PIRAMAL CAPITAL AND HOUSING FINANCE LIMITED (FORMERLY KNOWN AS DEWAN HOUSING FINANCE CORPORATION LIMITED) versus 63 MOONS TECHNOLOGIES LIMITED & OTHERS (31/03/2025) — Supreme Court headnote

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Summary

In the DHFL insolvency, the Supreme Court set aside the NCLAT's modification of the approved resolution plan and restored the NCLT's approval, holding that the clause by which the successful resolution applicant ascribed a notional value of INR 1 to Section 66 (fraudulent trading) applications and retained any recoveries from them, while recoveries under Sections 43, 45, 47, 49 and 50 went to the creditors, was a commercial bargain within the CoC's wisdom that the NCLAT could not disturb under Section 61(3); it also dismissed the appeals of fixed deposit and NCD holders claiming full repayment under the NHB Act and RBI Act, and the appeals of the ex-promoters whose board had been superseded by the RBI.

Issues

Whether the resolution plan approved by the CoC and the NCLT contravened any law in force so as to permit the NCLAT to interfere under Section 61(3) IBC with the clause giving recoveries from Section 66 applications to the successful resolution applicant.
What distinguishes avoidance applications under Chapter III (Sections 43, 45 and 50) from applications for fraudulent or wrongful trading under Section 66 in Chapter VI, and what orders the Adjudicating Authority may pass in each.
What are the mandatory requirements of Section 30(2) read with Regulation 38 of the CIRP Regulations, 2016, and what is meant by maximisation of the value of the corporate debtor's assets.
Whether NCD holders whose class, through its authorised representative, voted in favour of the plan were estopped from challenging it before the NCLT or NCLAT.
Whether the distribution mechanism for fixed deposit holders violated Section 36A of the NHB Act, Section 45QA of the RBI Act or Rule 5(d)(i) of the FSP Rules, 2019, so as to contravene Section 30(2)(e) IBC.
Whether directors whose board was superseded by the RBI under Section 45-IE of the RBI Act, as distinct from directors suspended under the IBC, had a right to attend CoC meetings, participate in the CIRP or receive copies of resolution plans.

Provisions considered

Sections 30(2), 30(4) and 31, Insolvency and Bankruptcy Code, 2016The RP must confirm each plan meets Section 30(2) (CIRP costs, operational creditors, management, implementation, no contravention of law, Board requirements) and Regulation 38; the CoC approves by not less than 66 per cent after considering feasibility, viability and distribution; the NCLT under Section 31(1) examines only compliance with Section 30(2) and may reject under Section 31(2); once approved the plan binds all stakeholders. The judicial review of the NCLT is confined to these limits. (¶¶ 15, 16, 31, 42, 43, 62, 63, 64, 65, 67)
Sections 32 and 61(3), Insolvency and Bankruptcy Code, 2016An appeal against an order approving a plan lies only on the five grounds in Section 61(3); the NCLAT's jurisdiction is confined to those grounds and cannot extend to the justness of the CoC's commercial decision. The NCLAT transgressed its jurisdiction by interfering with the Section 66 recoveries clause. (¶¶ 17, 19, 32, 44, 50, 67, 75, 84, 85)
Section 60(5), Insolvency and Bankruptcy Code, 2016The NCLT's residual jurisdiction over questions arising in the CIRP does not whittle down Section 31(1) by investing it with equity jurisdiction outside Section 30(2) when confirming a plan (Essar Steel). (¶¶ 18, 43)
Sections 25(2)(j), 26 and 43 to 51 (Chapter III), Insolvency and Bankruptcy Code, 2016The RP's duty is to file avoidance applications under Chapter III for preferential (s.43), undervalued (s.45) and extortionate credit (s.50) transactions, in which the transactions, properties and persons are ascertainable and the NCLT may avoid or set them aside under Sections 44, 48, 49 and 51; their pendency does not affect the CIRP. (¶¶ 14, 20, 53, 54, 57, 58, 59, 61, 79, 86)
Sections 66 and 67 (Chapter VI), Insolvency and Bankruptcy Code, 2016Fraudulent or wrongful trading applications fall in Chapter VI, outside Section 25(2)(j); the persons and properties may not be ascertainable, so the NCLT does not avoid transactions but orders knowing parties or directors to contribute to the corporate debtor's assets; Section 67 deals with giving effect to such orders. These applications are not 'avoidance applications' and recoveries from them were validly allotted to the SRA. (¶¶ 21, 22, 55, 56, 60, 61, 82, 83, 86, 111)
Regulations 37, 38 and 39, Insolvency and Bankruptcy Board of India (Insolvency Resolution Process for Corporate Persons) Regulations, 2016Regulation 37 lists measures for maximisation of value which the CoC must consider, including clause (a) permitting transfer of all or part of the corporate debtor's assets; Regulation 38 states the mandatory contents of a plan; Regulation 39(2) requires the RP to place before the CoC details of transactions under Sections 43, 45, 50 and 66. (¶¶ 24, 31, 62, 65, 66, 79)
Regulation 37A, Insolvency and Bankruptcy Board of India (Liquidation Process) Regulations, 2016The NCLAT's reliance on the liquidator's power to assign not readily realisable assets, and on the absence of a similar CIRP provision, to hold that avoidance recoveries cannot go to a resolution applicant was unwarranted and ex facie fallacious given Section 26 and Regulation 37(a) of the CIRP Regulations. (¶¶ 25, 48, 79)
Sections 21(6A)(b) and 25A(3A), Insolvency and Bankruptcy Code, 2016The authorised representative of a class of financial creditors votes for the whole class according to the decision of more than 50 per cent of the voting share of those who voted; his vote binds every creditor in the class, so individual NCD holders whose class approved the plan were estopped from objecting before the NCLT or NCLAT. (¶¶ 77, 96)
Section 36A, National Housing Bank Act, 1987Deposits must be repaid per their terms and an authorised officer may direct repayment of a deposit or part of it; the provision neither mandates full repayment nor confers a right to it, and no such direction had been issued, so the plan's distribution mechanism did not contravene it. (¶¶ 28, 93, 95)
Sections 45QA and 45-IE, Reserve Bank of India Act, 1934Section 45QA, like Section 36A NHB Act, permits the CLB to direct repayment of a deposit or part thereof and does not mandate full repayment. Under Section 45-IE the RBI superseded DHFL's board and appointed an Administrator; by sub-section (4) the directors vacated office from the date of supersession, which is permanent in effect unlike suspension under the IBC. (¶¶ 26, 27, 94, 95, 103, 104, 105, 106)
Rule 5(d)(i), Insolvency and Bankruptcy (Insolvency and Liquidation Proceedings of Financial Service Providers and Application to Adjudicating Authority) Rules, 2019The plan's Part B business plan contained the required statement of how the resolution applicant satisfies the requirements for engaging in the financial service provider's business, so there was no violation of law under Section 30(2)(e). (¶ 98)
Sections 17(1)(b) and 24(3)-(4), Insolvency and Bankruptcy Code, 2016On appointment of the IRP the board's powers stand suspended; suspended directors receive notice of and may attend CoC meetings without voting (Vijay Kumar Jain entitles them to plan copies), but directors already superseded under the RBI Act had vacated office and had no such rights; they may at most obtain a certified copy of the approved plan as a public document under Section 74 of the Evidence Act. (¶¶ 105, 107, 108, 109)

Held

The legislature has given paramount importance to the commercial wisdom of the CoC. Judicial review by the NCLT is limited to satisfying itself under Section 31 that the plan approved by the requisite majority meets Section 30(2), and by the NCLAT to the grounds in Section 61(3); neither can act as a court of equity, second-guess the CoC's commercial decision or direct unilateral modification of a plan, and the residual jurisdiction under Section 60(5) does not enlarge these limits (Arcelormittal, K. Sashidhar, Essar Steel, Ghanashyam Mishra, Ebix Singapore, M.K. Rajagopalan applied). (¶¶ 33, 34, 35, 37, 38, 39, 40, 41, 42, 43, 44)
There is a clear distinction between avoidance applications under Chapter III (Sections 43, 45 and 50, read with Section 25(2)(j)) and applications for fraudulent or wrongful trading under Section 66 in Chapter VI. In the former the transactions, properties and persons are ascertainable and the NCLT may avoid or set aside the transactions under Sections 44, 48, 49 and 51; in the latter they may not be, and the NCLT instead inquires whether the business was carried on to defraud creditors and orders knowing parties or directors to contribute to the corporate debtor's assets. Section 66 applications cannot be termed avoidance applications. Where common applications cite both sets of provisions, the NCLT must distinguish them and pass orders under the applicable provision; a wrong or missing citation of the source of power does not take away its jurisdiction (N. Mani). (¶¶ 53, 55, 56, 57, 58, 59, 60, 61, 86)
The process from submission of plans to approval or rejection by the Adjudicating Authority is mandatory; non-compliance with Section 30(2) read with Regulation 38 empowers rejection under Section 31(2), but a compliant plan approved under Section 30(4) must be approved under Section 31(1). Maximisation of value is not defined in the Code; the measures in Regulation 37 must be considered by the CoC, every aspect of the plan and its financial layout must be placed before it transparently, and once the CoC approves in its commercial wisdom the review by the NCLT and NCLAT is confined as above. (¶¶ 62, 63, 64, 65, 66, 67)
NCD holders whose classes voted overwhelmingly for the plan through the authorised representative (the 63 Moons class by 98.94 per cent; one appellant itself voted in favour, the others abstained) and who received payouts without protest were bound by their class decision and estopped from objecting before the NCLT or NCLAT. Under Section 25A(3A) the authorised representative's vote binds all financial creditors he represents; without finality to such votes a plan involving large numbers of creditors could never fructify (Jaypee Kensington). (¶¶ 76, 77)
The NCLAT's reliance on the Single Judge decision in Venus Recruiters was misconceived: that decision was set aside by the Division Bench in Tata Steel BSL and concerned survival of a Section 43 application after plan approval, not treatment of avoidance proceeds. Its reliance on Regulation 37A of the Liquidation Regulations was unwarranted when Section 26 and Regulation 37(a) of the CIRP Regulations permit a plan to provide for transfer of the corporate debtor's assets, and foreign texts and jurisprudence could not be transplanted into the Indian insolvency regime. (¶¶ 78, 79, 80)
The notional value of INR 1 ascribed by the SRA to Section 66 applications was in response to clause 3.13.2(x) of the RFRP, the valuers and other applicants having ascribed nil value; given the uncertainties of recovery any valuation would have been a wild guess. The CoC consciously accepted the clause, the SRA's final offer of Rs. 37,250 crores had factored in potential Section 66 recoveries, and recoveries under Sections 43, 45, 47, 49 and 50 remained for the creditors. The plan was a commercial bargain after several rounds of negotiation, approved by 93.65 per cent of the CoC and by the NCLT; absent palpable perversity the NCLAT ought not to have interfered and clearly transgressed its jurisdiction under Section 61. (¶¶ 81, 82, 83, 84, 85)
Neither Section 36A of the NHB Act nor Section 45QA of the RBI Act mandates full repayment of deposits or confers a right on depositors to full repayment; they only empower the authorised officer or the CLB to direct repayment of a deposit or part of it in the interests of the institution, the depositors or the public, and no such order existed. The distribution mechanism (full repayment of claims up to INR 2 lakhs and liquidation value of the depositors' security above that), approved by 86.95 per cent of the CoC and re-affirmed by about 89 per cent after the NCLT's recommendation to reconsider, fell within the CoC's commercial wisdom and did not contravene the RBI Act, the NHB Act or Rule 5(d)(i) of the FSP Rules. (¶¶ 90, 92, 95, 96, 97, 98, 99)
Supersession of a board under Section 45-IE of the RBI Act is different from suspension of directors under Section 17(1)(b) IBC: supersession annuls and is permanent, with directors vacating office under sub-section (4), whereas suspension is temporary. Suspended directors may receive notice of and attend CoC meetings without voting under Section 24 and are entitled to copies of plans (Vijay Kumar Jain), but directors whose board was superseded by the RBI before the CIRP, and who were in judicial custody throughout, had no right to attend the CoC, participate in the CIRP or receive proposed plans; after approval under Section 31 the plan becomes a public document under Section 74 of the Evidence Act, so at most they may obtain a certified copy. (¶¶ 103, 104, 105, 106, 107, 108, 109, 110)
The NCLT shall decide the pending applications of the Administrator under Sections 43, 45 and 50 and separately those under Section 66, passing orders under Sections 44, 48, 49 and 51 or Section 66 as applicable; recoveries from Chapter III avoidance applications shall be appropriated in favour of the CoC and recoveries from Section 66 applications in favour of the SRA. (¶¶ 86, 111)

Result

NCLAT judgment dated 27.01.2022 in Company Appeal Nos. 454-455 and 750 of 2021 set aside; NCLT's plan approval order dated 07.06.2021 upheld, with directions that the NCLT decide the Chapter III avoidance applications and the Section 66 applications separately, Chapter III recoveries going to the CoC and Section 66 recoveries to the SRA; first-category appeals of Piramal Capital and Union Bank of India allowed and 63 Moons' appeals disposed of; appeals of the fixed deposit and NCD holders dismissed; third-category appeals of Kapil Wadhawan, Dheeraj Wadhawan and Piramal Capital dismissed.