application to Adjudicating Authority) Rules, 201910 only applicable

in situations where assets of third parties are held in trust by the Corporate

Debtor.

12.26 FD Holders have not filed any documents to show that amount

deposited by the FD. Holder was assets held in trust. Therefore, there is no

legal justification whatsoever given by the Appellant/FD Holder to show that

the money deposited by them was held in trust by DHFL and the amount held

by DHFL were not assets of DHFL. Thus, Rule 10 of FSP Rules is inapplicable

about the amount deposited by FD Holder.

12.27 The Learned Senior Counsel representing CoC submits that no full

payment right exists under the NHB Act, the RBI Act, or any other

subordinate legislation. Moreover, even if it exists, any such request would be

wholly repugnant to provisions of the Code, which provide for a specific

manner and priority of payment; hence will not be applicable in terms of S.

238 of the Code. The minimum amount a creditor is mandatorily required to

be paid in a Resolution Plan, i.e. liquidation value.

10

FSP Rules

Company Appeal (AT) (Insolvency) No. 759 & 760 of 2021 50 of 65 12.28 Further, it is well-established law that when two special statutes

contain a non-obstante clause, the latter will prevail over the earlier statute.

In case of any inconsistency between the provision of the Code and any other

enactment, the provision of the Code will prevail. Therefore, provisions of the

Insolvency and Bankruptcy Code enacted later will override effect over the

NHB Act and the RBI Act by the non-obstante clause.

12.29 In the case of Innoventive Industries Limited vs ICICI Bank (2018) 1

SCC 407, the Hon'ble Supreme Court has held that in case of any

inconsistency between the provisions of Code and any other law, the

provisions of the Code shall prevail. Therefore, Insolvency & Bankruptcy Code

which was enacted later, will override the NHB Act and RBI Act by the non-

obstante clause of Section 238 of the Code.

12.30 The Learned Counsel for the Appellant refers to the case of Integrated

Finance Company Vs Reserve Bank of India (2015) 13 SCC 772 wherein at

para 49,50 Hon'ble Supreme Court has observed that;

"49. In our opinion, Chapter III-B has been given an overriding effect over all other laws including the Companies Act by incorporating Section 45-Q with a clear intention to ensure that in a case of NBFC, a Scheme under Section 391 of the Companies Act cannot be entertained unless it is in conformity with the provisions of Section 45-QA of the RBI Act.

50. We may briefly notice here the judgments relied on by the learned counsel for the Appellant in support of the submission that the non obstante clause in Section 45-Q of the RBI Act will not have an overriding effect over Sections 391-394 of the

Company Appeal (AT) (Insolvency) No. 759 & 760 of 2021 51 of 65 Companies Act. Reliance was placed on Aswini Kumar Ghose [AIR 1952 SC 369] ; Madhav Rao Jivaji Rao Scindia [(1971) 1 SCC 85] ; A.G. Varadarajulu [(1998) 4 SCC 231] ; Icici Bank Ltd. [(2006) 10 SCC 452] ; RS Raghunath [(1992) 1 SCC 335 : 1992 SCC (L&S) 286 : (1992) 19 ATC 507] and JIK Industries Ltd. [(2012) 3 SCC 255 : (2012) 2 SCC (Civ) 82 : (2012) 2 SCC (Cri) 125] The said cases undoubtedly reiterate the settled law on the manner in which a particular non obstante clause ought to be interpreted. In Aswini Kumar Ghose [AIR 1952 SC 369] , this Court held that:

"16. ... a non obstante clause [must be construed strictly and] the Court must try to find the extent to which the legislature had intended to give one provision overriding effect over another provision." (A.G. Varadarajulu case [(1998) 4 SCC 231], SCC p. 236, para 16)."

12.31 The above case relates to the period before the I & B Code's enactment

and pertains to the Scheme and arrangements under the Companies Act,

2013; hence not applicable to the present case.

12.32 Appellants case that the amount of fixed deposit held by the Bank

as a trustee is the property of the customer held by the Bank as a trustee

is negated by the recent observation in para 44 of the Judgment of the Hon'ble

Supreme Court in the case of N. Raghavender v state of Andhra Pradesh, CBI

reported in 2021 SCC online SC 1232.

12.33 In this case, Hon'ble Supreme Court has observed that;

"As already clarified by us, to prove the charge under Section 409 IPC, the prosecution need not prove the exact manner of

Company Appeal (AT) (Insolvency) No. 759 & 760 of 2021 52 of 65 misappropriation. Once the 'entrustment' is admitted or proved, as has been done in the present case, the onus lies on the Accused to prove that the entrusted property was dealt by him in an acceptable manner. Thus, misappropriation with this dishonest intention is one of the most important ingredients of proof of 'criminal breach of trust'. The offence under Section 409 IPC can be committed in varied manners, and as we are concerned with its applicability in the case of a bank officer, it is fruitful to point out that the banker is one who receives money to be drawn out again when the owner has occasion for it. Since the present case involves a conventional bank transaction, it may be further noted that in such situations, the customer is the lender and the Bank is the borrower, the latter being under a super added obligation of honouring the customer's cheques up to the amount of the money received and still in the banker's hands. The money that a customer deposits in a bank is not held by the latter on trust for him. It becomes a part of the banker's funds who is under a contractual obligation to pay the sum deposited by a customer to him on demand with the agreed rate of interest. Such a relationship between the customer and the Bank is one of a creditor and a debtor. The Bank is liable to pay money back to the customers when called upon, but until it's called upon to pay it, the Bank is entitled to utilise the money in any manner for earning profit."

(emphasis supplied)

12.34 Further, in the case of Jaypee Kensington Boulevard Apartments

Welfare Association v NBCC(India) Ltd ..., 2021 SCC OnLine SC 253 in

Paragraphs 56 to 59 Hon'ble Supreme Court has observed that;

Company Appeal (AT) (Insolvency) No. 759 & 760 of 2021 53 of 65 "56. ICICI Bank Counsel has argued that money is fungible therefore unless money has gone out from JAL for repayment, it can't be said as money deposited by JIL is the money payable to JIL homebuyers.

57. No doubt money is fungible, but obligation to repay is not fungible, therefore when money is deposited or clawed back to repay it to the creditor, the money being fungible and there being an obligation for repayment, it can no more be considered as money owned by the debtor. Though JAL is per se not a debtor to the Homebuyers, when money has come on behalf of the debtor in relation to a debt obligation or for discharge of an obligation, the person deposited it towards that obligation cannot subsequently say that he is the owner of the money, therefore entitled for return of it.

58. If trust concept is examined, we will know that trust is a relationship where property/money held by one party for the benefit of another party. Trustee holds the property/money for the benefit of the trust beneficiaries. Trustee is under fiduciary duty to ensure that the property of the owner is maintained and the benefit thereof is reached to the persons to whom it is intended to. In the case of trust, the owner is under no obligation to pass on the benefit to the beneficiary, therefore, the owner/settler being the owner of the property, he is entitled to take it back in the event it is not utilised for the purpose the owner intended to. But that is not the case when money from the debtor or on behalf of the debtor has gone out towards discharge of an obligation. In the case of trust, ownership of that property or money remains with the owner as long as it is not utilised for the purpose intended to. That owner has no obligation to part with his property/money.

Company Appeal (AT) (Insolvency) No. 759 & 760 of 2021 54 of 65

59. In case of homebuyers' issue, once homebuyers entered into an agreement with a developer and when their relations entered into turbulence and not in a position to become normal, the relation in between them will become creditor and debtor and the person under obligation shall refund the money of the homebuyers. In the given case, JAL deposited money on behalf of JIL for utilisation of the same to the homebuyers of the Corporate Debtor. Therefore, it is evident that this deposit is made towards an obligation. When any money is received towards an obligation, it can neither be construed as trust money nor construed as governed by constructive trust, therefore we have not found any merit to say that this money is governed by trust concept."

12.35 Therefore, it is clear that the relationship between the customer

and the Bank is the creditor and debtor and not a trustee. The Bank is

not a trustee of money deposited by customers. In this case, the

Corporate Debtor, i.e. DHFL, took a fixed deposit from their customers

on the agreed interest on the amount invested in fixed deposits.

Therefore, the relationship of the DHFL with the fixed deposit holders is

that of a creditor and debtor and not of a trustee. The money so

deposited becomes a part of the DHFL's funds which is under a

contractual obligation to pay the sum deposited by a customer to him

and on maturity or as per the terms of the contract they were getting

agreed rate of interest. Such a relationship between the DHFL & the fixed

deposit holders is one of the creditor and debtor and not of a trustee."

Company Appeal (AT) (Insolvency) No. 759 & 760 of 2021 55 of 65 12.36 Hon'ble Supreme Court in the Committee of Creditors of Essar steel v

Satish Kumar Gupta and others reported in (2020) 8 SCC 531 has reinforced

the position that the COC is the key decision-maker in the rehabilitation of

Corporate Debtors. For the approval of the Resolution Plan, the Committee of

Creditors is to take a business decision based on ground realities by a

majority, which binds all the stakeholders, including dissentient creditors.

The Adjudicating Authority cannot interfere on merits with the commercial

decision taken by the Committee of Creditors. The limited judicial review

available is to see that the Committee of Creditors has taken into account the

fact that the Corporate Debtor needs to keep going as a going concern during

the Insolvency Resolution Process; it needs to maximise the value of its assets;

and that the interest of all stakeholders including Operational Creditors has

been taken care of.

12.37 Therefore, it is the commercial wisdom of the requisite majority of the

Committee of Creditors which is to negotiate and accept the Resolution Plan,

which may involve differential payment in different classes of creditors,

together with negotiating with the prospective Resolution Applicant for better

or different terms which may also involve differences in the distribution of

amounts between the different classes of creditors.

12.38 Having participated in the CIRP, the Appellant's cannot challenge

the action of the COC to approve the Resolution Plan, which is otherwise

in compliance with the provisions of the IBC. In the light of the Hon'ble

Supreme Court decision in Essar Steel (supra), it is unequivocally clear

Company Appeal (AT) (Insolvency) No. 759 & 760 of 2021 56 of 65 that the CoC members have the critical task of not only running the

resolution process but also working towards maximisation of value of the

Corporate Debtor for all the stakeholders, not fixed deposit holders

alone, and providing for the manner of distribution of funds as obtained

by way of a Resolution Plan. By seeking payment outside the resolution

process, the appellants who are also CoC members (other CoC members

being banks, etc. are acting in a silo for obtaining funds at the outset,

which is not only against the interest of all the stakeholders but also

against a holistic resolution for maximisation of value & distribution of

funds between different classes of creditors.

12.39 As per the decision of the Hon'ble Supreme Court in Rajendra K

Bhutta v Maharashtra Housing and Area Development Authority and others

reported in 2020 SCC online SC 292 (para 26), it is settled that provisions of

section 14 of the IBC must be strictly observed. Section 14 of IBC inter alia

prohibits alienation, transfer, disposal of any asset of the Corporate Debtor.

Since IBC is a time-bound process, every delay is the death knell for the

Corporate Debtor. The object behind imposing moratorium under Section 14

is to maintain the status quo for the Corporate Debtor so maximisation of

value of assets and laws of recovery to the creditors of the Corporate Debtor.

Therefore, any payment to the Appellant during the moratorium regarding

fixed deposits or interest would violate Section 14 of IBC.

12.40 Further, there is no rationale for treating the deposit holders as

separate classes and providing them preferential treatment. IBC already

Company Appeal (AT) (Insolvency) No. 759 & 760 of 2021 57 of 65 contains various safeguards for the public deposit holders, including an

Authorised Representative who can effectively represent that class of

creditors. The Hon'ble Supreme Court has already examined the validity of

the provisions relating to the Authorised Representative and upheld the same.

The ILC report dated October 4 2019 (para 17) contains that the depositors

in an FSP are to "be classified as financial creditors and be treated

accordingly".

12.41 The Public Deposit Holders stand on an equal footing with other

Financial Creditors of DHFL. Suppose relief, as sought by the Appellant,

seeking a refund in repayment of fixed deposits, are granted; in that case,

similar claims regarding repayment of dues will be made on behalf of NCD

holders and other creditors, which would be detrimental to the corporate

insolvency process of DHFL. Even otherwise, any monies raised during the

Resolution Process is towards keeping the business alive as a going concern

and not for out of turn or pre-resolution process claims, that too outside the

Scheme of the IBC. Moreover, if payments were to be made to fixed deposit

holders whose fixed deposits have matured, it would result in a situation

where matured fixed deposit holders would obtain a preference as a special

dispensation, as opposed to fixed deposit holders, whose fixed deposits have

not matured, thereby resulting in the differential an unequivocal treatment

within similarly situated creditors. Therefore no special dispensation ought to

be granted outside the mechanism/process envisaged under the IBC, which

provides for the commercial wisdom of the COC to reign supreme for the

distribution of funds.

Company Appeal (AT) (Insolvency) No. 759 & 760 of 2021 58 of 65 12.42 Further, Hon'ble Supreme Court in case of Jaypee Kensington

Boulevard Apartments Welfare Association v NBCC (India) Ltd ..., 2021 SCC

OnLine SC 253 has observed that;

"210. To put in a nutshell, the Adjudicating Authority has limited jurisdiction in the matter of approval of a resolution plan, which is well-defined and circumscribed by Sections 30(2) and 31 of the Code read with the parameters delineated by this Court in the decisions above-referred. The jurisdiction of the Appellate Authority is also circumscribed by the limited grounds of Appeal provided in Section 61 of the Code. In the adjudicatory process concerning a resolution plan under IBC, there is no scope for interference with the commercial aspects of the decision of the CoC; and there is no scope for substituting any commercial term of the resolution plan approved by the CoC. Within its limited jurisdiction, if the Adjudicating Authority or the Appellate Authority, as the case may be, would find any shortcoming in the resolution plan vis-à-vis the specified parameters, it would only send the resolution plan back to the Committee of Creditors, for re-submission after satisfying the parameters delineated by Code and exposited by this Court.

12.43 Further, in the case of Ebix Singapore (P) Ltd. v. Committee of Creditors

of Educomp, 2021 SCC OnLine SC 707 Hon'ble Supreme Court has observed

that;

115. A reading together of the UNCITRAL Guide and the BLRC Report clarifies, in no uncertain terms, that the procedure designed for the insolvency process is critical for allocating economic coordination between the parties who partake in, or are bound by the process. This procedure produces substantive rights and obligations. For instance, the composition of the CoC, the method and percentage of its voting, the timelines for CIRP, the obligation on the RP to file specific forms after every stage of the process and the obligation

Company Appeal (AT) (Insolvency) No. 759 & 760 of 2021 59 of 65 to explain to the Adjudicating Authority reasons for any deviations from the timeline while submitting a Resolution Plan, and other such procedural requirements create a mechanism which tightly structures the conduct of all participants in the insolvency process. This process invariably has an impact on the conduct of the Resolution Applicant who participates in the process and consents to be bound by the RFRP and the broader insolvency framework. An analysis of the framework of the statute and regulations provides an insight into the dynamic and comprehensive nature of the statute. Upholding the procedural design and sanctity of the process is critical to its functioning. The interpretative task of the Adjudicating Authority, Appellate Authority, and even this Court, must be cognizant of, and allied with that objective. The UNCITRAL Guide has echoed this position by noting the interplay between the procedural design of the insolvency law and the corresponding institutional infrastructure by observing:

"27. While the institutional framework is not discussed in any detail in the Legislative Guide, some of the issues are touched upon below. Notwithstanding the variety of substantive issues that must be resolved, insolvency laws are highly procedural in nature. The design of the procedural rules plays a critical role in determining how roles are to be allocated between the various participants, in particular in terms of decision- making. To the extent that the insolvency law places considerable responsibility upon the institutional infrastructure to make key decisions, it is essential that that infrastructure be sufficiently developed to enable the required decisions to be made."

116. Any claim seeking an exercise of the Adjudicating Authority's residuary powers under Section 60(5)(c) of the IBC, the NCLT's inherent powers under Rule 11 of the NCLT Rules 2016 or even the powers of this Court under Article 142 of the

Company Appeal (AT) (Insolvency) No. 759 & 760 of 2021 60 of 65 Constitution must be closely scrutinised for broader compliance with the insolvency framework and its underlying objective. The adjudicating mechanisms which have been specifically created by the statute, have a narrowly defined role in the process and must be circumspect in granting reliefs that may run counter to the timeliness and predictability that is central to the IBC. Any judicial creation of a procedural or substantive remedy that is not envisaged by the statute would not only violate the principle of separation of powers, but also run the risk of altering the delicate coordination that is designed by the IBC framework and have grave implications on the outcome of the CIRP, the economy of the country and the lives of the workers and other allied parties who are statutorily bound by the impact of a resolution or liquidation of a Corporate Debtor.

12.44 Hon'ble Supreme Court has observed that while exercising the

interpretative task by the Adjudicating Authority and the Appellate Authority,

the powers are limited, to the extent that infrastructure under the Code

is sufficiently developed to enable to take critical decisions for

maximisation of the value of the Corporate Debtor and to keep it as a

going concern.

12.45 The Hon'ble Supreme Court has further crystallised the powers of the

NCLT/NCLAT by specifying that under Section 60 (5) (c) of the IBC or Rule 11

of NCLT Rules, powers are limited to the extent relating to the border

compliance with the insolvency framework and its underlying objective. The

adjudicating mechanisms that have and must be cautious in granting reliefs

may run counter to the timelines and centre to the IBC. Any judicial creation

of a procedural or substantive remedy that is not envisaged raised by the

Company Appeal (AT) (Insolvency) No. 759 & 760 of 2021 61 of 65 statute would violate the principles of separation of powers and run the risk

of altering the delicate coon designed by the IBC framework.

12.46 It is important to mention that the RBI Act and the NHB Act merely

provides that the license of an HFC or NBFC may be cancelled if the deposit

holders are not paid. Such a decision can be taken only after allowing the

concerned HFC or NBFC to present its case. None of the legislation provides

that FD holders are required to be paid in full. Therefore, it is not the case of

the Appellant's that RBI is not empowered to act under the RBI Act or the FSP

Rules. The Appellants acknowledges that statutory mandate made available

to the RBI under the RBI Act and the FSP rules. However, the Appellant

wishes to advise the regulator as to the course of action that ought to have

been followed by the regulator. This is legally impermissible, misconceived

and untenable.

12.47 In the instant case, the RBI's exercise of its administrative discretion

under Section 45-IE of the RBI Act superseded the board of DHFL and

appointed Administrator. Accordingly, it decided to initiate the resolution

proceedings concerning DHFL under the IBC and not the RBI Act. Appellant's

contention is mainly about the obligation of the Administrator and the

successor in the interest of the DHFL to ensure full repayment of deposit to

have FD holders under the RBI and NHB Act. It is further contended that

there is no inconsistency between the provisions of the IBC and other

provisions of law requiring repayment to deposit holders as per the terms and

conditions of the deposit.

Company Appeal (AT) (Insolvency) No. 759 & 760 of 2021 62 of 65 12.48 The RBI Act and the NHB Act merely provides that the license of an

HFC or NBFC may be cancelled if the deposit holders are not paid. Such a

decision can be taken only after allowing the concerned HFC or NBFC to

present its case. None of the legislation provides that FD holders are required

to be paid in full. Therefore, it is not the case of the Appellant's that RBI is

not empowered to act under the RBI Act or the FSP Rules. It Therefore, in the

circumstances Section, 238 of the IB Code does not override any requirement

of law governing the actions of the DHFL must be followed.

12.49 Further, in case of Pratap Technocrats Private Limited ,2021 SCC

Online SC 569, Hon'ble Supreme Court has held;

58. Indubitably, the inquiry in such an appeal would be limited to the power exercisable by the resolution professional under Section 30(2) of the I&B Code or, at best, by the adjudicating authority (NCLT) under Section 31(2) read with Section 31(1) of the I&B Code. No other inquiry would be permissible. Further, the jurisdiction bestowed upon the appellate authority (NCLAT) is also expressly circumscribed. It can examine the challenge only in relation to the grounds specified in Section 61(3) of the I&B Code, which is limited to matters "other than" enquiry into the autonomy or commercial wisdom of the dissenting financial creditors. Thus, the prescribed authorities (NCLT/NCLAT) have been endowed with limited jurisdiction as specified in the I&B Code and not to act as a court of equity or exercise plenary powers."

12.50 Based on the above discussion, it is clear that NCLT or NCLAT have

been endowed with limited jurisdiction as specified under the Code and

Company Appeal (AT) (Insolvency) No. 759 & 760 of 2021 63 of 65 cannot act as a court of equity or exercise plenary powers. Therefore, the fixed

deposits of the Appellant's made from the lifetime earnings of the employees

invested by the Provident Fund Trust with the Corporate Debtor, i.e. Financial

Service Providers, is of no consequence. Accordingly, it can not be a condition

authorising interference with the commercial wisdom of the CoC.

12.51 Therefore, even if the contribution of hard-earned money by

Employees and further its investment by 'Provident Fund Trust' in FD's is

there, it will have no impact on the resolution approved by the requisite

majority under the Code. Accordingly, NCLT or NCLAT cannot exercise equity

jurisdiction to prevail over the commercial wisdom exercised by the creditors'

committee.

12.52 It is pertinent to mention that the Appellant in civil appeal 759 of 2021

in Uttar Pradesh State Power Sector Employees Trust, and Appellant in civil

Appeal 760 2021 is Uttar Pradesh Power Corporation Contributory Provident

Fund Trust which had invested money in the Financial Service Provider DHFL

as fixed deposits. The Corporate Debtor defaulted in making its payment

obligations; therefore, RBI as a regulator itself stepped in and initiated

insolvency proceedings of the erstwhile Corporate Debtor under the IBC read

with FSP rules. It is a settled position of law that once a company is admitted

into insolvency, the IBC is a complete and exhaustive code that governs the

entire process. Despite such a statutory mandate under IBC, the Appellant

contends that the manner of distribution towards F D holders must uniquely

be handled according to the National Housing Bank Act, 1987 and Reserve

Company Appeal (AT) (Insolvency) No. 759 & 760 of 2021 64 of 65 Bank of India Act 1934. The NHB and RBI Act operate in ordinary

circumstances when a company is not undergoing insolvency. As such,

creditors of the Company under insolvency cannot seek to enforce the NHB

Act and RBI act provisions. In any event, it is amply clear that neither the

provisions of the NHB Act nor the RBI act guarantees full repayment of

deposits.

12.53 Based on the above discussion, we think that impugned Order

regarding the payment to the Appellants against their FD's as per the

approved Resolution Plan with the requisite majority as required under law

needs no interference, and both the appeals deserve to be dismissed.

ORDER Impugned Order dated June 7, 2021, passed by the National Company Law

Tribunal in Miscellaneous Application No's 416 and 417 of 2020 in Company

Petition No. 4258/MB/2019, needs no interference. Civil Appeals CA/AT/INS

759 of 2021 and 760 of 2021 is disposed of accordingly. No Order as to costs.

[Justice M. Venugopal] Member (Judicial)

[Mr. V. P. Singh] Member (Technical)

[Dr. Ashok Kumar Mishra] Member (Technical) NEW DELHI 27th January 2022

pks

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