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Judgment
Ashok Bhushan, J.
This Appeal by a Financial Creditor of the Corporate Debtor (“CD”) – SREI Equipment Finance Ltd. has been filed challenging the order dated 01.02.2024 passed by National Company Law Tribunal, Kolkata Bench (Court-I), Kolkata rejecting IA(IB) No.896/KB/2022 filed by the Appellant.
Brief facts of the case necessary to notice for deciding the Appeal are:
SREI Equipment Finance Ltd. is a financial service provider. The Appellant – National Bank for Agriculture & Rural Development is a statutory body constituted and established under NABARD Act, 1981 provides credit for rural and agricultural development, including providing refinancing facilities to financial institutions.
The CD had availed refinance facility to the extent of Rs.2,212.5 crores from the Appellant, which facilities were sanctioned vide letter dated 16.03.2017, 15.06.2017, 07.05.2016, 27.06.2018, 24.08.2018 and 04.03.2019. In accordance with the sanction letters, six General Refinance Agreements were executed between the Appellant and the CD. The CD also executed Deeds of Assignment of Book Debts in favour of the Appellant, including the Deed of Assignment dated 06.03.2019.
A default was committed by the CD in its repayment obligation to the Appellant. The Appellant declared the CD as Non-Performing Asset (“NPA”) and as on 08.10.2021, the total outstanding of the CD towards the Appellant was Rs.883,63,31,295/-.
The Reserve Bank of India (“RBI”) vide order dated 08.10.2021 superseded the Board of the CD. The CIRP commenced against the CD by an order dated 08.10.2021 passed by Adjudicating Authority in CP(IB) No.294/KB/2021. Respondent No.2 was appointed as an Administrator, who was to act as an Resolution Professional (“RP”) for carrying out the CIRP against the CD.
The Appellant wrote to Administrator in October 2021 claiming applicability of Section 29 of the NABARD Act, 1981 and stating that Appellant is entitled to the entire receivable with respect to refinance loans in priority to all other payments. On 21.10.2021, the Appellant filed its claim in Form-C as Financial Creditor of the CD for an amount of Rs.883,63,31,296/-. Even after filing of the claim, the Appellant requested the Administrator to confirm priority of its exclusive claim over other claims against the CD. The Appellant’s entire claim was admitted in the CIRP.
The Committee of Creditors (“CoC”) was constituted. In the 7th CoC Meeting held on 24.06.2022, where Financial Creditor claim of Rs.883,63,31,296/- was noticed with voting share of 2.71%. Apart from NABARD, there were several public sector Bank and other Financial Creditors, who were allocated different vote shares.
On 16.06.2022, the Appellant filed IA(IB)No.896/ KB/2022 praying for direction to the Administrator to confirm and ensure priority of repayment of NABARD in full over all other payments by SEFL and pass on the recoveries out of the assets assigned to NABARD by SEFL. The Appellant before the Administrator as well as the CoC has claimed priority payment relying on the judgment of this Tribunal in Union Bank of India on behalf of the Committee of Creditors of Dewan Housing Finance Corporation Ltd. vs. National Housing Bank – Company Appeal (AT) (Ins.) no.461 of 2021. To the IA filed by the Appellant, a reply was filed by the Administrator. The Adjudicating Authority also allowed the CoC (Respondent No.3) through UCO Bank to intervene in IA (IB) No.896/KB/2022.
In the 37th CoC Meeting held on 03.03.2023, it was resolved that in case outcome of the application filed by NABARD is in favour of Administrator/ CoC then the remaining amount including NCD and OCDs pertaining to the claim of NABARD which is set aside as per the approved distribution mechanism will then be distributed to assenting secured financial creditors.
Order on IA (IB) No.896/KB/2022 was reserved on 29.06.2023. By a subsequent order dated 11.08.2023, the NCLT approved the Resolution Plan. Under the Resolution Plan Rs.122 crores were credited to the account of the Appellant as payment to dissenting Financial Creditor. On 01.02.2024, the Adjudicating Authority rejected the IA (IB) No.896/KB/2022 filed by the Appellant. Aggrieved by which order, this Appeal has been filed.
We have heard Shri Abhijeet Sinha, learned Senior Counsel with Shri Anand Varma, learned Counsel appearing for the Appellants; and Shri Krishnendu Datta, learned Senior Counsel appearing for Respondent No.3 (CoC).
Learned Senior Counsel for the Appellant in support of the Appeal submits that the Appellant by virtue of statutory entitlement under Section 29 of the NABARD Act, 1981 (“NABARD Act”) is entitled to receive the amount in priority. The amount is held in Trust by the CD for the benefit of the Appellant. It is submitted that the Appellant has provided refinance facility to the CD and as per the General Finance Agreement executed between the CD and the Appellant, the CD was to hold the outstanding amount and realized monies from the ultimate borrowers, in the manner specified under Section 29 of the NABARD Act. By virtue of Section 29 of the NABARD Act, deemed Trust is created. The plea of Respondent No.3 that NABARD has failed to identify any loans and advances granted by SEFL that it has refinanced, is incorrect. The Adjudicating Authority in the impugned order has erroneously arrived at the conclusion that the Appellant having filed its claim in Form-C and being a secured creditor, has to be treated in accordance with the provisions of the Code. The amount of Rs.883 crores was outstanding on the date of initiation of CIRP and it was imperative for the Appellant to submit a claim to the Administrator. The Appellant even prior to filing of its claim vide letters dated 07.10.2021, 14.10.2021 and 20.10.2021 has duly requested the Administrator to ensure priority in repayment to the Appellant in accordance with Section 29 of the NABARD Act. The Claim Form also contained detailed submission of facts where all relevant facts were pleaded. The Appellant has been requesting the Administrator as well as the CoC about its priority in repayment. The act of filing a claim in Form-C did not in any way impinge on the Appellant’s statutory rights. The claim of the Appellant was fully covered by the judgment of this Tribunal in National Housing Bank’s matter. In National Housing Bank matter, in the Appeal filed against the order of this Tribunal, the Hon’ble Supreme Court has directed by interim order to release the amount to National Housing Bank. The Appellant had no reason to challenge the Resolution Plan, since it has duly incorporated the distribution mechanism, whereby the entirety of the Appellant’s claim has been set aside separately. There is no question of Appellant’s sailing in two boats vis-à-vis its repayment. The Appellant from the very beginning was claiming its priority under Section 29 of the NABARD Act.
The Administrator in its reply to IA (IB) No.896/KB/2022 filed by the Appellant stated that amount of Rs.317.12 crores was admittedly received between 28.10.2020 to 31.08.2022, which amount was required to be directly remitted to the Appellant, since the said amount do not form part of the assets of the CD and was held in fiduciary capacity with no beneficial interest therein.
Learned Counsel appearing for Respondent No.3 refuting the submissions of learned Counsel for the Appellant submits that the Appellant having filed its claim in Form-C as Financial Creditor and having filed a claim of Rs.883 crores as a financial debt with securities mentioned in the Claim Form, is entitled to be treated as per the Resolution Plan. The Appellant has been treated as dissenting Financial Creditor and Rs.121 crores in terms of the Resolution Plan has already been paid to the Appellant. The security interest in the receivables and the book debts of the CD as per Assignment Agreement executed between the Appellant and the CD. The Appellant has only security interest in the various receivables and the book debts. The Appellant cannot claim the receivables from different loan accounts of the CD as its own assets held in Trust with the CD. No account has been identified by the Appellant claiming it to be third-party assets. The Administrator has never admitted the claim of the Appellant in reply filed before the Adjudicating Authority that the Appellant was entitled for Rs.317 crores, which was received from different loan accounts of the CD. The Appellant has participated in all CoC Meetings as Financial Creditor. The status of the Appellant was clarified in the Minutes of the CoC as that of Financial Creditor. NABARD has not identified any specific list of loan assets refinanced and instead security interest was created in favour of NABARD. The Appellant is secured Financial Creditor of the CD. Under Deed of Assignment it has been mentioned that “all present and future debt, receivable etc. and also future loans and advances” were assigned to the Appellant. Learned Counsel for the Respondent has referred to the Deed of Assignment dated 06.03.2019 entered between NABARD and the CD, which Schedule-II refers to “present and future book debts of SEFL” are being assigned by way of Deed of Assignment. The present was a case where security interest was created in favour of the Appellant. The Appellant’s case is that receivables, third party assets, i.e. assets of Appellant held in Trust with the CD, cannot be accepted. The case relied by the Appellant of National Housing Bank is clearly distinguishable. In the case of National Housing Bank there were identified assets, whereas the Appellant has failed to place on record any evidence of the identified tagged assets. In National Housing Bank refinance was granted to Dewan Housing Finance Corporation Ltd. against identified tagged loans, recoveries from the said tagged loans were identified as third-party assets and to the extent of the tagged loans were held in Trust of DHFCL. The loan account referred to in the affidavit of the Administrator are the loan accounts marked as security for NABARD, which were subject to change and were not tagged assets. It is further submitted that in event NABARD is owner of the third-party assets allegedly the receivables of the loans and advances refinanced by it, its claim would be the receivables that are actually received towards the loans and advances and not the amount of Rs.883 crores. Reliance on Rule 10 of the Financial Service Provider Rules as well as Notification of the Central Government dated 30.01.2020 are not applicable in the present case.
We have considered the submissions of learned Counsel for the parties and have perused the records.
The main issue which arises for consideration in this Appeal is as to whether NABARD was entitled to claim rights with respect to receivables from its refinance as per Section 29 of the NABARD Act or the Appellant was only entitled for distribution being a dissenting Financial Creditor. The Appellant is a National Bank for Agriculture and Rural Development constituted under the NABARD Act, 1981. The Preamble of the Act provides as follows:
“An Act to establish a development bank to be known as the National Bank for Agriculture and Rural Development for providing and regulating credit and other facilities for the promotion and development of agriculture, micro-enterprises, small enterprises and medium enterprises, cottage and village industries, handlooms handicrafts and other rural crafts and other allied economic activities in rural areas with a view to promoting integrated rural development and securing prosperity of rural areas and for matters connected therewith or incidental thereto.”
Under Section 25 of the NABARD Act, it may provide such financial assistance as it may consider necessary for promoting agriculture and rural development by making loans and advances, by way of refinance, on such terms and conditions as NABARD may think fit. Section 25 sub-section (1) sub-clause (a) of the NABARD Act is as follows:
“25.Other investment credit.—(1) The National Bank may provide such financial assistance as it may consider necessary for promoting agriculture and rural development by—
(a)making loans and advances, by way of refinance, on such terms and conditions as the National Bank may think fit to impose, to a State land development bank or a State co-operative bank or a scheduled bank or any other financial institution approved by the Reserve Bank in this behalf, and also rescheduling the payment of such loans and advances: Provided that the maximum period for which any such loan or advance may be granted, whether originally or by rescheduling the payment thereof, shall not exceed twenty-five years;”
The provision on which the Appellant has placed reliance is Section 29, which deal with ‘Amounts and securities to be held in trust’. Section 29 of the Act is as follows:
“29.Amounts and securities to be held in trust.—(1) Any sums received by a borrowing institution in repayment or realisation of loans and advances refinanced either wholly or partly by the National Bank shall, to the extent of the accommodation granted by the National Bank and remaining outstanding, be deemed to have been received by the borrowing institution in trust for the National Bank, and shall accordingly be paid by such institution to the National Bank, as per the repayment schedule fixed by the National Bank.
(2)Where an accommodation has been granted to a borrowing institution, all securities held, or which may be held, by such borrowing institution, on account of any transaction in respect of which such accommodation has been granted by the National Bank, shall be held by such institution in trust for the National Bank.
(3)Notwithstanding anything to the contrary contained in any law for the time being in force, where a liquidator is appointed for winding up a borrowing institution, it shall be the duty of the liquidator to forthwith pass on to the National Bank the sums recovered by the borrowing institution or the liquidator, as the case may be, in repayment or realisation of the loans and advances refinanced either wholly or partly by the National Bank to the extent the refinance is outstanding and the National Bank shall be entitled to enforce the securities held by the borrowing institution in trust for the National Bank as if every reference to the borrowing institution in any contract, security or other document obtained by borrowing institution is a reference to the National Bank and accordingly, the National Bank shall be entitled to recover the balance sums due under such loans and advances from the constituents of borrowing institution and any discharge given by the National Bank to such constituent shall be a valid discharge and the liquidator shall, on demand made by the National Bank, deliver to it all such contracts, securities and other documents, for due enforcement thereof by the National Bank.
Explanation.—For the purposes of this sub-section, the word “liquidator” shall include liquidator or a provisional liquidator or any person or authority entrusted with the duty of liquidating the borrowing institution.”
The NABARD by special sanction letters has sanctioned refinance to the CD. All sanction letters as well as acceptance by the CD of the terms and conditions, including the Agreement for Assignment of Book Debts were filed by the NABARD along with its claim in Form-C to the Administrator. It is useful to notice one of the General Refinance Agreement dated 06.03.2019 and relevant Clause 10, which provides as follows:
“10.The Financing Institution agrees that if and whenever it realises any of the securities held by it either alone or jointly with the NABARD, as security for the said loans and advances or whenever any repayment is received or recovery made by the Financing Institution from the ultimate borrowers, the Financing Institution will pay over to the NABARD all such realisations or recoveries to the extent required to repay the Financing Institution's obligations hereunder and till so paid over to NABARD, the amounts shall be held by the Financing Institution in the manner specified by Section 29 of the National Bank for Agriculture and Rural Development Act, 1981.”
Agreement for Assignment of Book Debts was also entered on the same date i.e. 06.03.2019, where the CD has assigned its book debts by “all present and future Book Debts” in favour of the NABARD. Thus, the present is a case where we are considering a CIRP initiated at the instance of RBI against SREI Equipment and Finance Ltd. (CD), which is a financial service provider. Section 227 of the IBC provides for initiation of CIRP against financial service providers. Under Section 227, the financial service provider has been notified, which admittedly includes the CD. Section 227 also provides for conduct of insolvency and liquidation proceedings against financial service providers in such manner as may be prescribed. Section 227 of the IBC provides as follows:
“227. Power of Central Government to notify financial sector providers etc.-
Notwithstanding anything to the contrary contained in this Code or any other law for the time being in force, the Central Government may, if it considers necessary, in consultation with the appropriate financial sector regulators, notify financial service providers or categories of financial service providers for the purpose of their insolvency and liquidation proceedings, which may be conducted under this Code, in such manner as may be prescribed.
Explanation.- For the removal of doubts, it is hereby clarified that the insolvency and liquidation proceedings for financial service providers or categories of financial service providers may be conducted with such modifications and in such manner as may be prescribed.”
Under Section 227 of the IBC the Central Government has notified the Insolvency and Bankruptcy (Insolvency and Liquidation Proceedings of Financial Service Providers and Application to Adjudicating Authority) Rules, 2019 (“FSP Rules”). Rule 5 provides for provisions of the IBC relating to CIRP of the CD shall, mutatis mutandis apply, to the insolvency resolution process of a financial service provider. Rule 10, which is relevant for the present case, deals with assets of third parties, provides as follows:
“10.Assets of third parties, etc.― (1) For removal of doubts, it is clarified that the provisions of clause (b) of rule 5 and section 14 shall not apply to any third-party assets or properties in custody or possession of the financial service provider, including any funds, securities and other assets required to be held in trust for the benefit of third parties.
(2)The Administrator shall take control and custody of third-party assets or properties in custody or possession of the financial service provider, including any funds, securities and other assets required to be held in trust for the benefit of third parties only for the purpose of dealing with them in the manner, as may be notified by the Central Government under section 227.”
The above Rule provides that third-party assets or properties in custody or possession of the financial service provider, including any funds, securities and other assets required to be held in Trust for the benefit of third parties. Sub-Rule (2) enjoins that the Administrator shall take control and custody of third-party assets for the purpose of dealing with them in the manner, as may be notified by the Central Government under Section 227.
The Central Government has also issued a Notification dated 30.01.2020, which Notification dealt with receivables from third parties. Notification dated 30.01.2020 is as follows:
“MINISTRY OF CORPORATE AFFAIRS
NOTIFICATION
New Delhi, the 30th January, 2020
S.O. 464(E).— In exercise of the powers conferred by section 227 of the Insolvency and Bankruptcy Code, 2016 (31 of 2016) and in pursuance of rule 10 of the Insolvency and Bankruptcy (Insolvency and Liquidation Proceedings of Financial Service Providers and Application to Adjudicating Authority) Rules, 2019, the Central Government, in consultation with the Reserve Bank of India, hereby notifies the manner of dealing with the third party assets in custody or possession of such financial service providers, as referred to in the notification vide No. S.O. 4139(E), dated 18th November, 2019, by the Administrator appointed under clause (a) of rule 5 of the said rules, as under:
1. Receivables for Third Parties:-
Where a financial service provider is contractually obliged, as on the insolvency commencement date, to act as a servicing or collection agent on behalf of third parties in respect of a transaction such as securitisation or lending arrangement, the Administrator shall-
(a)prepare a statement of such transactions and respective agency contract;
(b)continue to discharge the obligations of the financial service provider as a servicing or collection agent;
(c)ensure that the receivables, in respect of such transactions, collected are deposited and maintained in a separate account and are not merged with the funds or other assets of such financial service provider;
(d)oversee the operation of the account referred to in item (c);
(e)transfer such receivables collected and deposited in the account referred to in item (c) in accordance with the terms and conditions of such contract:
Explanation.- For the purpose of this item, any fee received by the financial service provider as a servicing or collection agent shall not be transferred to the account referred to in item (c) and it shall be dealt with by the Administrator as forming part of the assets of such financial service provider.
2. Assets of Third Parties
Where the financial service provider has, as on the insolvency commencement date, in its custody or possession assets owned by its customers or counterparties or by counterparties of its customers under a contract, and is under an obligation to return or transfer such assets in accordance with the terms and conditions of such contract, the Administrator shall-
(a)prepare a statement of such assets and the respective contracts;
(b)ensure that such assets are maintained in a separate and distinct manner, capable of identifying them contract-wise, and are not merged with those of financial service provider;
(c)return or transfer such assets to the person entitled to receive it in accordance with the terms and conditions of such contract:
Provided that when such assets shall not be returned by the Administrator, due to breach of the terms of the contract, the financial service provider has become entitled to retain such assets for itself or dispose of the same to realise its dues.
[F. No. 30/01/2020-Insolvency]
GYANESHWAR KUMAR SINGH, Jt. Secy.”
The present is a case where the CIRP against the CD commenced on an application filed by RBI by order dated 08.10.2021. The RBI had appointed Mr. Rajneesh Sharma as an Administrator for the CD. A letter dated 07.10.2021 was written by the Appellant to the Administrator intimating about the entitlement of the Appellant under Section 29 of the NABARD Act and priority of repayments to NABARD was informed by the said letter. It is useful to notice entire letter dated 07.10.2021, which is as follows:
“Ref. No. NB. RMD/ 238/RMD 7D/SREI /2021-22 07 October 2021
Sri Rajneesh Sharma
Administrator
SREI Equipment Finance Limited
Vishwakarma 86C, Topsia Road (South),
Kolkata 700 046.
Dear Sir,
NABARD refinance to SREI Equipment Finance Limited (SEFL) -Outstanding - priority of repayments to NABARD – regarding
We are happy to note your appointment as Administrator of SREI Equipment Finance Ltd., by RBI. As you would be aware, National Bank for Agriculture and Rural Development (NABARD) is a statutory body and is fully owned by Government of India. As a part of its credit functions and under the provisions of NABARD Act, 1981, NABARD sanctioned loans and advances by way of refinance to SEFL subject to the terms and conditions mentioned in the General Refinance Agreement (GRA) read with other security documents executed between NABARD and SEFL. The outstanding dues to NABARD as on 30/09/2021 is Rs.819.26 crore. SEFL has also submitted the statement of book debts assigned to NABARD as on 30.06.2021 duly certified by its Chartered Accountant certifying that these book debts are exclusively charged to NABARD (copy enclosed).
Under the contractual terms, SEFL agreed that if and whenever it realises any of the securities held by it either alone or jointly with NABARD, as security for the said loans and advances or whenever any repayment is received or recovery made by the SEFL from the ultimate borrowers, the SEFL will pay over to NABARD all such realisations or recoveries to the extent required to repay NABARD's obligations under the contract and till so paid over to NABARD, the amounts shall be held by the SEFL in the manner specified by Section 29 of NABARD Act, 1981. With these statutory and contractual obligation, SEFL cannot dilute or create interest on the securities assigned to NABARD and as a part of the contract, SEFL is required to repay our outstanding loans and advances sanctioned by way of refinance out of realization of such securities.
In the circumstances as stated above, we request you to ensure priority of repayments to NABARD and pass on the recoveries out of the assets assigned to NABARD. We also request your good self to kindly provide us at your earliest convenience, a suitable date and time to meet you in person. We await eagerly a line in confirmation from your good office.
Thanking You
Yours faithfully
Sd/-
(R K Srivastava)
Chief General Manager
Encl.As above”
Again on 14.10.2021 and 20.10.2021, NABARD wrote to the Administrator. In letter dated 14.10.2021, again the entitlement of NABARD and protection of his right was stated. On 21.10.2021, the NABARD filed its claim to Administrator, claiming an amount of Rs.883,63,31,295/-. It was further mentioned that claimed amount is covered by security interest. Column-IV of the Form-C provides as follows:
“4.Details of claim, if it is made (i) Rs.883,63,31,295/-against corporate debtor (Rupees eight hundred principal borrower: as and eighty three crore, sixty three lakhs, thirty
(i)Amount of claim one thousand, two
(ii)Amount of claim covered by hundred and ninety five security interest, if any only) i.e Principal amount of Rs. 819,26,16,507/-(Please provide details of and Interest amount of security interest, the value of the Rs.64,37,14,788/- as on security, and the date it was 8th October 2021. given)
(ii)Amount of claim
(iii)Amount of claim covered by covered by security guarantee, if any interest : Rs. (Please provide details of 1060,35,97,554/- (For guarantee held, the value of the date please refer to guarantee, and the date it was documents enclosed at given) S.No.2 under
(iv)Name and address of the 'Declaration') guarantor(s) (iii) Nil (iv) Not Applicable”
Along with Form-C, a declaration was also given, where detailed brief statement of facts regarding the transaction between NABARD and the CD with sanctioned letters, acceptance letters, General Refinance Agreement and all relevant documents were mentioned.
One of the submissions, which has been pressed by learned Counsel for the CoC is that the Appellant having filed claim as a Financial Creditor in Form-C, it has accepted itself as a Financial Creditor of the CD and is entitled to receive its entitlement only as dissenting Financial Creditor, since it abstained from voting on the Resolution Plan. As noted above, the CIRP against the CD, who has been financial service provider, is to be conducted as per FSP Rules as noted above. Form-C, under which the claim was filed by the Appellant was in reference to IBBI (Insolvency Resolution Process for Corporate Persons) Regulations, 2016, which Regulations are not strictly applicable to CIRP of the financial service providers. The mere fact that the claim was filed in a wrong Form by the Appellant, cannot act to its prejudice in any manner. Learned Counsel for the Appellant has relied on the judgment of the Hon’ble Supreme Court in Civil Appeal Nos.7590-7591 of 2023 - Greater Noida Industrial Development Authority vs. Prabhjit Singh Soni & Anr., where the Appellant has submitted it claim in Form-B, in place of Form-C, the Hon’ble Supreme Court held that once the claim is submitted with proof, it could not have been overlooked merely because it was in a different Form. In Paragraph 54, following was observed:
“54.In our view the resolution plan did not meet the requirements of Section 30(2) of the IBC read with Regulations 37 and 38 of the CIRP Regulations, 2016 for the following reasons:
a. The resolution plan disclosed that the appellant did not submit its claim, when the unrebutted case of the appellant had been that it had submitted its claim with proof on 30.01.2020 for a sum of Rs.43,40,31,951/- No doubt, the record indicates that the appellant was advised to submit its claim in Form B (meant for operational creditor) in place of Form C (meant of financial creditor). But, assuming the appellant did not heed the advice, once the claim was submitted with proof, it could not have been overlooked merely because it was in a different Form. As already discussed above, in our view the Form in which a claim is to be submitted is directory. What is necessary is that the claim must have support from proof. ….”
As noted above, even prior to submission of its claim in Form-C, the Appellant has written to the Administrator claiming its statutory entitlement of receivables from the CD, which were to be handed over to the NABARD. By submitting claim in Form-C, the Appellant has not given up any of its rights, which flow from statutory provisions. In any view of the matter, along with Form-C, the Appellant has given all details of transactions. Along with rejoinder affidavit, the Appellant has brought on record entire Form-C, including the relevant documents, statement of facts, which were part of Form-C. It is useful to notice some of the averments made in the statement of facts. In Paragraphs 5 to 8, 14 and 15 in statement of facts, following have been pleaded:
“In accordance with the required terms of each of the said Sanction Letters, SEFL executed separate General Refinance Agreements (“GRA”) in favour of NABARD. Copies of each of the General Refinance Agreement (“GRA”) respectively dated 21 March 2017, 23 June 2017, 11 May 2018, 28 June 2018, 28 August 2018 and 06 March 2019 are annexed as Annexure – 3 Colly . Each of the said GRA contain an identical clause 10, which reads as under:
“10.The Financing Institution agrees that if and whenever it realizes any of the securities held by it either alone or jointly with the NABARD, as security for the said loans and advances or whenever any repayment is received or recovery made by the Financing Institution from the ultimate borrowers, the Financing Institution will pay over to the NABARD all such realisations or recoveries to the extent required to repay the Financing Institution’s obligations hereunder and till so paid over to NABARD, the amounts shall be held by the Financing Institution in the manner specified by Section 29 of the National Bank for Agriculture and Rural Development Act, 1981.”
5.In accordance with the required terms of each of the said Sanction Letters, SEFL executed separate Deeds of Assignment of the book debts in favour of NABARD, equivalent to an aggregate sum of Rs.2572 crores. Copies of each of the Deeds of Assignment of book debts dated 21 March 2017, 23 June 2017, 11 May 2018, 28 June 2018, 28 August 2018 and 06 March 2019 are annexed as Annexure- 4 Colly .. Each of the said Deeds contain an identical clause [Clause 6 (vii)] inter alia that:
“6.…. We, SREI Equipment Financial Limited do hereby unconditionally and irrevocably agree, declare and undertake: …..(vii) That each of the debt is free from any lien, encumbrance, claim, assignments, charges, etc., except the charge created in favour of your Bank….”
6.Each of the Deed of Assignment of book debts records the SEFL covenant that the repayment of the loan shall be secured by a ‘first charge’ on all present and future book debts and receivables of SEFL. At all material times, no lender of SEFL sought sharing of the charge under the Deeds of Assignment.
7.SEFL has also executed various other loan and security document in favour of NABARD securing the above financial assistance provided by NABARD by way of refinance under the refinancing scheme. Copies of Demand Promissory Notes (DPN) for each of the sanctions made by NABARD are annexed as Annexure-5 Colly . Copies of Take delivery Letter to DPN issued by SEFL in favour of NABARD are annexed as Annexure- 6 Colly . Copies of each of the Letter of Authority (6 Nos.) executed and issued by SEFL to its Bank, i.e. Syndicate Bank (then) authorizing them to debit their current account (Mandate) are annexed as Annexure- 7 Colly . Charge has been created with the relevant authority on the assets hypothecated/assigned to NABARD by SEFL. Copies of each of the charge creation document are annexed as Annexure- 8 Colly . Copies of Certificates of creation of charge are annexed as Annexure- 9 Colly . Copies of Disbursement request letters issued by SEFL for refinance from NABARD are annexed as Annexure- 10 Colly . Copies of the Resolution passed at the meeting of the Board of Directors of SEFL are annexed as Annexure- 11 Colly .
8.NABARD, accordingly disbursed an aggregate sum of Rs 2212.50 crore to SEFL by way of refinance of its loans to its customers. Copies of Acknowledgment of Debt signed by the Authorised signatory of SEFL are annexed as Annexure- 12 Colly.
14.It is relevant to mention that at the various meetings of the Committee of Creditors held prior to supersession of Board of SEFL, NABARD, inter alia, pointed out the provisions of law (Section 29 of the NABARD Act) and the contractual stipulations and called upon the Lead Bank to ensure NABARD’s priority in the matter of repayments from SEFL and to proceed on the basis that there was deemed statutory trust in favour of NABARD u/s 29 of the said Act in regard to the sums received by SEFL in repayment or realisation of loans and advances refinanced by NABARD to the extent of the accommodation granted by NABARD and remaining outstanding. In this regard, it is relevant to note that the entire outstanding amount in respect of the refinanced loans were due and payable to NABARD in full in priority to all other payments and did not form part of the common pool. These amounts were held by SEFL in trust for NABARD. NABARD is the beneficial owner of the same. The said outstanding amounts are impressed with a trust, whereunder SEFL can legally use the said amounts only for the purposes of the trust viz to pay over the same to NABARD, and for no other purpose. By reason of the statutory trust, the same do not form part of the assets of the Borrower (SEFL) for distribution among Term loan lenders and such sums received, receivables, if any under the refinance scheme formulated by NABARD shall be treated as out of the purview of the CIRP.
15.NABARD also brought the aforesaid position to the notice of Hon’ble Administrator of SEFL by its letters dated 07 October 2021, 14 October 2021 and 20 October 2021 and also in person on 18 October 2021. Copy of the letter dated 07 October 2021, 14 October 2021 and 20 October 2021 are annexed as Annexure- 18 Colly .
When along with claim Form, all relevant transactions, including the claim of the Appellant to get the receivables from the accounts of the CD, which it refinanced, the claim of the Appellant, cannot be said to be in any manner diminished by filing its claim in Form-C.
In any view of the matter, the Appellant has filed IA(IB) No.896/KB/2022 before the Adjudicating Authority, much before the approval of the Resolution Plan, where the Appellant after giving the sequence of facts, prayed for following reliefs:
“a. That this Hon'ble Tribunal be pleased to pass appropriate orders directing the Administrator / Respondent to confirm and ensure priority of repayments of NABARD in full over all other payments by SEFL and pass on the recoveries out of the assets assigned to NABARD by SEFL in respect of the refinanced loans in view of the statutory provisions under NABARD Act;
b. That pending the hearing and final disposal of this Application, this Hon'ble Tribunal be pleased to restrain the Administrator / Respondent from dealing with or dispose of or in any manner affect the refinanced receivables of NABARD held by SEFL in trust for the sole benefit of NABARD;
c. That this Hon'ble Tribunal be pleased to pass ad-interim reliefs in terms of prayer (b) above;
d. For such further and other reliefs as this Hon'ble Tribunal may deem fit and proper in the facts and circumstances of the present case in the best interest of justice and equity..
In the application, a reply was also filed by the Administrator. The Administrator itself has pleaded that the Appellant by six sanctioned letters and General Refinance Agreement had advanced loans to the CD in the form of refinance. In Paragraph 14 of the reply, following is pleaded:
“14.Pursuant to the aforesaid Sanction letters and its acceptance by SEFL, the Applicant and SEFL entered into 6 (six) General Refinance Agreements ("GRA") dated March 21, 2017, June 23, 2017, May 11, 2018, June 28, 2018, August 28, 2018 and March 6, 2019. The Applicant advanced loans to SEFL in form of refinance i.e. to enable SEFL to further advance monies to its constituents / borrowers. For the purpose of securing the loans granted by the Applicant to SEFL, the Applicant and SEFL also entered into Deed of Assignment of Book debts dated March 21, 2017, June 23, 2017, May 11, 2018, June 28, 2018, August 28, 2018 and March 6, 2019.”
The Administrator further pleaded that Rule 10 of the FSP Rules as well as Notification dated 30.01.2020 are not applicable in the case of NABARD and it was further pleaded that Section 29 of the NABARD Act is in conflict with the IBC. In Paragraphs 50 and 51 following were pleaded:
“50.By way of the present application, the Applicant has sought to
contend that the "trust" provided under Section 29 of NABARD Act is applicable to the entire amount for which the refinance was provided by it. This contention is totally misconceived. Without prejudice to the aforesaid contentions regarding the non-applicability of Section 29 of the NABARD Act after the initiation of CIRP of SEFL, on a bare reading of Section 29 of the NABARD Act itself, it is clear that even if the said provision is found to be applicable to proceedings under the IBC, it would only apply to the amounts actually received by SEFL from its borrowers out of Applicant's refinance facility and which amounts have not been paid to the Applicant.
51.As per the SEFL's records, the total amount collected from such loan accounts which have not been paid to the Applicant is Rs. 317.12 Crores for the period October 28, 2020 to August 31, 2022. Out of the above amounts received/realized, the amount received/realized by SEFL during the pre-CIRP period (October 28, 2020 to October 7, 2021) is Rs. 197.54 Crores whereas the amount received/realized by SEFL during the CIRP period (till August 31, 2022) is Rs. 119.58 Crores.”
One of the submissions, which has been pressed by learned Counsel for the Respondent that in event the case of the Appellant was that receivables from account which were refinanced by the Appellant, was not assets of the CD, the Appellant ought to have filed an application before the Adjudicating Authority to keep the said assets out of the CIRP of the CD. No such application was filed by the Appellant, hence, it is not open for the Appellant to contend that receivables from refinance accounts need to be treated as third-party assets and should be solely handed over to the Appellant. The above submission cannot be accepted for more than one reason. Firstly, even before filing of claim in Form-C, the Appellant vide its letters dated 07.10.2021, 14.10.2021 and 20.10.2021 has written to the Administrator claiming its rights on receivables from refinance accounts as per Section 29 of the NABARD Act and in the Form-C also, again the same plea was reiterated. We have also noticed the statement of facts, which is part of the Form-C, where the Appellant reiterated its claim from receivables, exclusively by the Appellant from the refinance accounts. Secondly, an application was filed by the Appellant before the Adjudicating Authority being IA (IB) No.896/KB/2022 much before the approval of Resolution Plan, where the said prayers were made. The Adjudicating Authority infact has heard the application and reserved the orders on 29.06.2023, i.e. prior to approving the Resolution Plan, which Plan was approved subsequently on 11.08.2023. The order approving the Resolution Plan came to be affirmed by this Tribunal as well as the Hon’ble Supreme Court.
One more submission, which has been pressed by learned Counsel for the Respondent is that the Appellant has not specified which are tagged accounts from which the receivables were to be paid to the Appellant. There are two aspects of the matter, which need to be noticed in respect of above submissions. The provisions of FSP Rules, wherein under Rule 10, sub-rule (2), the Administrator is obliged to take control and custody of third-party assets, which were to be held in Trust for the benefit of third parties only. Thus, it was obligation of the Administrator to take control and custody of the third-party assets or properties and it being the statutory obligation of the Administrator, it is not open for the CoC to contend that it was the duty of the Appellant to identify the tagged accounts. Further in Paragraphs 50 and 51 of the reply filed by the Administrator to the application, the Administrator itself has given certain amounts with respect to “such loan accounts”, which obviously referred to refinance accounts and according to the Administrator, prior to CIRP, from such account an amount of Rs.197.50 crores was received and during the CIRP Rs.119.58 crores were received. Thus, Administrator was well aware of the amounts received from the said accounts.
It is further relevant to notice that in the CoC Meeting in which the Appellant was assigned 2.71% vote shares, the claim of the NABARD was noticed and flagged. The Minutes of the CoC Meeting have been brough on record along with rejoinder affidavit, where with respect to IA filed by NABARD, the CoC in its 7th Meeting held on 24.06.2022 noticed as follows:
“On IA filed by National Bank for Agriculture and Development: The representative of the NABARD informed it has filed an application with Hon’ble NCLT in order to protect its right under the NABARD act, more specifically Sec. 25(1)(a) of the NABARD Act. The representative of the SBI stated that subject to legal opinion and view in this matter, NABARD should either be a member of the CoC as Financial Creditor or choose to exercise its exclusive rights under its Act, in which case it would seize to be a Financial Creditor and the assets would be treated as third party assets under the Code. representative of Bank of India concurred with the views of SBI and stated that NABARD should either be part of CoC or should take right of exclusive charge on the assets. The legal counsel of the Administrator and CoC clarified that it is important for NABARD to clarify its position failing which distribution of proceeds of Resolution Plan would be a problem. The representative of the Catalyst Trusteeship stated that if NABARD and SIDBI chose to exercise their exclusive rights on the assets charged to them and earmarked those assets and they should no longer be part of CoC. Also, while SIDBI has withdrawn its application before Hon’ble NCLT but has reserved its right to file it again. Further, this issue relating to exclusivity being claimed by NABARD and SIDBI is pending for more than 5-6 months now and the same should be resolved at the earliest. The representative of SBI then stated that unless NABARD and SIDBI explicitly give their consent to be treated at par with other CoC members, then legal view would have to be taken for including NABARD and SIDBI in the CoC as FCs. The representative of Catalyst Trusteeship concurred with the views of representative of SBI. Further, since in the next CoC meeting the avoidance transaction will be discussed, the decision on NABARAD and SIDBI should decide before the presentation on avoidance transactions to ensure confidentiality. The representative of NABARD took note of the same and informed that he will consult his management and provide a response shortly in the matter.”
Again in 8th CoC Meeting held on June 30, 2022, NABARD’s claim of exclusive of assets tagged to them for purpose of distribution has been noticed under Paragraph-3, Clause-B, following has been noticed:
“B. Update on NABARD and SIDBI Claims and their position:
The Administrator enquired from the representative of NABARD to clarify their position with respect to exclusivity of assets since the previous CoC it was discussed that NABARD would inform their decision on continuation with the legal proceedings in the Hon’ NCLT.
The CoC advised SIDBI also convey their decision in this regard. Representatives of both NABARD and SIDBI further requested for 2–3 days’ time to discuss with their respective management and communicate their decision to the CoC on whether they would go along with the CoC throughout the entire process (till implementation) or seek claim of exclusivity on assets tagged to them for purposes of distribution.
The representative of SBI and Catalyst Trusteeship suggested that this issue has been pending for several months and it is imperative for the CoC to take a decision and move forward lest it will affect the resolution process. The Administrator requested both the legal counsel of Administrator and CoC to examine the legal position in both scenarios i.e., in the event where NABARD and SIDBI decide to go along with CoC till implementation and in the event where they exercise their rights under their respective statutes.
Both the legal counsel of the Administrator and CoC agreed to look into the matter and provide their views to the CoC at the earliest.
The CoC took note of the same.”
The Appellant, thus, always claimed before the CoC about its exclusive receivables from the tagged account. The CoC, however, in 37th Meeting has noticed that NABARD having abstained from voting on the Resolution Plan, shall be treated as dissenting Financial Creditor. The CoC in its reply filed in this Appeal has stated that distribution resolution, which was approved in 37th CoC Meeting held on 03.03.2023, in Exhibit R-3, the CoC has brought on record the Note to Resolution No.2. Under Sl. No.6, ‘setting aside for NABARD in view of pending IA before NCLT’ was noticed and decided. It is useful to notice Item No.6, which is as follows:
| S.No. | Particulars | Details/ Principle |
| “6. | Setting aside for NABARD in view of pending IA before NCLT | i. NABARD Admitted Claim Amount of Rs. 883.63 Cr to be prorated in the ratio of Upfront Cash : Future Value of Committed Instruments : Uncommitted Instruments available for distribution after adjustments made in Step 1-5 above. ii. The Resolution Plan Payments remaining after computation under Step (i) above will then be distributed to all creditors (including to NABARD) as per steps detailed below. iii. The Resolution Plan Payments distributed to NABARD in step “Payment to Assenting FCs” shall be reduced from the amounts computed under Step (i) above and such reduced portion shall be set aside in an interest bearing no-lien account and other account as applicable, to be maintained by UCO Bank (“NABARD Set Aside Amount”). It may be noted a circularity is built here at the time of calculation of the NABARD Set Aside Amount and iterations are kept at 10,000. iv. In the event the NABARD Application is decided in NABARD’s favour by the Hon’ble NCLT (or the Hon’ble NCLAT or the Supreme Court, as the case may be in case of any appeal against the order of the NCLT or the NCLAT), the NABARD Set Aside Amount will be paid to NABARD [along with all interest earned/recovery thereon]. v. In the event the NABARD Application is not decided in favour of NABARD by the Hon’ble NCLT (or the Hon’ble NCLAT or the Supreme Court, as the case may be in case of any appeal against the order of the NCLT or the NCLAT), the NABARD Set Aside Amount along with all interest earned/recovery thereon shall be distributed to the Secured FCs (including NABARD) in proportion to their admitted claim amounts. vi. Any amounts arising for payment under the instruments issued to NABARD prior to the final non-appealable judgement should be kept aside with UCO Bank along with the set aside Upfront Cash to that extent.” |
The CoC and Resolution Applicant were conscious about the pendency of IA (IB) No.896/KB/2022 filed by the NABARD before the Adjudicating Authority and has taken a decision to set aside for NABARD the amount. The CoC consisted of public sector Banks and they being well aware of claims of NABARD, have taken the said decision, which is part of the Resolution Plan. As noted above, in the present case, the Resolution Plan has been approved by the Adjudicating Authority on 11.08.2023 has also been affirmed by this Tribunal and the Hon’ble Supreme Court. Learned Counsel for the Appellant has rightly contended that there can be no grievance with regard to approval of Resolution Plan, since Appellant is claiming entitlement only as per the approved Resolution Plan and as per approved distribution mechanism. It is submitted that the Appellant having already filed an application, which was liable to be allowed by Adjudicating Authority, hence, the amount set apart for the Appellant is to be handed over to the Appellant as per the distribution mechanism and present is not a case for any separate distribution or calculation of the amount of receivables. The CoC in its commercial wisdom has already set apart the amount, which could have been claimed by the NABARD relying on Section 29 of the NABARD Act.
Shri Krishnendu Datta, learned Senior Counsel appearing for the Respondent has made one more submission that the security interest was created in favour of NABARD with respect to accounts, where refinance facility was extended by the CD and when security interest was created, the said security interest can be released by the Appellant only as per the IBC. The Appellant having filed claim as Financial Creditor in Form-C, the Appellant has accepted itself to be a Financial Creditor of the CD. There can be no dispute that by virtue of Assignment Agreement executed by the CD in favour of the NABARD as noticed in the detailed statement of facts given in Form-C, security interest was created in all book debts of the CD. Thus, there can be no dispute that security interest was created, but present is a case where the Appellant was claiming rights by virtue of Section 29 of the NABARD Act and Rule 10 of FSP Rules. It was statutory obligation of the Administrator to take control and custody of third-party assets to be held in Trust for the benefit of third-parties. The submission of the CoC is that since the Appellant has filed claim in Form-C as a Financial Creditor, its resolution, specially when security interest is claimed on assets, has to be treated as per the IBC. The present is a case where the Appellant from the very beginning has been claiming right by virtue of Section 29 of the NABARD Act, which letters were submitted by the Appellant both before initiation of CIRP against the CD as well as subsequent to the initiation of CIRP. We have already held that by mere filing of claim in Form-C, which Form was not applicable with regard to CIRP of financial service providers, none of the rights of the Appellant, can be said to be waived. Moreso, when detailed statement of facts, giving all details of transactions and claims of the Appellant were reflected as noted above. We have further noticed that in the Meeting of the CoC, the claim of the NABARD was also flagged and taken note of.
Learned Counsel for the Appellant has placed reliance on the judgment of this Tribunal in Company Appeal (AT) (Ins.) no.461 of 2021 - Union Bank of India on behalf of the Committee of Creditors of Dewan Housing Finance Corporation Ltd. vs. National Housing Bank. The above was a case where the CRIP had commenced against a financial service provider, i.e. Dewan Housing Finance Corporation Ltd. (DHFCL). In CIRP an MA was filed by the National Housing Bank relying on Section 16B of the National Housing Bank Act, 1987, claiming that sums received by DHFCL in repayment or release of loans refinanced by the National Housing Bank be paid to it. The Adjudicating Authority allowed the application filed by National Housing Bank relying on Section 16B of the National Housing Bank Act, 1987. Against which order, the CoC of DHFCL through Union Bank of India filed an Appeal. This Tribunal had occasion to consider the statutory provisions of Section 16B of the National Housing Bank Act, 1987 and has also occasion to consider FSP Rules. The issues were framed by this Tribunal in Paragraph 18.6, which are as follows:
“18.6Based on the pleadings of the parties following points arise for the determination of this appeal;
a). Whether the Adjudicating Authority erred in holding that NHB is entitled to any rights under section 16 B of the NHB Act after commencement of CIRP against the DHFL when such rights are in direct conflict with the express provisions of the Code?
b)Is the relationship between DHFL and NHB that of a debtor and creditor, and no special rights can be afforded to NHB other than as a financial creditor?
c)Whether the Adjudicating Authority erred in holding that the Tagged Receivables are 3rd party assets?
The provisions of Section 16B were noticed in Paragraph 18.7, which are as follows:
“18.7In response to the issues raised in the Appeal, the Respondent NHB emphasized the relevant provisions necessary for considering the present dispute between the parties:
A. National Housing Bank Act, 1987 Section 16B - Amount and Security to be held in trust:
(1)Any sums received by a borrowing institution in repayment or realization of loans and advances financed or refinanced either wholly or partly by the National Housing Bank shall, to the extent of the accommodation granted by the National Housing Bank and remaining outstanding, be deemed to have been received by the borrowing institution in trust for the National Housing Bank and shall accordingly be paid by such institution to the National Housing Bank.
(2)Where any accommodation has been granted by the National Housing Bank to a borrowing institution, all securities held, or which may be held, by such borrowing institution on account of any transaction in respect of which such accommodation has been granted, shall be held by such institution in trust for the National Housing Bank.
B. Insolvency and Bankruptcy (Insolvency and Liquidation Proceedings of Financial Service Providers and Application to
Adjudicating Authority) Rules, 2019
Rule 10 - Assets of third parties, etc.
(1)For Removal of doubts, it is clarified that the provisions of clause (b) of Rule 5 and section 14 shall not apply to any third-party assets or properties in custody or possession of the financial service provider, including any funds, securities and other assets required to be held in trust for the benefit of third parties.
(2)The Administrator shall take control and custody of thirdparty assets or properties in custody or possession of the financial service provider, including any funds, securities and other assets required to be held in trust for the benefit of third parties only for the purpose of dealing with them in the manner, as may be notified by the Central Government under Section 227.
C. Notification, S.O. 464 (E), Dt 30th January 2019 issued by Ministry of Corporate Affairs.
In exercise of the powers conferred by Section 227 of the Insolvency and Bankruptcy Code, 2016 (31 of 2016) and in pursuance of rule 10 of the Insolvency and Bankruptcy (Insolvency and Liquidation Proceedings of Financial Service Providers and Application to Adjudicating Authority) Rules, 2019. The Central Government, in consultation with the Reserve Bank of India, hereby notifies the manner of dealing with the third party assets in custody or possession of such financial service providers, as referred to in the notification vide No. S.O. 4139 (E), dated 18th November 2019 by the Administrator appointed under clause (a) of Rule 5 of the said rules, as under:
1.Receivables for Third Parties: Where a financial service provider is contractually obliged, as on the insolvency commencement date, to act as a servicing or collection agent on behalf of third parties in respect of a transaction such as securitization or lending arrangement, the Administrator shall-
(a)……
(b)continue to discharge the obligation of the financial service provider as a servicing or collection agent;
2.Assets of Third Parties - Where the Financial Service Provider has, as on the insolvency commencement date, in its custody or possession owned by its customers or counterparties or by counterparties of its customers under a contract, and is under an obligation to return or transfer such assets in accordance with the terms and conditions of such contract, the Administrator shall-
(a)….
(b)ensure that such assets are maintained in a separate and distinct manner, capable of identifying them contract wise, and are not merged with those of the financial service provider ……”
This Tribunal considering the provisions of Section 16B held that CD cannot use these tagged loans or recoveries for its purpose or treat them as its property, disregarding the statutory provisions under Section 16B. It is useful to notice Paragraphs 18.8 to 18.13, which are as follows:
“18.8From a perusal of the above provisions, it is clear that the provisions of Section 16B of the NHB Act unequivocally provide that any sums received by the borrowing institution would be received by such borrowing institution in trust for RespondentNo.1, NHB, and would be accordingly, required to be paid to the Respondent, NHB.
18.9What is pertinent is that the funds with the Corporate Debtor to the extent they relate to the earmarked/flagged loans refinanced by this Respondent NHB are impressed with a trust and are held "in trust" for the benefit of Respondent NHB, hence a beneficial owner of the trust created under the statue. The amount (that stands admitted under the resolution plan) is thus required to be paid to this Respondent NHB. Moreover, these are third-party assets, i.e. they belong to this Respondent NHB; the Corporate Debtor was collecting the same from its owners in trust for this Respondent.
18.10In the present case, both the factors stated in Section 16B are satisfied viz. the amounts held in trust by the Corporate Debtor (i) are to the extent of the accommodation granted by this Respondent; and (ii) are remaining outstanding. Accordingly, these are bound to be paid to this Respondent NHB in the plain and unambiguous terms of Section 16B of the National Housing Bank Act.
18.11Under Section 16B of the NHB Act, the Corporate Debtor is statutorily deemed to hold these funds as a 'Trustee' for this Respondent NHB. Although it is elementary and a matter of the first principle that a Trustee never has the Trust property for its use or purpose, such funds can be used solely for the Trust, i.e. only to be paid to this Respondent.
18.12In the instant case, being a refinance transaction, the Corporate Debtor availed refinance against a pool of tagged loans. Towards these tagged loans, Respondent ‘NHB’ had already passed on the consideration in the form of refinancing to the Corporate Debtor. Under a clear mandate of Section 16 B(1) of the NHB Act, any realization from the said loans shall be deemed to be held by the Corporate Debtor in trust for the benefit of the refinancing institution, i.e. the Respondent NHB.
18.13Therefore, the Corporate Debtor cannot use these tagged loans or recoveries for its purposes or uses or treat them as its property, disregarding the statutory Provision under Section 16B of the NHB Act. Thus, the realisations under the tagged loans and securities held thereunder are held by the Corporate Debtor only as an intermediary/custodian in trust for the benefit of the Respondent NHB, as it has refinanced these tagged loans.”
The Appeal was ultimately dismissed. Against the order passed by this Tribunal on 07.02.2022 in the above case, an Appeal was filed by the CoC of DHFCL before the Hon’ble Supreme Court, where the Hon’ble Supreme Court has passed various interim directions, directing for release of the amount to National Housing Bank, which was to be subject to the result of the final outcome of the Appeal pending in the Hon’ble Supreme Court. The Appeal filed by the CoC is still pending before the Hon’ble Supreme Court.
The CoC in the present case was well aware of the above order of this Tribunal passed in case of National Housing Bank, which judgment was also taken note in the Minutes of the CoC Meeting.
The above judgment of this Tribunal does support the submissions advanced by the Appellant. The provisions of Section 29 of the NABARD Act as well as Rule 10 of FSP Rules do support the contention of the Appellant that receivables from the accounts relating to refinancing done by the CD are assets of the Appellant, i.e. third-party assets and cannot be held to be assets of the CD. It is to be noted that judgment of this Tribunal in National Housing Bank’s case is under consideration before the Hon’ble Supreme Court. However, the claim of the Appellant is fully supported by statutory provisions of Section 29 of the NABARD Act and Rule 10 of FSP Rules. We have also noticed the Notification issued by the Central Government dated 30.01.2020, which also supports the claim of the Appellant. The Adjudicating Authority in the impugned order held that Section 29 of NABARD Act read with Rule 10 is not in contravention of the Code. In Paragraph 9 of the judgment, the Adjudicating Authority made following observations:
“9.Section 29 of the NABARD Act can be read with rule 10 of the FSP Rules and hence the NABARD Act is not in contravention with the Code, but it is also important to consider till what aspect.”
The Adjudicating Authority in the impugned order held that since NABARD is Member of the CoC as a secured Financial Creditor and is well aware of the terms and conditions of the Plan and once the Resolution Plan has been approved, the Resolution Plan is binding on all. In Paragraphs 20 to 22, the Adjudicating Authority made following observations:
“20.In the present circumstance NABARD was a part of the CoC and was well aware of the terms and conditions envisaged in the Resolution Plan. Once the Resolution Plan has been approved by the Adjudicating Authority, the Resolution Plan is binding on all the stakeholders, which includes the Applicant as well. The applicant as a member of the CoC have not raised the issue of Section 29 of NABARD act before the CoC and now that after the Plan has been approved, this plea which is akin to a preferential treatment, cannot be sustained being in clear contravention of the Code.
21.Under the Resolution Plan, NABARD has received certain amount as proposed by the Successful Resolution Applicant in full and final payment. Hence in view of the observation made in Anuj Jain supra. it can be said that NABARD as a secured Financial Creditor had an important role to play in the revival of SEFL. NABARD cannot be allowed to sail in two boats, claiming the benefit from wherever it is possible.
22.In view of the above circumstances and observations, we are of the view that NABARD cannot be given the right to claim his dues being a secured financial creditor any differently than other financial creditors notwithstanding their claim that the Financial Service Provider had kept aside his claim in a trust fund. The same would amount to res judicata.”
Learned Counsel for the Appellant had submitted that the Appellant is in no manner aggrieved by the Resolution Plan, since the Resolution Plan itself under the distribution mechanism has protected the interest of the NABARD, which amount has been set apart. The application filed by the Appellant being IA (IB) No.896/KB/2022 was pending consideration at the time when Plan was approved. Hence, the Resolution Plan has taken care of the claim of the Appellant and provided for distribution mechanism as noted above. The Adjudicating Authority committed error in holding that since the Appellant is Member of the CoC, it is bound by Resolution Plan and the amount proposed by the SRA is for full and final payment. There can be no dispute to the proposition that Plan binds all, but present is a case where distribution mechanism, which is approved by the CoC, itself takes care of claim of the Appellant, which has been set apart as noted above. Thus, the fact that Appellant was treated as part of the CoC as secured Financial Creditor, does not negate the claim of the Appellant in any manner and Adjudicating Authority although noticed the relevant provisions of Section 29 of the NABARD Act and Rule 10 of FSP Rules, has not adverted to the said statutory provisions, which obliged the Administrator to keep apart third-party assets, which was its statutory obligation. We, thus, are satisfied that Adjudicating Authority committed error in rejecting IA (IB) No.896/KB/2022 and the Appellant has made out a case for granting the reliefs as prayed in the application.
It has been submitted by learned Counsel for the Respondent that as a dissenting Financial Creditor, the Appellant has been paid an amount of Rs.121 crores and Plan is implemented. In the present Appeal, we had passed an interim order on 04.04.2024 “Implementation of the Plan is in pursuance of the Impugned Order shall abide by the result of the Appeal”. Moreso, the distribution mechanism as approved by the CoC has noted that if the NABARD application (IA (IB) No.896/KB/2022) is decided in NABARD favour by NCLT or NCLAT or the Hon’ble Supreme Court, the NABARD set aside amount will be paid to NABARD as noticed above. Thus, the CoC has already approved the distribution mechanism in event the application is allowed, the NABARD shall be paid the amount set apart.
In result, we allow the Appeal, set aside the impugned order dated 01.02.2024 rejecting IA (IB) No.896/KB/2022. IA (IB) No.896/KB/2022 is allowed. The Appellant shall be entitled for the amount set apart for NABARD as per distribution mechanism noted and approved in 37th CoC Meeting, as noted above. The amount already paid to the Appellant as dissenting Financial Creditor is also liable to be adjusted in the amount set apart and to be paid to the Appellant under the distribution mechanism. Parties shall bear their own costs.