Supreme Court judgment outlines multiple civil appeals concerning the Corporate Insolvency Resolution Process (CIRP) of Dewan Housing Finance Corporation Limited (DHFL). The core disputes revolve around a Resolution Plan (RP) approved by the Committee of Creditors (CoC) and the National Company Law Tribunal (NCLT). Key issues addressed include whether the National Company Law Appellate Tribunal (NCLAT) erred in modifying the RP’s provisions regarding the allocation of recoveries from fraudulent and preferential transactions, the rights of fixed deposit holders to full repayment, and the standing of former directors in the insolvency proceedings. The document further explores the powers and limitations of the NCLT and NCLAT in reviewing such plans, emphasising the commercial wisdom of the CoC and the distinction between “avoidance applications” and “fraudulent trading” under the Insolvency and Bankruptcy Code (IBC).
(A) Insolvency and Bankruptcy Code, 2016, Section 7, 16, 21, 30, 31, 43, 44, 45, 50, 61, 66 – Insolvency and Bankruptcy Board of India (Insolvency Resolution Process for Corporate Persons) Regulations, 2016, Regulation 37 and 39 – Insolvency and Bankruptcy – Contravention of the provisions of any law – Whether the RP in question approved by the CoC and the NCLT was in contravention of the provisions of any law, for the time being in force, requiring the NCLAT to exercise its jurisdiction under Section 61 of the IBC?” – Impugned judgment and order dated 27.01.2022 passed by the NCLAT in Company Appeal Nos. 454-455 and 750 of 2021 is set aside, and the judgment and order dated 07.06.2021 passed by the Adjudicating Authority/ NCLT granting its approval to the Plan Approval Application, and thereby approving the Resolution Plan, is upheld – However, it is clarified and directed that the NCLT shall decide the Avoidance Applications filed by the Administrator under Section 43, 45, and 50, and shall separately decide the Applications under Section 66, and it shall pass the orders in accordance with the powers conferred upon it under Section 44, 48, 49, 50, and under Section 66, as the case may be – The recoveries/benefits that may follow from such Applications shall be appropriated in favour of the CoC in case of Avoidance Applications under Section 43, 45 and 50, and in favour of SRA-Piramal Capital in case of Applications under Section 66 of IBC – The Civil Appeal Nos. 1632-1634 of 2022 filed by the Piramal Capital and Housing Finance Limited and the Civil Appeal Nos. 2989-2991 of 2022 filed by the Union Bank of India stand allowed.
(Para 111)
(B) Insolvency and Bankruptcy Code, 2016, Section 7, 30(2), 31, 60 and 61 – Insolvency and Bankruptcy – Judicial review – Scope of judicial review by the NCLT under Section 31 and by NCLAT under Section 61 of IBC – Held that the legislature has given paramount importance to the “commercial wisdom” of CoC, and that the scope of the judicial review by the Adjudicating Authority (NCLT) is limited to the extent provided under Section 31, and that of the Appellate Authority (NCLAT) is limited to the extent provided under sub-section (3) of Section 61 of the IBC – After a RP is approved by the requisite majority of the CoC, it must pass the muster of Adjudicating Authority under Section 31(1) of the IBC – Section 31 also makes it abundantly clear that once the RP is approved by the Adjudicating Authority, after it is satisfied that the RP as approved by the CoC meets the requirements as referred to in sub-section (2) of Section 30, it shall be binding on the CD and its employees, members, creditors, guarantors and stakeholders – The legislature has consciously not provided for a ground to challenge the justness of the “commercial decision” taken by the Financial Creditors, because one of the dominant purposes of the IBC is revival of the CD and to make it a running concern – While considering the feasibility and viability of the Prospective Resolution Plans, the CoC can always suggest a modification therein and exercise its commercial wisdom – However, once the RP is approved by the requisite majority of CoC, and when such RP is placed before the Adjudicating Authority for its approval under Section 31, the Adjudicating Authority has to only see whether such RP as approved by the CoC meets the requirements as referred to in Section 30(2) – It is only where the Adjudicating Authority is satisfied that the RP does not confirm to the requirements of sub-section (1) of Section 31, it may by an order reject the RP – It is true that the NCLT has to decide all the questions on law or fact arising out of or in relation to the insolvency resolution or liquidation under the residuary jurisdiction vested in NCLT under Section 60(5), however, such residual jurisdiction does not in any manner impact – Section 30(2) of the Code, which circumscribes the jurisdiction of the Adjudicating Authority, when it comes to the confirmation of RP, as has been mandated by Section 31(1) of the Code – Similarly, the scope of interference by the Appellate Authority i.e., NCLAT under Section 61 in the Appeals arising out of the order approving a RP under Section 31, is also very limited and restricted to the specific grounds mentioned in sub-section (3) of Section 61 – The grounds for filing Appeal under Section 61 have to be confined to sub-section (3) thereof.
(Para 42 to 44)
(C) Insolvency and Bankruptcy Code, 2016, Section 7, 25(2), 43, 45, 50, 66, 67 – Insolvency and Bankruptcy Board of India (Insolvency Resolution Process for Corporate Persons) Regulations, 2016, Regulation 37 and 39 – IBBI (Liquidation Process) Regulations, 2016, Regulation 37A – Reserve Bank of India Act, 1934, Section 45-IE, 45QA – National Housing Bank, 1987, Section 56A – Insolvency and Bankruptcy – Applications for Avoidance of transactions – What are the Applications for Avoidance of transactions required to be filed by the Resolution Professional in accordance with Chapter III, and what are the Applications in respect of Fraudulent trading or Wrongful trading required to be filed by the Resolution Professional under Section 66 of the IBC? – Held that there is a clear distinction between the Avoidance Applications that may be filed by the Resolution Professional in view of Section 25(2)(j), for avoidance of transactions in accordance with Chapter III of the Code, and the Applications that may be filed by the Resolution Professional in respect of the Fraudulent trading or Wrongful trading under Section 66, which falls under Chapter VI of the Code – The legislature has consciously kept the Applications in respect of Fraudulent trading or Wrongful trading falling in Chapter VI, outside the purview of Section 25(2), which requires the Resolution Professional to undertake the actions and file applications for the avoidance of transactions in accordance with Chapter III – Both, the Avoidance Applications under Chapter III and the Applications in respect of Fraudulent trading or Wrongful trading under Chapter VI, operate in different situations – The powers of the Adjudicating Authority in respect of the Avoidance Applications filed under Chapter III and the powers of the Adjudicating Authority in respect of the Applications pertaining to the Fraudulent and Wrongful trading filed under Chapter VI, have also been separately circumscribed – Applications filed in respect of “Fraudulent and Wrongful trading” carried on by the CD, could not be termed as “Avoidance Applications” used for the Applications filed under Sections 43, 45 and 50 to avoid or set aside the Preferential, Undervalued or Extortionate transactions, as the case may be – There is clear demarcation of powers of the Adjudicating Authority to pass orders in the Avoidance Applications filed by the Resolution Professional under Section 43, 45 and 50 falling under Chapter III and the Applications filed by the Resolution Professional in respect of the Fraudulent and Wrongful trading of CD, under Section 66 falling under Chapter VI of the IBC – If the Resolution Professional has filed common applications under Sections 43, 45, 50 and also under Section 66, the Adjudicating Authority shall have to distinguish the same and decide as to which provision would be attracted to which of the Applications, and then shall exercise the powers and pass the orders in terms of the provisions of IBC.
(Para 56 and 61)
(D) Insolvency and Bankruptcy Code, 2016, Section 7, 29(A), 30(1), 30(2), 31 – Insolvency and Bankruptcy Board of India (Insolvency Resolution Process for Corporate Persons) Regulations, 2016, Regulation 38 and 39 – IBBI (Liquidation Process) Regulations, 2016, Regulation 37A – Reserve Bank of India Act, 1934, Section 45-IE, 45QA – National Housing Bank, 1987, Section 56A – Insolvency and Bankruptcy – Mandatory requirements – What are the mandatory requirements as referred in sub-section (2) of Section 30 read with Regulation 38 of the Regulations, 2016? – As per sub-section (1) of Section 30, a RA may submit a RP along with an affidavit stating that he is eligible under Section 29(A), to the Resolution Professional prepared on the basis of the information memorandum – On the receipt of RPs from the eligible RAs, the Resolution Professional has to examine each RP to confirm that each RP provides for the payment of Insolvency Resolution Process cost in the manner specified by the Board in priority to the payment of other debts of the CD, and provides for the payment of debts of operational creditors in such manner as may be prescribed by the Board, as required under sub-section (2) of Section 30 – The Resolution Professional has also to confirm that each RP provides for the management of the affairs of CD after the approval of the RP; the implementation and supervision of the RP; and also that the plan does not contravene any of the provisions of the law for the time being in force, and such other requirements specified by the Board – The other mandatory contents of a RP have been specified in Regulation 38 of the Regulations, 2016 – Entire process right from the submission of RPs by the PRAs till the final approval/rejection of the Plan by the Adjudicating Authority has been duly prescribed, which is mandatory in nature – If there is any non-compliance of the mandatory requirements stated in Section 30(2) of IBC, read with Regulation 38 of the Regulations, 2016, the Adjudicating Authority is empowered to reject the plan as envisaged in sub-section (2) of Section 31 – If however, the plan approved by the CoC as per Section 30(4), meets with the requirements under Section 30(2), the Adjudicating Authority has to approve such plan under Section 31(1), which would be binding to all the stakeholders as stated therein.
(Para 62 and 65)
(E) Insolvency and Bankruptcy Code, 2016, Section 7 – Insolvency and Bankruptcy Board of India (Insolvency Resolution Process for Corporate Persons) Regulations, 2016, Regulation 37 and 39 – Insolvency and Bankruptcy – What is maximization of the value of assets of the Corporate Debtor – Held that in CIRP, the role of the CoC is that of a protagonist, who takes the key decisions in its commercial wisdom and also takes the consequences thereof – It cannot be gainsaid that the decisions of CoC must reflect the fact that it has taken into account the maximization of the value of the assets of the CD, and that the interest of all the stakeholders has been adequately balanced – However, “What is maximization of the assets” has not been defined in the Code though stated in the Preamble – Of course, it has been referred in Regulation 37 of the Regulations, 2016, which states that RPs shall provide for the measures as may be necessary for insolvency resolution of the CD, for maximization of the value of its assets, which may include the measures as provided in Clauses (a) to (l) thereof – Since the Preamble of IBC envisages “maximization of the value of the assets of the Corporate Debtor,” and to promote entrepreneurship, the measures necessary for maximization of assets stated in Regulation 37, amongst others, will have to be taken into consideration by the CoC while considering the proposed RPs for approval.
(Para 66)
(F) Insolvency and Bankruptcy Code, 2016, Section 7, 31, 61 – Insolvency and Bankruptcy Board of India (Insolvency Resolution Process for Corporate Persons) Regulations, 2016, Regulation 37 and 39 – Insolvency and Bankruptcy – Appeal – Whether the NCLAT should have entertained the Appeals of the 63 Moons under Section 61 of the Code and interfered with the commercial wisdom exercised by the CoC? – As per the legislative intent and as per the broad contours of the provisions of IBC, the commercial wisdom of CoC has been given the prominent status, with the least judicial intervention, for ensuring the completion of Resolution Process within the prescribed timelines – In Essar Steel (supra), this Court after discussing earlier judgments had observed that what is left to the majority decision of the CoC is the “feasibility and viability” of a RP, which obviously takes into account all aspects of the plan, including the manner of distribution of funds among the various classes of Creditors – The legislature has consciously not provided for a ground to challenge the justness of the commercial decision expressed by the Financial Creditors – be it to approve or reject the RP – Similar view is taken by the Three Judge Bench in Ghanashyam Mishra (supra) to the effect that the legislature has given paramount importance to the commercial wisdom of the CoC and the scope of judicial review by the Adjudicating Authority is limited to the extent provided under Section 31 and by the Appellate Authority limited to the extent provided under sub-section (3) of Section 61 of IBC – Appellants’ respective classes had voted overwhelmingly in favour of the RP of SRA – Neither the 63 Moons nor Roopjyot & Ors. had voted against the RP nor any justification was offered by them for not voting against the RP – Under the circumstances the said Appellants – NCD Holders before the NCLAT were bound by the decision of their classes in approving the RP, and were estopped from raising any objection against the RP approved by the CoC – Vote cast by the Authorized Representative – M/s. Catalyst Trusteeship on behalf of the class of Financial Creditors he represented, was binding on the 63 Moons and other Appellants before the NCLAT, and therefore they were estopped from raising any objection before the NCLT or NCLAT against the RP approved by the requisite majority of CoC b- All the Appeals in this category deserve to be allowed by setting aside the impugned order dated 27.01.2022 passed by the NCLAT and restoring the order dated 07.06.2021 passed by the NCLT in the Plan Approval Order.
(Para 77, 84 to 87)
(G) Insolvency and Bankruptcy Code, 2016, Section 7, 16, Section 21 (6A) (b) – Insolvency and Bankruptcy Board of India (Insolvency Resolution Process for Corporate Persons) Regulations, 2016, Regulation 16A- – Reserve Bank of India Act, 1934, Section 45-IE, 45QA – National Housing Bank, 1987, Section 56A – Insolvency and Bankruptcy – Appeals – Filed by several Fixed Deposit Holders and one Non-Convertible Debenture Holder of the CD, challenging the RP dated 22.12.2020 – Both the Sections 36(A) of NHB Act and 45(QA) of the RBI Act containing almost similar provisions, require the Housing Finance Institution or the Non-Banking Financial Company, as the case may be, to repay the deposits accepted by it in accordance with the terms and conditions of such deposit – However from the bare reading of the said provisions it clearly transpires that in case of nonpayment of such deposits, the authorized officer or the CLB as the case may be on being satisfied that it is necessary to safeguard the interest of the company, or of the depositors in the public interest may direct such institution or the company to make repayment of such deposit or part thereof – None of the said provisions mandates full payment of deposits or confers any right upon the depositors to have full payment of such deposits – There is also nothing on record to suggest that any authorized officer under the NHB Act or the CLB under the RBI Act has passed any order to make full payment of deposits to the Appellants. Hence, it could not be said, by any stretch of imagination, that the RP in question, providing for the Distribution mechanism, was contrary to any of the provisions of the RBI Act or of the NHB Act – Appellants – FD Holders were represented in the CoC by their Authorized Representative and the NCD Holders were represented in the CoC by their Authorized Representative, as permitted under Section 21 (6A) (b) of IBC read with Regulation 16 (A) of the CIRP Regulations, 2016 – FD Holders, as a class, had voted against the RP and the Distribution mechanism, and were thus classified as the “Dissenting Financial Creditors.” – However, the said Distribution mechanism was approved by a majority of 86.95% of CoC – The Appellants – FD Holders therefore had filed applications before the NCLT – The NCLT vide the order dated 07.06.2021 approved the RP by passing Plan Approval Order, and by separate order disposed of the Applications filed by the FD Holders, recommending the CoC to reconsider the Distribution mechanism in the interest of various creditors viz. Public Depositors, FD Holders, NCD Holders, Small Investors, EPF Trust etc. – NCLAT also vide the impugned order dismissed the same by holding inter alia that the Administrator was under no obligation to ensure full payment of deposits to the FD Holders under the RBI Act or the NHB Act, and that the decision about the payments to the creditors fell within the commercial wisdom of CoC which was not amenable to judicial review, subject to fair and equitable play – Held that do not find any legal infirmity in the said impugned order passed by the NCLAT – Appeals filed by the Appellants in this Second Category of Appeals being devoid of merits deserve to be dismissed.
(Para 95 to 99)
(H) Insolvency and Bankruptcy Code, 2016, Section 7, 31 – Insolvency and Bankruptcy Board of India (Insolvency Resolution Process for Corporate Persons) Regulations, 2016, Regulation 37 and 39 – IBBI (Liquidation Process) Regulations, 2016, Regulation 37A – Reserve Bank of India Act, 1934, Section 45-IE, 45QA – National Housing Bank, 1987, Section 56A – Insolvency and Bankruptcy – Value maximization of assets and businesses – Contention that Resolution Professional, that is the Administrator in this case, and the CoC had not undertaken any efforts for value maximization of DHFL’s assets and businesses, which is the underlying object of the IBC – According to him the Appellants – Ex-Promoters/ Directors were kept out of the entire CIRP proceedings and were not given any opportunity to participate in the said proceedings under the guise that the entire Board of Directors of DHFL was superseded under the RBI Act, and therefore the Ex-Directors did not have any right, which suspended Directors would have under the IBC – Held that RBI having superseded the Board of Directors and appointed the Administrator, the Appellants – Ex-Directors had deemed to have vacated their offices – They having been arrested in connection with the criminal proceedings filed against them, were in the judicial custody all throughout the CIRP proceedings – The said Administrator having initiated the CIRP proceedings, was thereafter continued by the CoC as the Resolution Professional to conduct the CIRP under the provisions contained in the IBC – Under the circumstances, the Appellants – KW and DW, who were the Directors of DHFL at the relevant time, having deemed to have vacated their offices on the supersession of the Board of Directors under the RBI Act, could not have claimed any right to attend the meetings of CoC or to participate in the CIRP proceedings initiated under the IBC, which right otherwise would have been available to the Directors suspended under the IBC – In absence of any specific provision in the IBC or the Regulations 2016, they, as the members of the superseded Board of Directors, could not have made any claim to have a copy of proposed RPs submitted by the PRAs during the CIRP proceedings – Nonetheless, pertinently the RP after having been approved by the NCLT under Section 31 of IBC, would become a “Public Document” within the meaning of Section 74 of the Indian Evidence Act, and therefore, they would be entitled to get, at the most, a certified copy of the approved RP.
(Para 101, 109 and 110)
Piramal Capital And Housingfinance Limited (Formerly Knownas Dewan Housing Finance Corporationlimited) V. 63 Moons Technologies Limited & Others
Supreme Court: 2025 INSC 421: (DoJ 01-04-2025)
