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2022 (1) TMI 1430 - AT - Insolvency and BankruptcyChallenge to Resolution Plan approved by the Adjudicating Authority - distribution mechanism under IBC - Appellants' main grievance is that the approved resolution plan has equated the Appellants who are fixed deposit holders (FD Holders) with other financial institutions/creditors and in contravention of the National Housing Bank Act (NHB Act) and Reserve Bank of India Act (RBI Act) have been given the biggest haircut under the Resolution Plan. HELD THAT - 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/F.D. 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 Holders. 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 have overriding effect over the NHB Act and the RBI Act by the non-obstante clause. In the case of M/S. INNOVENTIVE INDUSTRIES LTD. VERSUS ICICI BANK ANR. 2017 (9) TMI 58 - SUPREME COURT , 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. 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. Hon'ble Supreme Court in the COMMITTEE OF CREDITORS OF ESSAR STEEL INDIA LIMITED THROUGH AUTHORISED SIGNATORY VERSUS SATISH KUMAR GUPTA OTHERS 2019 (11) TMI 731 - SUPREME COURT 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 dissenting creditors. The Adjudicating Authority cannot interfere on merits with the commercial decision taken by the Committee of Creditors. 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 - Further, there is no rationale for treating the deposit holders as separate classes and providing them preferential treatment. IBC already contains various safeguards for the public deposit holders, including an Authorised Representative who can effectively represent that class of creditors. 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. In the instant case, the RBI, in the 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 with respect to 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. 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 Housing Finance Company 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. Undisputedly the corporate debtor DHFL 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 - 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. The 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 - appeal dismissed.
Issues Involved:
1. Contravention of the National Housing Bank Act (NHB Act) and Directions. 2. Discriminatory and arbitrary treatment of fixed deposit holders. 3. Applicability of the Insolvency and Bankruptcy Code (IBC) over the NHB Act and RBI Act. 4. Status of fixed deposit holders as financial creditors. 5. Commercial wisdom of the Committee of Creditors (CoC). Detailed Analysis: 1. Contravention of the National Housing Bank Act (NHB Act) and Directions: The Appellant argued that the Resolution Plan contravenes the NHB Act by failing to make full payment of the admitted claim. They emphasized that the NHB Act mandates repayment of deposits as per their terms, highlighting sections 29A, 36, and 36A, which aim to protect depositors. The Appellant contended that the Resolution Plan should comply with these provisions, ensuring full repayment to depositors. However, the Respondents argued that neither the NHB Act nor the RBI Act guarantees full payment to depositors, especially during insolvency proceedings. They pointed out that the IBC, being a later enactment, overrides the NHB Act and RBI Act due to the non-obstante clause in Section 238 of the IBC. The tribunal agreed with the Respondents, stating that the IBC's provisions prevail over the NHB Act and RBI Act. 2. Discriminatory and Arbitrary Treatment of Fixed Deposit Holders: The Appellant claimed that the Resolution Plan and its distribution mechanism were discriminatory and arbitrary, creating an artificial distinction between similarly placed fixed deposit holders and other financial creditors. They argued that the CoC's decision to allocate different payments to different groups of fixed deposit holders was unfair. The tribunal noted that the CoC is the key decision-maker in the resolution process and has the authority to make business decisions based on ground realities. The tribunal emphasized that the commercial wisdom of the CoC cannot be interfered with by the Adjudicating Authority or the Appellate Tribunal, as long as the Resolution Plan complies with the IBC. 3. Applicability of the Insolvency and Bankruptcy Code (IBC) Over the NHB Act and RBI Act: The Appellant argued that the NHB Act and RBI Act should govern the repayment of deposits, even during insolvency proceedings. They contended that there was no inconsistency between the IBC and the NHB Act/RBI Act, and therefore, Section 238 of the IBC should not override the provisions of the NHB Act and RBI Act. The Respondents countered that the IBC, being a comprehensive and exhaustive code for insolvency proceedings, prevails over other laws due to its non-obstante clause. The tribunal agreed with the Respondents, stating that the IBC's provisions override the NHB Act and RBI Act, and the repayment of deposits should be governed by the IBC. 4. Status of Fixed Deposit Holders as Financial Creditors: The Appellant argued that fixed deposit holders should be treated as a separate class of creditors and given preferential treatment. They contended that the deposits were made in trust and should not be subjected to the resolution process. The Respondents argued that fixed deposit holders are financial creditors and should be treated accordingly under the IBC. They emphasized that the relationship between the corporate debtor and fixed deposit holders is that of a creditor and debtor, not a trustee. The tribunal agreed with the Respondents, stating that fixed deposit holders are financial creditors and should be treated as such under the IBC. 5. Commercial Wisdom of the Committee of Creditors (CoC): The Appellant challenged the CoC's decision to approve the Resolution Plan, arguing that it failed to protect the interests of fixed deposit holders. The tribunal emphasized that the commercial wisdom of the CoC is paramount and cannot be interfered with by the Adjudicating Authority or the Appellate Tribunal. The tribunal noted that the CoC's decision to approve the Resolution Plan was based on ground realities and aimed at maximizing the value of the corporate debtor's assets. The tribunal concluded that the CoC's decision to approve the Resolution Plan, including the allocation of recoveries to creditors, was in compliance with the IBC and did not warrant interference. Conclusion: The tribunal concluded that the Resolution Plan approved by the CoC was in compliance with the IBC and did not contravene the NHB Act or RBI Act. The tribunal emphasized that the commercial wisdom of the CoC is paramount and cannot be interfered with by the Adjudicating Authority or the Appellate Tribunal. The appeals were dismissed, and the impugned order dated June 7, 2021, passed by the National Company Law Tribunal, was upheld.
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