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TMI Blog2022 (1) TMI 1431X X X X Extracts X X X X X X X X Extracts X X X X ..... ditors of Essar steel v Satish Kumar Gupta and 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 dissentient creditors. The Adjudicating Authority cannot interfere on merits with the commercial decision taken by the Committee of Creditors. 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. 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 - By seeking payment outside the resolution process, the appel ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e majority as required under law needs no interference, and both the appeals deserve to be dismissed - Appeal dismissed. - Hon'ble Mr Justice M. Venugopal, Member (J), Hon'ble Mr V. P. Singh, Member (T) And Hon'ble Dr Ashok Kumar Mishra, Member (T) For the Appellant : Mr Divyam Agarwal, Mr Ahsan Allana, Mr Ashish Joshi, Advocates. For the 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. JUDGMENT (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 AA [1] /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 ) i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rs 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 Ap ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rning 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. (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 can ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hen 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) 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 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 a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... cured 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 finan ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rovisions 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 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... neral 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& ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ut 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 (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 tr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 Finance Companies (NHB) Directions, 2010, and Directions 38, 39 of the NonBanking 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 R ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... orporate Debtor under the Scheme of the Code. It would be contrary to the Code to accord such a superior status 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 Orde ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hat; 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ion 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 nonbanking 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; (c) splitting the non-banking financial Company into different units or institutions and vesting viable and nonviable businesses in separate units or institutions to preserve the continuity of the activities of that nonbanking 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 ar ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r this provision.] ******* 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 t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t 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 Rules [9] is only applicable in situations where the assets of third parties are held in trust by the Corporate Debtor. The Holders of FD have failed to produce any documen ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... lication 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 (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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 subsection (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 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 makin ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ewith contained in any other law for the time being in force or any instrument having effect by virtue of any such law. [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 re ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 nonobstante 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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; 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he 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. 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ain 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 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, whi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 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, mus ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... g 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 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ion 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 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 Utta ..... X X X X Extracts X X X X X X X X Extracts X X X X
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