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SC directs Union Bank to release over Rs 1,300 crore lying in its escrow account to NHB

RBI had, on November 20, 2019, superseded the Board of Directors of DHFL over governance concerns and defaults in meeting payment obligations.

SC directs Union Bank to release over Rs 1,300 crore lying in its escrow account to NHB
A Bench led by Justice SA Nazeer, while seeking response from NHB and DHFL on an appeal filed by the Union Bank of India on behalf of Committee of Creditors of erstwhile DHFC, said that in case the Union Bank succeeded in its appeal, the NHB will have to refund the money to the PSU bank with interest that will be fixed at the time of final disposal of the case.

The Supreme Court has directed Union Bank of India to release “forthwith” over Rs 1,300 crore lying in its escrow account to the National Housing Bank in a case related to Dewan Housing Finance Corporation (DHFL).

A Bench led by Justice SA Nazeer, while seeking response from NHB and DHFL on an appeal filed by the Union Bank of India on behalf of Committee of Creditors of erstwhile DHFC, said that in case the Union Bank succeeded in its appeal, the NHB will have to refund the money to the PSU bank with interest that will be fixed at the time of final disposal of the case.

RBI had, on November 20, 2019, superseded the Board of Directors of DHFL over governance concerns and defaults in meeting payment obligations. The NCLT had on December 3, 2019, initiated insolvency proceedings against DHFL and had also admitted NHB’s claim of `2,436.67 crore. NHB, being a member of CoC having 2.81% of the voting share, had participated and exercised all its rights available to a financial creditor of DHFL. Piramal Capital & Housing Finance’s resolution plan for takeover of DHFL for `33,250 crore was approved by NCLT on June 7, 2021.

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The Union Bank had challenged the National Company Law Appellate Tribunal’s February 7 order that dismissed its appeal against release of money, the prayer that was also turned down by the NCLT on June 7 last year on the grounds that the Tagged Receivables were assets of NHB and were held in trust with DHFL. NCLAT had also held that funds with DFHL to the extent they relate to the flag loans refinanced by the NHB were held in trust for the benefit of NHB.

Seeking setting aside of NCLAT’s order, Union Bank said that the impugned order was passed without affording the CoC the opportunity of being heard and the appellate tribunal’s order was contrary to the settled law that IBC would override the NHB.

“Further, the NCLT order and the impugned order proceed on the erroneous footing/basis that NHB is the owner of DHFL’s funds or property by virtue of Section 16B of the National Housing Bank Act, 1987,” it said, adding that DHFL is the owner of the tagged receivables.

It submitted that the relationship between NHB and DHFL is purely a commercial lending relationship and does not give NHB a better right than any other financial creditor.

However, NHB opposed the Union Bank’s appeal, arguing that the provisions of the NHB Act are harmonious with the IBC. It said that it an integral partner in formulating and implementing India’s housing and housing finance policies and was to be treated at par with other financial creditors/commercial lenders.

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NHB had been already been paid under the Resolution Plan and all liability of DHFL qua NHB stands discharged including any claim on the Tagged Receivables, according to the Union Bank’s appeal. “In any event, no claim accrues to NHB from the Tagged Receivables as they are assets of DHFL and no shred of evidence, including the balance sheets of NHB, in any of the proceedings has been submitted by NHB to show that the Tagged Receivables are assets of NHB,” it added.

NHB admittedly is a financial creditor of DHFL and that the Tagged Receivables were merely security for the repayment of loans advanced by NHB to DHFL, the PSU lender on behalf of CoC said.

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