2022 (1) TMI 1412 - AT - Insolvency and Bankruptcy

Violation of principles of natural justice - non-speaking order - Validity of Resolution Plan as approved by the CoC - extinguishing claim to the Fixed Deposit Holders without discharging their payments in full - NHB Act or RBI Act as the case may be mandate the full payment to the Fixed Deposit Holders even though the corporate Debtor is undergoing CIRP or not? - Section 238 of the Insolvency and Bankruptcy Code 2016 overrides the RBI Act and NHB Act? - transactions involving repayment to Fixed Deposits Upon maturity of their deposit would fall within the ordinary course of business for Respondent No. 1 or not - authority for disbursing loans and investments despite its failure to repay Fixed Deposit holders as per the terms of their deposits - payment made against the F.D. s in terms of their deposits during CIRP would be categorised as a preferential transaction or not. The impugned order is non-speaking and it violates the Principles of Natural Justice - HELD THAT - The impugned order approving the Resolution Plan is passed with a non-speaking order without any discussion on the objections raised by the Appellants The obligation of the Administrator and the successor-in-interest of DHFL to ensure full repayment of deposit to FD holders under the RBI and NHB Act - HELD 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 fixed deposits from their customers on the agreed interest on the amount invested in the 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. No Locus to maintain the Appeal - HELD THAT - Based on the orders of the Hon ble Supreme Court in the case of VINAY KUMAR MITTAL OTHERS VERSUS DEWAN HOUSING FINANCE CORPORATION LTD. OTHERS 2020 (2) TMI 33 - SUPREME COURT wherein right is given to the Appellants to raise the issue before NCLT/NCLAT the appellants have filed the appeal. Therefore contention of the respondent COC that the appellant had no locus to file the present appeal is not sustainable. Resolution Plan is discriminatory as it creates class within a class of similarly situated creditors - HELD THAT - The legislative intent is clear that F.D. Holders are entitled to the same rights and protections as per the terms of the Code as every other Financial Creditors of DHFL - Based on the observations of the Hon ble Supreme Court in CHITRA SHARMA AND ORS VERSUS UNION OF INDIA AND ORS 2018 (8) TMI 661 - SUPREME COURT it is clear that during the pendency of the CIRP it is impermissible for the Court to direct a preferential payment being given to a particular class of financial creditors whether secured or unsecured. Therefore Fixed Deposit Holders as a class cannot claim a separate treatment during CIRP. If payment is made during CIRP to a particular type of deposit holder it will amount to a preferential disbursement to a class of creditors - thus no payment can be made during CIRP. If any payment is made to the F.D. Holders during CIRP then it will amount to preferential treatment to a particular class of creditors which dehors the provision of the Code which is impermissible under the Code. The I B Code a subsequent enactment overrides the provisions of the NHB Act NHB Directions and RBI Act - HELD THAT - Section 45-MBA of the RBI Act does not contain a non-obstante clause but rather a without prejudice clause . Section 45-MBA in fact preserve the rights of the RBI to act under all other provisions of the law and provide flexibility. Had it been the intention of the legislation to require RBI only to pursue insolvency resolution of NBFC under the IBC prescribed under the RBI Act then the same would have been expressly provided by the legislature by including a non-obstante clause in Section 45-MBA. The said section retains discretion with the RBI to resolve the insolvency of an NBFC under the RBI Act or any other provision of law including IBC. Further the FSP rules were enacted after Section 45-MBA. Hence the provisions of the FSP Rules are also significant in this regard - 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 - 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. Recoveries from avoidance Application - HELD THAT - It is pertinent to mention that the Appellant s/Fixed Deposit Holders had filed different Miscellaneous Applications after approval of the Resolution Plan challenging the same on the ground that Resolution Plan extending the recoveries made under Applications filed under Sections 43-51 and Section 66 of the Code shall be whatsoever may be for the benefit of the Resolution Applicant is contrary to law and void ab initio and non-est in law. Decision on this issue about recoveries of avoidance application is also treated as a decision in the instant Appeals - HELD THAT - The NCLT/NCLT has 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 - The judicial review of the Adjudicating Authority that the Resolution Plan as approved by the Committee of Creditors has met the requirements referred to in Section 30 would include a judicial review that is mentioned in Section 30 (2) (e) of the Code and is also in compliance with the provisions of the law for the time being in force. The F D holders are Financial Creditors of the DHFL and have been treated accordingly as per the provisions of the Code. It is also found that section 45Q of the RBI Act has no applicability in the facts of the present case. The decision about payments to the creditors falls within the commercial wisdom of the COC subject to fair and equitable play i.e. payment of minimum liquidation value to creditors. The commercial wisdom of COC is not amenable to judicial review of any kind - The I B Code being a subsequent enactment overwrites the provisions of the NHB Act NHB directions and RBI Act. No right of full payment exists under the NHB Act or the RBI Act or under any other subordinate legislation. Even if it exists any such right would be wholly repugnant to the provisions of the Code which provide for a specific manner in priority of payment and sets out the right. The minimum amount a creditor is mandatorily required to be paid in the Resolution Plan i.e. the liquidation value. The issue raised about the outcome of avoidance application has not been decided here. Appeal disposed off.

Summary

Issues Involved:

1. Whether the Adjudicating Authority erred in approving the Resolution Plan, which proposes extinguishing claims to the Fixed Deposit Holders without discharging their payments in full, contravenes the statutory provisions of the NHB Act and RBI Act?
2. Whether the NHB Act or RBI Act mandates the full payment to the Fixed Deposit Holders even though the corporate Debtor is undergoing CIRP under the I&B Code, 2016?
3. Whether Section 238 of the Insolvency and Bankruptcy Code, 2016, overrides the RBI Act and NHB Act?
4. Whether the transactions involving repayment to Fixed Deposits upon maturity of their deposit would fall within the ordinary course of business for Respondent No. 1, as specified under section 28(1)(k) of the Code?
5. Whether Respondent No. 1 is legally authorized for disbursing loans and investments despite its failure to repay Fixed Deposit holders as per the terms of their deposits?
6. Whether any payment made against the F.D.’s in terms of their deposits during CIRP would be categorized as a preferential transaction?

Detailed Analysis:

Issue 1: Approval of the Resolution Plan and Statutory Provisions

The Appellants argued that the Adjudicating Authority approved the resolution plan without considering the objections raised by the Fixed Deposit (FD) Holders, violating the NHB Act and RBI Act. They contended that the FD Holders' money was held in trust with DHFL and should not have been subjected to the resolution process. The Appellants cited various statutory provisions to support their claim, including Sections 29A(6), 29A(4)(a), 36, and 36A of the NHB Act, and Sections 45Q and 45QA of the RBI Act. However, the Respondents argued that there is no provision in these Acts mandating full payment to FD Holders and that the I&B Code, being a subsequent enactment, overrides these Acts. The Tribunal agreed with the Respondents, stating that the I&B Code prevails over the NHB Act and RBI Act, and the resolution plan does not contravene these statutory provisions.

Issue 2: Mandate of Full Payment to FD Holders

The Appellants claimed that the NHB Act and RBI Act mandate full payment to FD Holders. They cited Sections 36 and 36A of the NHB Act and Section 45QA of the RBI Act, which require repayment of deposits according to the terms and conditions of the deposit. However, the Respondents argued that these provisions do not guarantee full payment and are subject to the I&B Code. The Tribunal held that the NHB Act and RBI Act do not mandate full payment to FD Holders during CIRP, and the resolution plan is valid under the I&B Code.

Issue 3: Section 238 of the I&B Code

The Appellants argued that Section 238 of the I&B Code does not override the requirements of the NHB Act and RBI Act. They contended that the FD Holders' money was held in trust and should not be subjected to the resolution process. The Respondents countered that the I&B Code, being a later enactment, overrides the NHB Act and RBI Act. The Tribunal agreed with the Respondents, stating that Section 238 of the I&B Code overrides any inconsistent provisions in the NHB Act and RBI Act, and the resolution plan is valid and legal under the Code.

Issue 4: Ordinary Course of Business

The Appellants argued that repayment of FD Holders upon maturity falls within the ordinary course of business for DHFL. However, the Respondents contended that such repayment would not be in the ordinary course of business during the moratorium under Section 14 of the I&B Code. The Tribunal held that repayment to FD Holders during the moratorium does not fall within the ordinary course of business and is subject to the resolution plan approved under the I&B Code.

Issue 5: Disbursing Loans and Investments

The Appellants argued that DHFL should not be allowed to disburse loans and investments without repaying FD Holders. The Respondents countered that the resolution plan, once approved, allows DHFL to continue its business operations, including disbursing loans and investments. The Tribunal agreed with the Respondents, stating that DHFL is legally authorized to disburse loans and investments under the terms of the approved resolution plan.

Issue 6: Preferential Transaction

The Appellants argued that any payment made to FD Holders during CIRP would not be a preferential transaction. The Respondents contended that such payments could fall under the category of preferential transactions. The Tribunal held that any payment made against FD's during CIRP could be categorized as a preferential transaction and is subject to the resolution plan.

Conclusion:

The Tribunal upheld the approval of the resolution plan, stating that it does not contravene the statutory provisions of the NHB Act and RBI Act. It held that the NHB Act and RBI Act do not mandate full payment to FD Holders during CIRP, and Section 238 of the I&B Code overrides these Acts. The repayment to FD Holders during the moratorium does not fall within the ordinary course of business, and DHFL is authorized to disburse loans and investments under the approved resolution plan. Any payment made during CIRP could be categorized as a preferential transaction. The Tribunal found no reason to interfere with the approved resolution plan.