IBC | Difference Between ‘Avoidance Transactions’ & ‘Fraudulent Or Wrongful Trading’

2025 INSC 421
Civil Appeal Nos. 1632-1634 of 2022 Page 1 of 145
REPORTABLE
IN THE SUPREME COURT OF INDIA
CIVIL APPELLATE JURISDICTION
CIVIL APPEAL NOS. 1632-1634 OF 2022

PIRAMAL CAPITAL AND HOUSING
FINANCE LIMITED (FORMERLY KNOWN
AS DEWAN HOUSING FINANCE CORPORATION
LIMITED)
….APPELLANT (S)
VERSUS
63 MOONS TECHNOLOGIES LIMITED
& OTHERS
.…RESPONDENT (S)
WITH
C.A. Nos. 1707-1712 of 2022
WITH
DIARY No. 6037 of 2022
WITH
C.A. Nos. 2989-2991 of 2022
WITH
C.A. No. 2402 of 2022
WITH
Civil Appeal Nos. 1632-1634 of 2022 Page 2 of 145
C.A. Nos. 2413-2415 of 2022
WITH
C.A. No. 2567 of 2022
WITH
C.A. Nos. 2987-2988 of 2022
WITH
C.A. Nos. 8123-8125 of 2022
WITH
C.A. Nos. 3694-3695 of 2022
WITH
C.A. No. 6286 of 2022
WITH
C.A. No. 2396 of 2022
Civil Appeal Nos. 1632-1634 of 2022 Page 3 of 145
INDEX
GLOSSARY……………………………………………………………………4
I. THE DETAILS AND CATEGORIES OF THE APPEALS……….5
II. FACTUAL BACKGROUND …………………………………………….13
III. SUBMISSIONS BY THE LEARNED ADVOCATES FOR THE
PARTIES…………………………………………………………………..23
IV. RELEVANT PROVISIONS OF THE IBC AND OTHER ACTS47
V. SCOPE OF JUDICIAL REVIEW ……………………………………..64
VI. ANALYSIS IN THE FIRST CATEGORY OF APPEALS……….83
(i) Questions ……………………………………………………………87
(ii) Avoidance Applications………………………………………..89
(iii)Mandatory Requirements of Section 30(2) of the IBC
and Regulation 38 of Regulations, 2016 ………………..95
(iv)Maximization of the value of the assets of the
Corporate Debtor …………………………………………………98
(v) Whether the NCLAT should have entertained the
appeals filed by the 63 Moons under Section 61 of the
Code and tinkered with the Resolution Plan approved
by the CoC and the NCLT?………………………………….101
VII. ANALYSIS IN THE SECOND CATEGORY OF APPEALS…122
(i) Whether the Resolution Plan violated the Provisions Of
RBI Act or NHB Act? …………………………………………….126
VIII. ANALYSIS IN THE THIRD CATEGORY OF APPEALS …….133
IX. CONCLUSION…………………………………………………………….143
Civil Appeal Nos. 1632-1634 of 2022 Page 4 of 145
GLOSSARY
1. BR Act – The Banking Regulation Act, 1949
2. CD – Corporate Debtor
3. CIRP – Corporate Insolvency Resolution Process
4. CoC – Committee of Creditors
5. DHFL – Dewan Housing Finance Corporation
Limited
6. EOI – Expression of Interest
7. FD Holders – Fixed Deposit Holders
8. FSP – Financial Service Provider
9. FSP Rules – Financial Service Provider Rules, 2019
10. GT – M/s. Grant Thornton
11. HFC – Housing Finance Companies
12. IBC – The Insolvency and Bankruptcy Code,
2016
13. NBFC – Non-Banking Financial Companies
14. NCD Holders – Non-Convertible Debenture Holders
15. NCLAT – National Company Law Appellate Tribunal
16. NCLT/ Adjudicating Authority – National Company
Law Tribunal
17. NHB Act – The National Housing Bank Act, 1987
18. Piramal Capital – Piramal Capital and Housing
Finance Limited
19. PRAs – Prospective Resolution Applicants
20. RA – Resolution Applicant
21. RBI Act – The Reserve Bank of India Act, 1934
22. Regulations, 2016 – The Insolvency and
Bankruptcy Board of India (Insolvency Resolution
Process for Corporate Persons), Regulations,
2016
23. RFRP – Request for Resolution Plan Proposal
24. RP – Resolution Plan
25. SRA – Successful Resolution Applicant
Civil Appeal Nos. 1632-1634 of 2022 Page 5 of 145
J U D G M E N T
BELA M. TRIVEDI, J.
1. In the captioned Appeals, the contextual facts
encompass the issues involved and permit analogous
adjudication. Hence, they are disposed of by this
common judgment and order.
(I) THE DETAILS AND CATEGORIES OF THE
APPEALS: –
i. Civil Appeal Nos. 1632-1634 of 2022 have been
filed by the Appellant Piramal Capital and Housing
Limited (Piramal Capital), Successful Resolution
Applicant (SRA) challenging the common
judgment and order dated 27.01.2022 passed by
the National Company Law Appellate Tribunal,
New Delhi, (NCLAT) in Company Appeal (AT)
(Insolvency) [hereinafter referred to as
Company Appeal] Nos. 454-455 and 750 of 2021,
only to the extent that it modified the Resolution
Plan (RP) by holding that the RP that permitted the
SRA to appropriate recoveries, if any, from
Avoidance applications filed under Section 66 of
the Insolvency and Bankruptcy Code (IBC) ought
Civil Appeal Nos. 1632-1634 of 2022 Page 6 of 145
to be set aside and the Resolution Plan be sent
back to the Committee of Creditors (CoC) for
reconsideration on that aspect.
ii. Civil Appeal Nos. 2989-2991 of 2022 have been
filed by the Appellant Union Bank of India
challenging the said common judgment and order
dated 27.01.2022 passed by the NCLAT in
Company Appeal Nos. 454-455 and 750 of 2021.
iii. Civil Appeal Nos. 3694-3695 of 2022 have been
filed by the Appellant 63 Moons and Technologies
Limited, challenging the said common judgment
and order dated 27.01.2022 passed by the NCLAT
in Company Appeal No. 454 of 2021 and 455 of
2021, only to the extent of the
sentence/observation in the impugned order that
“The Resolution Plan be sent back to the CoC for
reconsideration on this aspect.”
iv. Civil Appeal Nos. 2413-2415 of 2022 have been
filed by the Appellants Vinay Kumar Mittal and
Others, claiming to be the Fixed Deposit Holders
(FDH) of the Corporate Debtor (CD) – Dewan
Housing Finance Corporation Limited (DHFL),
challenging the common judgment and order dated
27.01.2022 passed by the NCLAT in Company
Civil Appeal Nos. 1632-1634 of 2022 Page 7 of 145
Appeal Nos. 506-507 and 516 of 2022, whereby
the NCLAT has held that Section 238 of IBC
overrides the Reserve Bank of India Act, 1934
(RBI Act), and the National Housing Bank Act,
1987 (NHB Act), and that Adjudicating
Authority/NCLT had not committed any error in
approving the RP that proposed extinguishing
Claims of the Fixed Deposits, without discharging
their payments in full to the FDHs.
v. Civil Appeal arising out of Diary No. 6037 of 2022
has been filed by the Appellants Raghu K.S. and
Others (claiming to be the Fixed
Depositors/Investors in the schemes floated by
DHFL), challenging the judgment and order dated
07.02.2022 passed by the NCLAT in Company
Appeal No. 538 of 2021, whereby the NCLAT
disposed of the Appeal by holding that the issues
raised in the said Appeal were the same as raised
in Company Appeal Nos. 506, 507 and 516 of 2022
decided on 27.01.2022.
vi. Civil Appeal No. 2402 of 2022 has been filed by the
Appellant Uttar Pradesh State Power Corporation
Contributory Provident Fund Trust challenging the
judgment and order dated 27.01.2022 passed by
Civil Appeal Nos. 1632-1634 of 2022 Page 8 of 145
the NCLAT in Company Appeal No. 760 of 2021,
whereby the NCLAT has dismissed the Appeal of
the Appellant and confirmed the order dated
07.06.2021 passed by the NCLT in M.A. No.
416/2020 in C.P.(IB) No. 4258/MB/2019 in C.P. No.
4258/2019, rejecting the prayer of the Appellant
seeking repayment of the entire amounts of
matured fixed deposits.
vii. Civil Appeal Nos. 8123-8125 of 2022 have been
filed by the Appellants Senbagha Vivek A and
Another (who were not the Party before the
NCLAT), challenging the impugned common
judgment and order dated 27.01.2022 passed by
the NCLAT in Company Appeal Nos. 506, 507 and
516 of 2022.
viii. Civil Appeal No. 6286 of 2022 has been filed by the
Appellant THDC India Limited Employee Provident
Fund challenging the impugned judgment and
order dated 04.02.2022 passed by the NCLAT in
Company Appeal No. 90 of 2022, whereby it has
been held by the NCLAT inter alia that the
commercial wisdom of the CoC while approving
the RP, which has also received the approval of the
Adjudicating Authority as well as the Appellate
Civil Appeal Nos. 1632-1634 of 2022 Page 9 of 145
Tribunal, cannot be allowed to be questioned in the
Appeal.
ix. Civil Appeal No. 2396 of 2022 has been filed by the
Appellant Uttar Pradesh State Power Sector
Employees Trust challenging the impugned
judgment and order dated 27.01.2022 passed by
the NCLAT in Company Appeal No. 759 of 2021.
x. Civil Appeal Nos. 1707-1712 of 2022 have been
filed by the Appellant Kapil Wadhawan (KW), an
erstwhile Promoter and Director of DHFL
challenging the impugned judgment and order
dated 14.02.2022 passed by the NCLAT, in
Company Appeal No. 539 of 2021, dismissing the
KW’s challenge to the RP of Piramal Capital
approved by the NCLT vide Order dated
07.06.2021 in I.A. No. 449 of 2021 in CP (IB) No.
4258/2019. The said Appeal was dismissed by the
NCLAT on the ground that it had become
infructuous in view of the judgment and order
dated 27.01.2022 in Company Appeal Nos. 454,
455 and 750 of 2021. The Appellant – KW has also
challenged the order dated 27.01.2022 passed by
the NCLAT in Company Appeal No. 647 of 2021,
wherein the NCLAT has held inter alia that the
Civil Appeal Nos. 1632-1634 of 2022 Page 10 of 145
Appellants being an erstwhile Directors who had
vacated their offices on the supersession of the
Board of Directors by the RBI under Section 45-IE
(4)(a) of the RBI Act, cannot claim their entitlement
to participate in the CoC of the CD, and that a
superseded Director from the Board of Directors
cannot interfere in the Company’s affairs, per
contra a suspended Director always remains on
the erstwhile Board of the Company and assist the
IRP/ RP as per requirement. The Appellant – KW
has also challenged the judgment and order dated
27.01.2022 passed by the NCLAT in Company
Appeal Nos.370, 376-377 and 393 of 2021,
whereby the NCLAT has set aside the order dated
19.05.2021 passed by the NCLT, which had
directed the CoC to consider and vote on 2nd
Settlement Proposal of KW.
xi. Civil Appeal No. 2567 of 2022 has been filed by the
Appellant Dheeraj Wadhawan (DW) challenging
the impugned judgment and order dated
27.01.2022 passed by the NCLAT in Company
Appeal No. 785 of 2020, whereby the NCLAT has
held that the Appellant – DW was not entitled to
participate in the CoC of DHFL.
Civil Appeal Nos. 1632-1634 of 2022 Page 11 of 145
xii. Civil Appeal Nos. 2987-2988 of 2022 have been
filed by the Appellant Piramal Capital challenging
the impugned common judgment and order dated
27.01.2022 passed by the NCLAT in Company
Appeal No. 785 of 2020 and 647 of 2021, to the
extent NCLAT has held that the RP does not
remain confidential after its approval by the
Adjudicating Authority and that a certified copy of
such RP could be obtained by all and sundry as
per Rules.
2. As per the Order passed by this Court on 26.09.2024,
all these Appeals were heard, after categorizing them
into the following three categories: –
Sr.
No.
Name of the matter Party/
CoC
I. APPEALS RE AVOIDANCE APPLICATIONS- Impugned Order
dated 27.01.2022 passed by the Hon’ble NCLAT in Company Appeal
(AT) (Ins) No. 454-455 and 750 of 2021 in relation to treatment of
recoveries from the Avoidance applications provided under the
approved Resolution Plan by Piramal Capital & Housing Finance
Limited in the insolvency of Dewan Housing Finance Corporation
Limited
1. Piramal Capital & Housing Finance Limited
(Formerly known as Dewan Housing Finance
Corporation Limited) v 63 Moons Technologies
Limited and Ors.
Civil
Appeal
Nos.1632-
1634 of
2022
2. Union Bank of India v 63 Moons Technologies
Limited and Ors
Civil
Appeal
Nos.2989–
2991 of
2022
Civil Appeal Nos. 1632-1634 of 2022 Page 12 of 145
3. 63 Moons Technologies Limited v Piramal
Capital and Housing Finance Corporation
Limited (Formerly known as Dewan Housing
Finance Corporation Limited) & Ors
Civil
Appeal
Nos.3694-
3695 of
2022
II. APPEALS BY FD HOLDERS / NCD HOLDERS- -(a)Impugned
Order dated 27.01.2022 passed by the Hon’ble NCLAT in Company
Appeal (AT) (INS) No. 506, Company Appeal (AT)(INS) No. 507, and
Company Appeal (AT) (INS) No.516 of2022; (b) Impugned common
order dated 27.01.2022 passed by Hon’ble NCLAT in Company
Appeal (AT) (INS) No. 759 of 2021 and Company Appeal (AT) (INS)
No. 760of 2021; (c) Impugned Order dated 07.02.2022 passed by
Hon’ble NCLAT in Company Appeal (AT) (Ins) No. 538 of2021; (d)
Impugned Order and Judgment dated 04.02.2022 in Company
Appeal (AT) (Ins) No. 90 of 2021 challenging the payment made to
the FD Holders/NCD Holders under the approved Resolution Plan by
Piramal Capital & Housing Finance Limited.
1. Raghu KS and Ors. v Piramal Capital and
Housing Finance Limited & Ors
Diary No.
6037 of
2022
2. Vinay Kumar Mittal & Ors. V. Dewan Housing
Finance Corporation Ltd. &Ors
Civil
Appeal
Nos.2413-
2415 of
2022
3. Uttar Pradesh State Power Sector Employees
Trust v Dewan Housing Finance Corporation
Limited & Anr.
Civil
Appeal
No.2396 of
2022 &
Civil
Appeal
No.2402 of
2022
4. U.P. State Power Corporation Contributory
Provident Fund Trust v. Dewan Housing Finance
Corporation Limited and Anr.

“
5. Senbagha Vivek A. & Anr v Dewan Housing
Finance Corporation Ltd. & Anr.
Diary
No.11104
of 2022/
Civil
Appeal
Nos.8123-
8125 of
2022
Civil Appeal Nos. 1632-1634 of 2022 Page 13 of 145
6. THDC India Limited Employee Fund v The
Administrator, Dewan Housing Finance
Corporation Ltd.
Civil
Appeal
No.6286 of
2022
III. APPEALS BY EX PROMOTERS- (a) Impugned Order
dated14.02.2022 passed in Company Appeal (AT) (Ins) No. 539of
2021 approving the Resolution Plan; (b) Impugned Order dated
27.01.2022 passed in Company Appeal (AT)(Ins) No. 785 of 2020
and 647 of 2021 holding that the Appellant does not have the right to
attend CoC meetings or get a copy of the Resolution Plan approved
by the CoC; (c) Impugned Order dated 27.01.2022 passed in
Company Appeal (AT) (Ins) No. 370 of 2021, 376-377of 2021, 393 of
2021 which set aside the order directing CoC to consider and vote
on the second settlement proposal submitted by Appellant
1. Kapil Wadhawan v R. Subramaniakumar and
Ors.
Civil
Appeal
Nos.1707-
1712 of
2022
2. Piramal Capital and Housing Finance Limited
(Formerly known as Dewan Housing Finance
Corporation Limited) v Dheeraj Wadhawan and
Anr.
Civil
Appeal
Nos.2987-
2988 of
2022
3. Dheeraj Wadhawan v The Administrator Civil
Appeal
No.2567 of
2022
(II) FACTUAL BACKGROUND
3. In these long-drawn proceedings, the Factual matrix
may be summarized as under: –
i. The DHFL was a housing finance company and a
non-banking financial company regulated under
the provisions of NHB Act and RBI Act, engaged in
the business of providing housing finance services
Civil Appeal Nos. 1632-1634 of 2022 Page 14 of 145
to retail customers, including under the Pradhan
Mantri Awas Yojana (under the credit linked
subsidy scheme) as well as certain project loans,
mortgage finance and construction loans etc. The
DHFL had, for conducting its business availed
financial assistance through a range of instruments
including inter alia rupee loans, external
commercial borrowings, non-convertible
debentures, perpetual debentures, subordinate
debt, public deposits etc. from banks, financial
institutions, other lenders like insurance
companies, mutual funds, provident funds,
pension funds and individuals. The DHFL was
accused of committing India’s one of the biggest
financial scams, worth thousands of crores of
rupees, involving accusation of loan frauds, money
laundering, creating web of fake borrowers and
shell companies etc.
ii. The RBI in exercise of its powers conferred under
Section 45-IE (1) of RBI Act, superseded the Board
of Directors of DHFL, on being satisfied that DHFL
had conducted its affairs detrimental to the interest
of its depositors and creditors, and appointed one
Shri R. Subramaniakumar, Ex-MD and CEO of the
Civil Appeal Nos. 1632-1634 of 2022 Page 15 of 145
Indian Overseas Bank, vide communication dated
20.11.2019.
iii. The RBI then on 29.11.2019 filed a Company
Petition under Section 227 read with Section 239
(2) (zk) of IBC before the NCLT, for initiating CIRP
proceedings.
iv. The Adjudicating Authority – NCLT on 03.12.2019
directed commencement of CIRP of the CD –
DHFL and confirmed the appointment of Mr. R.
Subramaniakumar as the Administrator to perform
all functions of the Resolution Professional under
the IBC. On 05.12.2019, the Administrator, by
issuing a public announcement, called upon the
creditors of the CD to submit their claims with proof
on or before 17.12.2019.
v. The Administrator received the claims worth
Rs.82,247 Crores. The Administrator, after
collating all claims received against the CD and
determining of financial position of the CD,
constituted CoC on 24.12.2019. The Administrator,
on 28.01.2020 issued an invitation for submissions
of Expression of Interests (EOI) and Form ‘G’ for
submission of RPs for the CD in accordance with
the IBC and the relevant Rules and Regulations
Civil Appeal Nos. 1632-1634 of 2022 Page 16 of 145
made thereunder. Accordingly, the Administrator
received 24 EOIs from the PRAs.
vi. The Administrator had appointed M/s. Grant
Thornton (GT) as Transaction Auditors for
unearthing the transactions under Section 43 to 51
and 66 of IBC.
vii. The GT after conducting the transaction audit,
submitted a report to the Administrator, containing
particulars of preferential, undervalued, fraudulent,
and extortionate transactions entered into by
DHFL, which could be set aside/ avoided under the
said provisions of IBC. The Administrator, based
on the said report of GT, filed eight Applications
before the NCLT regarding the Preferential,
Undervalued, and Extortionate transactions, and
the Applications with regard to the Fraudulent and
Wrongful trading. The said Applications are
pending for adjudication by the NCLT. The total
amount involved in the Avoidance Applications
pending before the NCLT is about Rs.45,050/-
Crores.
viii. On 02.03.2020, the Administrator issued a
Request for Resolution Plan Proposal (RFRP) for
DHFL in accordance with Regulation 36B of CIRP
Civil Appeal Nos. 1632-1634 of 2022 Page 17 of 145
Regulations, 2016. The said RFRP was revised by
the Administrator, and the revised RFRP was
issued on 17.03.2020.
ix. However, thereafter considering the complexities
involved with respect to the transactions forming
part of Section 66 application, the CoC in its
Seventh meeting on 10.09.2020 decided that the
RFRP may be suitably modified to incorporate the
language which was in the mutual interest of the
CoC members and the RA, by incorporating that
the PRAs may ascribe a value to the transactions
to all the transactions that are being filed under
Section 66 and also propose the manner of dealing
with any recoveries therefrom.
x. On 16.09.2020, pursuant to the discussion with
the CoC, the Administrator issued a revised and
final version of the RFRP titled “Invitation for
Submissions of Resolution Plan for Dewan
Housing Finance Corporation Limited” (“RFRP
dated 16 September 2020”) in accordance with
Regulation 36B of the CIRP Regulations.
xi. On 16.10.2022, following the issuance of the
RFRP dated 16 September 2020, the Piramal
Capital submitted the RP dated 16.09.2020 for the
Civil Appeal Nos. 1632-1634 of 2022 Page 18 of 145
consideration of the Administrator/CoC. The
Piramal Capital was initially keen on only taking
over the retail assets of the CD and accordingly,
submitted its RP dated 16.09.2020 for Group A
assets under Option II (i.e., retail assets of the CD).
Under this RP, the Piramal Capital offered an
amount of approx. INR 15,000 Crores (plus an
amount of 10% for FDH).
xii. On 09.11.2020, based on further discussions
and upon requests from the Administrator/ CoC to
all PRAs, the Piramal Capital revised its RP and
submitted modified RP on 09.11.2020 (offering an
amount of INR 23,700 Crores) and on 17.11.2020
(offering an amount of INR 27,500 Crores),
respectively under Option II for Group A (retail
assets) of the CD.
xiii. On 22.12.2020, upon the request of the CoC,
the Piramal Capital submitted a revised and final
RP offering a total consideration of INR 37,250
Crores comprising cash and non-cash
considerations. Additionally, it also submitted a RP
under Option II for Group A (retail assets) of the
CD, it offered an aggregate amount of INR 27,200
Crores.
Civil Appeal Nos. 1632-1634 of 2022 Page 19 of 145
xiv. On 31.12.2020, the erstwhile Director Kapil
Wadhawan filed I.A. No. 2431 of 2020 under
Section 60(5) of the Code praying for a direction
for RBI to place before CoC the 2nd Settlement
proposal for consideration.
xv. On 15.01.2021, all compliant resolution plans
(including the SRA’s RP) were put to vote during
the voting window. The 63 Moons voted in favour
of the RP within its class of debenture holders and
the RP was approved by a majority of 98.94%
votes of the debenture holders. On the basis of the
same, the Authorised representative of the class of
debenture holders (M/s. Catalyst Trusteeship
Limited) voted in favor of the RP before the CoC.
Resultantly, the RP of Piramal was approved by an
overwhelming majority of the CoC with 93.65 %
votes.
xvi. On 24.02.2021, following the approval of the RP
by the CoC, the Administrator filed an I.A. No. 449
of 2021 (“Plan Approval Application”) before the
NCLT seeking approval of the RP under Section 31
of the Code.
xvii. On 05.03.2021 – The 63 Moons filed an I.A. No.
623 of 2021 in the Plan Approval Application before
Civil Appeal Nos. 1632-1634 of 2022 Page 20 of 145
the NCLT inter alia challenging the provisions of
the RP which provided that the Section 66
Recoveries will go to the benefit of the SRA.
xviii. On 13.05.2021, the Plan Approval Application
and I.A. No. 623 of 2021 were reserved for orders.
xix. The NCLT vide its Order dated 19.05.2021
allowed the I.A. No. 2431 of 2020 filed by the
erstwhile Director and directed the Administrator to
place the 2nd Settlement Proposal before the CoC
for consideration and voting within 10 days.
xx. On 23.05.2021, the Administrator, CoC and
Piramal filed Appeals under Section 61 of the
Code, being Company Appeal Nos. 370 of 2021,
376-77 before the NCLAT challenging the order
dated 19.05.2021.
xxi. On 25.05.2021, the NCLAT while issuing notice
stayed the NCLT order dated 19th May, 2021.
Further, the NCLAT vide the order directed the
NCLT to decide the I.A. No. 449 of 2021 (for
approval of the RP).
xxii. On 06.06.2021, Mr. Kapil Wadhawan filed an
I.A. No.1229 of 2021 before the NCLT for
consideration of his objections to the RP.
Civil Appeal Nos. 1632-1634 of 2022 Page 21 of 145
xxiii. On 07.06.2021, the NCLT passed an order
granting its approval to the Plan Approval
Application thereby approving the RP. The NCLT
vide a separate order, dismissed the I.A. No. 623
of 2021 filed by the 63 Moons. The NCLT refused
to interfere with the RP inter alia on the ground that
the CoC comprising of 77 financial creditors
decided in its commercial wisdom to give away the
Section 66 Recoveries to the SRA after a hard
bargain in exchange of a lump sum resolution
amount of INR 37,250 Crores.
xxiv. On 14.06.2021 & 24.06.2021, the 63 Moons
filed two separate Company Appeals, being No.
454 and 455 of 2021 before the NCLAT
challenging the orders passed by the NCLT in the
Plan Approval Application and I.A. No. 623 of 2021
on almost identical grounds. These Appeals were
tagged and heard together. Additionally, vide I.A.
No. 1173 and 1170 of 2021 filed in the Company
Appeal No. 455 and 454 of 2021 respectively, the
63 Moons sought an interim stay on execution of
the approved RP.
Civil Appeal Nos. 1632-1634 of 2022 Page 22 of 145
xxv. On 15.07.2021, erstwhile Promoter KW
preferred Company Appeal No. 539 of 2021 before
the NCLAT seeking a prayer to set aside the RP.
xxvi. On 23.07.2021, the NCLAT dismissed the 63
Moons’ interim application for a stay on execution
of the approved RP. Following this, the 63 Moons
approached this Court vide Civil Appeal Nos. 4672-
4673 of 2021.
xxvii. On 03.09.2021 – Roopjyot & Ors. filed a
Company Appeal No. 750 of 2021 before the
NCLAT challenging the Plan Approval Order
raising grounds similar to those which were raised
by the 63 Moons. This Appeal was also tagged with
the Company Appeal No. 455 and 454 of 2021 filed
by the 63 Moons. Pertinently, this was first time that
any challenge was raised by Roopjyot & Ors.
against the RP.
xxviii. On 06.09.2021, this Court declined to
entertain the Civil Appeal Nos. 4672-4673 of 2021
and disposed of the same with a direction to the
NCLAT to decide the pending Appeals
expeditiously.
xxix. On 30.09.2021, the SRA implemented the RP
and discharged payment to the creditors. As per
Civil Appeal Nos. 1632-1634 of 2022 Page 23 of 145
the RP, the SRA – Piramal merged into the CD by
way of a scheme of arrangement. Resultantly, the
SRA – Piramal ceased to exist with effect from
30.09.2021, and the CD under the name “DHFL”
remained as the continuing legal entity.
xxx. On 27.01.2022, the NCLAT passed the common
impugned judgment in the Appeals and directed as
follows:
“The term in the RP that permits the SRA to
appropriate recoveries, if any, from avoidance
applications filed under Section 66 of the Code
ought to be set aside. The RP be sent back to the
CoC for reconsideration on this aspect.”
xxxi. On 14.02.2022, the NCLAT dismissed the
Company Appeal No. 539 of 2021 filed by the
erstwhile Promoter KW, recording that the RP is
under consideration before the CoC and therefore
the Appeal had become infructuous.
Hence, the present set of Appeals have been filed.
(III) SUBMISSIONS BY THE LEARNED ADVOCATES
FOR THE PARTIES
4. Multidimensional submissions were made at length
by all concerned learned Advocates, the crux of which
may be narrated below.
Civil Appeal Nos. 1632-1634 of 2022 Page 24 of 145
(I) Learned Senior Advocates, Mr. Abhishek Manu
Singhvi and Mr. Balbir Singh appearing for the SRA –
Piramal Capital made elaborate submissions in all the
three categories of Appeals. In the First category of
Appeals with regard to the impugned order dated
27.01.2022 passed by the NCLAT in Company Appeal
Nos.454-455 and 750 of 2021 in relation to treatment
of recoveries from Avoidance applications provided
under the approved RP, they made the following
submissions: –
i. A small group of creditors like the 63 Moons whose
cumulative share in the CoC was less than 0.3%,
could not have preferred the Appeals before the
NCLAT. The respective classes of creditors who
voted overwhelmingly in favour of the RP included
the said creditors, who were NCD Holders, and
therefore they were estopped from challenging the
RP.
ii. The decision on the recoveries arising out of
Avoidance transactions falls within the commercial
wisdom of the CoC and could not have been
interfered with by the NCLAT.
iii. The NCLAT in the impugned judgment has entered
into the domain of the CoC, in as much as it has
Civil Appeal Nos. 1632-1634 of 2022 Page 25 of 145
isolated a singular part of a composite and interconnected RP, and has adjudicated upon the
commercial soundness of the CoC’s decision to
take a higher upfront payment in exchange of
giving up the uncertain recoveries of Section 66
applications.
iv. The reliance placed on the decision in Tata Steel
BSL Limited vs. Venus Recruiter Private
Limited and Others (LPA No.37 of 2021) passed
by the single bench of the Delhi High Court was
erroneous.
v. The impugned judgment of NCLAT is premised on
a misinterpretation of provisions of the IBC and
allied Regulations, in as much as Section 67 does
not relate to treatment of proceeds from Avoidance
applications, instead it deals with a situation where
a respondent party in an Avoidance application
also happens to be a creditor of the CD.
vi. The NCLAT has erroneously placed reliance on
Regulation 37A of IBBI (Liquidation Process)
Regulations, 2016 to arrive at a conclusion that the
proceeds from the Avoidance applications cannot
be shared with the SRA during resolution. In fact,
the Regulation 37(a) of the CIRP Regulations
Civil Appeal Nos. 1632-1634 of 2022 Page 26 of 145
specifically mentions that the resolution plan shall
include measures for the transfer of all or part of
the assets of the CD.
vii. The NCLAT has incorrectly relied on the foreign
jurisprudence and extraneous considerations in
impugned judgment.
viii. The notional value of INR 1 to Section 66
Applications was legally sound, for the reason that
the notional valuation of Section 66 Applications
was done in response to the provisions of RFRP
issued by the Administrator.
ix. In the alternative, the NCLAT had failed to
appreciate that value of INR 1 was only notional
and the true value ascribed to the Section 66
Applications was embedded in the total resolution
amount of INR 37,250 Crores proposed under the
RP.
x. The impugned judgment amounts to a unilateral
modification of RP contrary to the will of the SRA
and commercial wisdom exercised by the CoC.
xi. The impugned judgment has far-reaching, and
undesirable consequences contrary to the intent of
the Legislature.
Civil Appeal Nos. 1632-1634 of 2022 Page 27 of 145
(II) In the Second category of Appeals filed by the FD
Holders/ NCD Holders challenging the impugned
order dated 27.01.2022 passed by the NCLAT, Mr.
Abhishek Manu Singhvi and Mr. Balbir Singh
appearing for the SRA-Piramal Capital made the
following submissions: –
i. The Appellants, that is the FD Holders/ NCD
Holders, have no locus standi to challenge the
Resolution Plan by filing the Civil Appeals.
ii. Section 21 (6A) (b) of IBC read with Regulation 16
(A) of the CIRP Regulations, 2016 provides for a
mechanism for appointment of an Authorized
Representative who could look after the myriad
interest of large number of financial creditors in the
CoC. In the instant case FD Holders and NCD
Holders were represented by the respective
representatives, who had demonstrated their
objections to the RP before the CoC, and therefore
individual member of such group cannot be
allowed to raise independent challenge in relation
to the CIRP and/ or the RP separately by filing the
Appeals.
iii. Section 36 (A) of the NHB Act and Section 45 (QA)
of the RBI Act do not mandate full repayment of
Civil Appeal Nos. 1632-1634 of 2022 Page 28 of 145
deposits. Therefore, the distribution mechanism in
the RP could not be said to be illegal or contrary to
the provisions of the RBI Act and NHB Act.
iv. The RP is also compliant with Rule 5 (d)(i) of FSP
Rules.
v. This Court has repeatedly held that the manner of
distribution of proceeds falls within the CoC’s
commercial wisdom and such commercial wisdom
is given paramount status and that the scope of
judicial review by the NCLT and NCLAT is very
limited. (K. Sashidhar vs. Indian Overseas Bank
and Others,
1 and Maharashtra Seamless
Limited vs. Padmanabhan Venkatesh and
Others.
2
)
vi. The NHB Act and the IBC are special statutes and
the statute enacted later in point of time must
prevail.
vii. The FD Holders are estopped from contending
that they were not the financial creditors. As per the
settled legal position the relationship between a
depositor and a Bank is not equivalent to one
between a beneficiary and a trustee.
1 (2019) 12 SCC 150
2 (2020) 11 SCC 467
Civil Appeal Nos. 1632-1634 of 2022 Page 29 of 145
(III) So far as Third category of Appeals filed by the expromoters challenging the impugned order dated
14.02.2022 approving the RP, the order dated
27.01.2022 holding that the ex-promoters did not
have the right to attend the CoC meetings or get a
copy of Resolution Plan approved by the CoC, the
Learned Senior Advocates Mr. Singhvi and Mr. Balbir
Singh, defending the said impugned order, made the
following submissions: –
i. KW’s settlement proposals do not warrant any
consideration in these Appeals since they were not
accepted by the requisite majority of 89% of CoC.
Moreover, an Application under Section 12(A) of
IBC for withdrawal of CIRP petition pursuant to a
settlement proposal had to be tabled by the RBI,
which had refused to do so.
ii. Commercial wisdom of CoC is paramount and
ascription of notional value INR 1 is acceptable.
iii. Decisions taken by an overwhelming majority of
CoC basing value of CD as determined by the
registered valuers, after negotiations with SRA, is
not subject to judicial scrutiny. Resolution Plans
Civil Appeal Nos. 1632-1634 of 2022 Page 30 of 145
cannot be scrutinized from an equitable
perception.
iv. The Piramal Capital’s RP is binding inter se
Piramal Capital and CoC, and no modifications are
permitted after the approval of the plan by the CoC.
v. Independent recourses such as assignments,
settlements, and institution of recovery
proceedings in respect of loans, impugned in
Avoidance applications are valid because it is
Piramal Capital’s responsibility to ensure a holistic
revival of DHFL and resolution of its distressed
assets.
vi. Pendency of Avoidance applications does not bar
the CIRP proceedings.
vii. Suspension and Supersession of Board of
Directors have distinct legal effects since
suspension occurs only due to inability to pay
debts while supersession occurs due to fraud and
mismanagement.
viii. The Insolvency proceedings of DHFL were
conducted in a clear, transparent and time bound
manner to preserve and maximize value of the
assets for CoC.
Civil Appeal Nos. 1632-1634 of 2022 Page 31 of 145
ix. The Piramal Capital’s RP was accepted by
overwhelming majority votes of 93.65% in the
CoC, and RBI also has given its NOC for change
of control/ ownership/ management basis to the
said Resolution Plan on 16.02.2021.
5. The learned Senior Advocates Mr. Tushar Mehta and
Mr. Navin Pahwa appearing for the CoC made the
following common submissions in all the Appeals:
i. The CoC comprised of (a) 26 banks and 12
financial institutions voting 40.60% in the CoC (b)
NCD Holders (secured and unsecured) 63 Moons
class and Roopjyot class voting 53.22% in the CoC
(c) FD Holders voting 6.18% in the CoC.
ii. Section 32 readwith Section 61(3) contain limited
ground to challenge the RP and does not provide
any ground to challenge the RP on any of its
commercial terms.
iii.Section 45-IE (1) of the RBI Act empowers the RBI
to supersede the Board of Directors of the
company in the public interest or to prevent the
affairs of NBFC being conducted in a manner
detrimental to the interest of the depositors or the
creditors or for securing proper management of
such company. The RBI having been satisfied
Civil Appeal Nos. 1632-1634 of 2022 Page 32 of 145
superseded the Board of DHFL on 20.11.2019
which was never challenged by the ex-promoters
of DHFL.
iv.RBI had filed the Company Petition No. 4258 of
2019 under Section 227 read with Section
239(2)(zk) of the IBC read with Rules 5, 6 of the
FSP Rules before the NCLT for initiating CIRP of
DHFL, and the said petition was admitted by the
NCLAT vide the order dated 03.12.2019, which
was also never challenged by the ex-promoters of
DHFL.
v. Section 45-IE (4)(a) of the RBI Act states that upon
supersession of Board of Directors, the chairman,
managing director and other directors shall, from
the date of the supersession, vacate their offices.
Hence, once the directors vacate their office, they
are not a stakeholder of the CD any more and have
no locus either to sit in the CoC meetings, demand
RP or even challenge the same.
vi.Section 29A(c) of IBC explicitly disqualifies the
promoters of the CD from being a RA, subject to
certain conditions, and the Board of DHFL having
been superseded, the promoters did not have any
Civil Appeal Nos. 1632-1634 of 2022 Page 33 of 145
right or locus to challenge the RP approved by
CoC.
vii. The DHFL had used different enterprise
resource planning software application for
maintaining fictitious books, loans and verification
of financial statement. It was found that the
underwriting procedures for loan sanctioning and
disbursal were not followed. It was further found
that out of sampled 50 entities, 34 entities had
invested a portion of amount received from DHFL
into the promoter company.
viii. As per the GT’s report dated 24.09.2020 on
Slum Rehabilitation Authority transaction, it was
found that the loans aggregating crores of rupees
against the master developers and 14 assignee
developers for construction of two SRA projects,
were used for investments into the companies
linked to the promoters of DHFL.
ix.The Avoidance and Fraudulent transactions as
contemplated in IBC were identified by the GT,
wherein it was found that the DHFL had made
inter-corporate deposits into three entities, which
were used for buying the NCDs of Wadhawan
Global Corporation, though the said three entities
Civil Appeal Nos. 1632-1634 of 2022 Page 34 of 145
did not have any income from the business
operations.
x. The consortium of lenders had appointed KPMG,
a Forensic Auditor, to carry out a special review of
DHFL who had prepared the Special Review Audit
Report highlighting large number of fraudulent
transactions and falsification of books of accounts.
Such fraudulent transactions and acts have
resulted into number of criminal cases registered
against ex-promoters Mr. Kapil Wadhawan and
Dheeraj Wadhawan by CBI.
xi.When the ex-promoters of DHFL were found
responsible for the fraudulent transactions, which
were the subject matter of Section 66 applications,
they could not have contended that the subject
matter of these applications should be valued at a
higher value in the RP, and not INR 1 value for such
Avoidance transactions.
xii. The CoC in its commercial wisdom had decided
to transfer the speculative part of the assets i.e.,
Section 66 Fraudulent Trading to the PRAs,
thereby eliminating any risk from the said
transactions and resulting in an increase in the
upfront value of recovery. In any case, the benefit
Civil Appeal Nos. 1632-1634 of 2022 Page 35 of 145
of avoiding/setting aside any transaction under
Section 43, 45, 47, 49 and 50 shall enure to the
benefit of DHFL’s creditors only.
xiii. The bid process was transparent, competitive
and aimed at maximizing the value of assets of the
CD.
xiv. The conduct of ex-promoters has been marred
by impropriety in as much as several criminal
cases relating to cheating, fraud and siphoning of
funds have been instituted against them which are
pending in the courts of law.
6. The learned Advocate Mr. Santosh Kumar Paul
appearing for the Respondent – 63 Moons
Technologies Limited, the secured NCD Holders has
made the following submissions: –
i. Originally it was envisaged by the Piramal Capital
that any recoveries from the transactions avoided/
set aside under Section 43 to 51 and 66 of the IBC
would enure to the benefit of DHFL’s creditors and
that the PRAs will not receive any benefit
therefrom. Afterwards, the RFRP was amended on
16.09.2020 to the effect that the recoveries from
Section 43, 45, 47, 49 and 50 (and not Section 66)
shall enure to the benefit of the creditors, and with
Civil Appeal Nos. 1632-1634 of 2022 Page 36 of 145
respect to the recoveries from Section 66, the RAs
must propose the manner of continuing and
dealing with the legal action initiated and propose
the manner of treatment of any proceeds arising
therefrom. Ultimately, the Piramal Capital was
declared as SRA, and it was decided that all
recoveries from Avoidance applications filed by the
Administrator would benefit the Piramal Capital.
The Respondent No. 1 – 63 Moons had objected,
such clause being illegal. The NCLAT having
considered the said objection decided the said
issue in favour of the Respondent – 63 Moons.
ii. As per the settled legal position, the recoveries
from Avoidance transactions ought to enure to the
benefit of DHFL’s creditors only.
iii.As per the judgment of Delhi High Court, in case of
Venus Recruiters Private Limited vs. Union of
India and Others,
3 the Avoidance applications are
meant to give benefit to the creditors of the CD and
not to the CD in its new avatar after the approval of
the RP. The said judgment of Delhi High Court was
not disturbed upon Appeal before the Division
3 2020 SCC OnLine Del 1479
Civil Appeal Nos. 1632-1634 of 2022 Page 37 of 145
Bench of the High Court, and the SLP against the
said decision is pending before this Court.
iv.A mandatory statutory duty has been cast upon the
Tribunal in terms of Section 31 read with Section
30(2) of the IBC to ensure that a RP which is
placed before it for approval has complied with the
relevant provisions of law.
v. The Respondent – 63 Moons had voted owing to
express liberty granted by the NCLT, without
prejudice to the respondent’s rights and
contentions, hence the plea of estoppel was not
available to the Appellant – Piramal. As per the
position of law settled by this Court in M.K.
Rajagopalan vs. Dr. Periasamy Palani Gounder
and Another,
4 the commercial wisdom of CoC
means a considered decision taken by CoC with
reference to the commercial interest and interest of
revival of CD and maximization of value of its
assets.
7. The Learned Senior Advocate Mr. Dhruv Mehta
appearing for the Appellants – the FD Holders of CD,
who have challenged the impugned order dated
4 2024 (1) SCC 42
Civil Appeal Nos. 1632-1634 of 2022 Page 38 of 145
07.02.2022 passed by the NCLAT in Company Appeal
No. 538 of 2021 made the following submissions: –
i. The NCLAT had erred in passing the impugned
order, not appreciating that in terms of Section
30(2)(e) read with Sections 31(3)(i) of the Code,
the RP ought to have been struck down as being
in contravention of the provisions of the NHB Act
and RBI Act, which provide for security of deposits
made by the FD Holders.
ii. An unjustified resort to Section 238 of the Code
has the effect of rendering the provisions contained
in Section 30(2)(e) of the Code nugatory.
iii. Section 36(A) of NHB Act makes it clear that the
deposits have to be repaid strictly in accordance
with the terms of such deposits. Section 36 of NHB
Act provides that the provisions thereof shall have
the effect notwithstanding anything inconsistent
contained in any other law for the time being in
force.
iv. Unlike a regular CD, a FSP stands on a different
footing and should entail greater scrutiny in
examining its compliance with the applicable laws
for the time being in force. The commercial wisdom
of CoC cannot stretch to cover regulatory aspects
Civil Appeal Nos. 1632-1634 of 2022 Page 39 of 145
specifically provided for under the NHB Act read
with its directions.
8. The Learned Senior Advocate Mr. Maninder Singh
appearing for the Appellant Uttar Pradesh State
Power Sector Employees Trust in C.A. No. 2396 of
2022 made the following submissions: –
i. The monies invested by the FD Holders were held
in Trust by DHFL.
ii. Rule 10 of the FSP Rules provides that Rule
5(b)(Moratorium) of the FSP Rules and Section 14
of the Code do not apply to any third-party assets
or properties in custody or possession of the FSP,
including any funds, securities and other assets
required to be held in Trust for the benefit of third
parties. The Explanation to Section 18 of the Code
also provides that assets owned by third-party in
possession of the CD, held under Trust or under
contractual arrangements including bailment,
could not be assets for the purpose of Section 18.
In this regard, reliance has been placed on the
observations made in Embassy Property
Developments Private Limited vs. State of
Karnataka and Others.
5
5 (2020) 13 SCC 308
Civil Appeal Nos. 1632-1634 of 2022 Page 40 of 145
iii. As held by the various High Courts, the monies
deposited by the FD Holders are not in the nature
of a loan but in fact a deposit to be held in Trust by
the Company till the time of maturity. Therefore, the
monies deposited by the FD Holders were not the
monies of DHFL but in fact were the monies
deposited in Trust, thereby making DHFL liable to
repay such deposits in full.
iv. The NCLT and NCLAT had failed to consider that
the repayment obligations of DHFL, which was a
deposit receiving Housing Finance Institution,
engaged in the business of providing Financial
Services in terms of the license granted by NHB
and RBI. Hence, the FD Holders ought to have
been paid as per the terms of their deposits, in full,
in view of the statutory obligation of DHFL.
v. In absence of any contradictions between the
Code and the NHB Act, the overriding effect
contained in Section 238 of the Code does not
apply.
vi. Public Depositors are neither secured creditors nor
unsecured creditors but constitute a third class of
creditors who stand on a higher footing than
secured/unsecured creditors with a statutory right
Civil Appeal Nos. 1632-1634 of 2022 Page 41 of 145
to the repayment. Hence, the claim of the public
deposit holders ought not to be equated with that
of any other creditor of DHFL and ought to be
repaid in full as statutorily mandated.
9. The learned Senior Advocate Mr. Nakul Diwan
appearing for the Respondent Nos. 4 to 7 in C.A. Nos.
1632-1634 of 2022 and C.A. Nos. 2989-2991 of 2022
has made following submissions, supporting the
judgment and order dated 27.01.2022 passed by the
NCLAT:
i. Although the SRA – Piramal Capital has enhanced
its offer in the RP, such enhancement was not
against consideration of the recoveries to be made
from the Avoidance transactions. Even otherwise
the value ascribed by the SRA to the Avoidance
applications was merely valued at a nominal price
of INR 1 and such enhancement cannot be said to
be in consideration of the recoveries to be made
under the Avoidance transaction, which were
valued at INR 45,000 Crores alone.
ii. The Respondents had abstained from voting in
favour of RP, as Clause 2.13.3 was an illegal
provision contrary to the IBC. On careful
appreciation of the provisions of IBC, the NCLAT
Civil Appeal Nos. 1632-1634 of 2022 Page 42 of 145
vide its judgment dated 27.01.2022 rightly set
aside Clause 2.13.3 and directed the CoC to
reconsider the same.
iii.In K. Sashidhar vs. Indian Overseas Bank and
Others (supra), and in Committee of Creditors of
Essar Steel India Limited vs. Satish Kumar
Gupta and Others,
6 it is held that there is a scope
of judicial scrutiny in RP if it is not in accordance
with Section 30(2) read with Section 31(I) of the
IBC.
10. The Learned Senior Advocate Mr. Kapil Sibal,
appearing for the ex-promoters Kapil Wadhawan and
Dheeraj Wadhawan made the following submissions:
–
i. Any recoveries from the Avoidance applications
ought to be for the benefit of creditors, having
regard to the object and purpose and legal history
of the IBC.
ii. Piramal Capital cannot be permitted to retain
recoveries past/future from the Avoidance
applications, which otherwise should be only for
the benefit of the creditors.
6 2020 (8) SCC 531
Civil Appeal Nos. 1632-1634 of 2022 Page 43 of 145
iii. Section 25 of the IBC sets out the duties of the
Resolution Professional. One of the duties is to
preserve and protect the assets of the CD and to
file Avoidance applications for the benefit of the
CD.
iv. The Avoidance applications are filed in respect of
Sections 43, 44, 45, 46, 50 and 51, falling within
Chapter III. The provisions pertaining to the
Fraudulent trading or Wrongful trading fall under
Section 66 contained in Chapter VI. Considering
the scheme of the Code, as also the object and
purpose of the Code, it is clearly demonstrated that
the benefit of the Avoidance applications is
intended for the benefit of the CD, for which the
responsibility has been cast upon the Resolution
Professional.
v. The provision of Piramal’s RP which permits
benefits of Avoidance applications under Section
66 of the Code to be retained by the Piramal
Capital is contrary to law. In the alternative, it is
submitted that as an exception the benefit of
Avoidance applications can be assigned to the
third parties, (in the present case Piramal),
however, it was the duty of the Resolution
Civil Appeal Nos. 1632-1634 of 2022 Page 44 of 145
Professional to ensure that the assignment was
done for proper consideration, and in the instant
case, the assignment of Avoidance transactions
was not shown to be for proper consideration.
vi. The fulcrum on which the Resolution Process
under the Code proceeds is the full and correct
knowledge of the affairs of the CD, however, in the
instant case, the creditors had no knowledge of the
value of the securities/properties which formed the
basis of Avoidance transactions under Section 66
of the Code. Therefore, the CoC could not be said
to have exercised its commercial wisdom while
approving the RP of the Piramal Capital.
vii. The Administrator also sought to exclude the
ex-promotors on a specious plea that they were
superseded, despite the fact that the ex-promoters
through several letters had made efforts to inform
Administrator and CoC, the significant value of
business and assets of DHFL in the interest of the
creditors.
viii. Assuming, without admitting, that CoC had all
the relevant information, the CoC had miserably
failed to demonstrate the rationale behind the
recoveries from Avoidance transactions under
Civil Appeal Nos. 1632-1634 of 2022 Page 45 of 145
Section 66 of the IBC Code being ascribed NIL
value and assigning the same to Piramal at Rupee
1.
ix. The Piramal Capital’s subsequent conduct
demonstrated that there was value locked up in the
Avoidance transactions and despite such value the
benefit of the same was not factored in the bid
amount.
x. The CoC’s justification for the Piramal’s valuation
of Avoidance transactions for Rupee 1 was
contrary to the records and unjustified.
xi. The amount under Section 43 and 45 of the Code
are a small portion of the total amount impugned in
the Avoidance applications. There is no difference
in the potentiality of recovery from transactions
impugned under Section 66 or Section 45 in the
present case. The nature of trading in respect of
Section 66 applications is not fictitious. The actions
of Piramal in filing Section 7 applications makes it
evident that the classification of entire transactions
as fraudulent by the Administrator was incorrect.
xii. The ex-promoters/KW and DW were entitled to
participate in the CoC, to have access to all
Civil Appeal Nos. 1632-1634 of 2022 Page 46 of 145
records and documents as well as the copy of the
RP.
xiii. The provisions of the IBC would prevail over the
RBI Act in view of the non-obstante clause in
Section 238 of the Code. Thus, the rights of the
Director under the Code remain unaffected by the
effect of supersession under the RBI Act.
xiv. The IBC was made applicable to the Financial
Service Providers such as the DHFL under the
FSP Rules.
xv. There was no modification as provided under
Rule 5 of the FSP Rules, which could affect the expromoter/Director’s right of participation.
xvi. Piramal Capital cannot be permitted to unjustly
enrich itself at the cost of the creditors by retaining
the benefit for which it has not paid any value.
xvii. The objective of the IBC for value maximization
has not been taken into consideration under the
shield of commercial wisdom of CoC.
xviii. Lastly, no fair and transparent procedure, in the
nature of auction/ assignment of the underlying
assets for the part of Avoidance transactions, was
undertaken to enable the realization of full value of
Civil Appeal Nos. 1632-1634 of 2022 Page 47 of 145
the underlying assets and ensure maximization of
value in the interest of the creditors of DHFL.
(IV) RELEVANT PROVISIONS OF THE IBC AND
OTHER ACTS
11. Before adverting to the rival submissions made by the
learned counsels for the parties, let us have a glance
through the provisions contained in the IBC and other
Acts & Rules relevant for the purpose of deciding
these Appeals.
12. As the long title of IBC suggests, IBC has been
enacted to consolidate and amend the laws relating
to reorganization and insolvency resolution of
corporate persons, partnership firms and individuals
in a time bound manner for maximization of value of
assets of such persons, to promote entrepreneurship,
availability of credit and balance the interest of all the
stakeholders including alteration in the order of
priority of payment of Government dues and to
establish an Insolvency and Bankruptcy Board of
India, and for matters connected therewith or
incidental thereto. The objective behind enacting the
IBC is to provide an effective legal framework for
timely resolution of Insolvency and Bankruptcy, which
Civil Appeal Nos. 1632-1634 of 2022 Page 48 of 145
would support the development of credit markets and
encourage entrepreneurship. It would also improve
Ease of Doing Business, and facilitate more
investments leading to higher economic growth and
development. The provisions of the IBC had come
into force on different dates as notified by the Central
Government by Notification in the Official Gazette
from time to time.
13. Chapter II pertains to the Corporate Insolvency
Resolution Process. Section 7 thereof pertains to the
Initiation of Corporate Insolvency Resolution Process
by Financial Creditor and Section 8 thereof pertains
to the Insolvency Resolution by Operational Creditor.
Section 16 provides for appointment and tenure of
Interim Resolution Professional and Section 18
thereof enumerates the duties of the Interim
Resolution Professional appointed by the
Adjudicating Authority, on the commencement of
insolvency proceedings. Section 21 empowers the
Interim Resolution Professional to constitute a
Committee of Creditors (CoC), after collation of all
claims received against the CD and determination of
financial position of the CD. The CoC is comprised of
Civil Appeal Nos. 1632-1634 of 2022 Page 49 of 145
all Financial Creditors of the CD, subject to the
provisions of Section 21.
14. Section 22 pertains to the Appointment of Resolution
Professional who is to be appointed by the CoC within
7 days of the constitution of the CoC. The duties of
Resolution Professional are enumerated in Section
25. As per clause (j) of sub-section (2) of Section 25,
the Resolution Professional has to file an application
for avoidance of transactions in accordance with
Chapter III, if any. Section 26 states that the filing of
an Avoidance application under clause (j) of subsection (2) of Section 25 by the Resolution
Professional shall not affect the proceedings of CIRP.
15. Section 29 requires the Resolution Professional to
prepare an information memorandum containing
relevant information as may be specified by the
Insolvency and Bankruptcy Board of India. An eligible
RA can submit a RP on the basis of the information
memorandum prepared by the Resolution
Professional, as per Section 30. The Resolution
Professional after examining each RP received by
him and after confirming that the same are in
consonance with sub-section (2) of Section 30, would
Civil Appeal Nos. 1632-1634 of 2022 Page 50 of 145
present the same to the CoC for its approval. The
relevant part of Section 30 is quoted below.
“30. Submission of Resolution Plan –
(1) ………………..
(2) The resolution professional shall examine
each resolution plan received by him to confirm
that each resolution plan–
(a) provides for the payment of insolvency
resolution process costs in a manner
specified by the Board in priority to
the payment of other debts of the corporate
debtor;
(b) provides for the payment of debts of
operational creditors in such manner as may
be specified by the Board which shall not be
less than–
(i) the amount to be paid to such creditors
in the event of a liquidation of the
corporate debtor under section 53; or
(ii) the amount that would have been paid
to such creditors, if the amount to be
distributed under the resolution plan had
been distributed in accordance with the
order of priority in sub-section (1) of
section 53, whichever is higher and
provides for the payment of debts of
financial creditors, who do not vote in
favour of the resolution plan, in such
manner as may be specified by the
Board, which shall not be less than the
amount to be paid to such creditors in
accordance with sub-section (1) of
section 53 in the event of a liquidation of
the corporate debtor.
Civil Appeal Nos. 1632-1634 of 2022 Page 51 of 145
Explanation 1.–For the removal of doubts, it is
hereby clarified that a distribution in accordance
with the provisions of this clause shall be fair
and equitable to such creditors.
Explanation 2.– For the purposes of this clause,
it is hereby declared that on and from the date
of commencement of the Insolvency and
Bankruptcy Code (Amendment) Act, 2019, the
provisions of this clause shall also apply to the
corporate insolvency resolution process of a
corporate debtor–
(i) where a resolution plan has not been
approved or rejected by the Adjudicating
Authority;
(ii) where an appeal has been preferred
under section 61 or section 62 or such an
appeal is not time barred under any
provision of law for the time being in
force; or
(iii) where a legal proceeding has been
initiated in any court against the decision
of the Adjudicating Authority in respect of
a resolution plan;
(c) provides for the management of the
affairs of the Corporate debtor after approval
of the resolution plan;
(d) the implementation and supervision of
the resolution plan;
(e) does not contravene any of the
provisions of the law for the time being in
force;
(f) conforms to such other requirements as
may be specified by the Board.
Civil Appeal Nos. 1632-1634 of 2022 Page 52 of 145
Explanation.– For the purposes of clause
(e), if any approval of shareholders is
required under the Companies Act, 2013 or
any other law for the time being in force for
the implementation of actions under the
resolution plan, such approval shall be
deemed to have been given and it shall not
be a contravention of that Act or law];
(3)……………………….
(4) The committee of creditors may approve a
resolution plan by a vote of not less than “sixtysix” per cent of voting share of the financial
creditors, after considering its feasibility and
viability, the manner of distribution proposed,
which may take into account the order of priority
amongst creditors as laid down in sub-section
(1) of section 53, including the priority and value
of the security interest of a secured creditor and
such other requirements as may be specified by
the Board:
Provided …………………..
(5) & (6) ……………………”
Sub-section (6) of Section 30 requires the Resolution
Professional to submit the RP as approved by the
CoC to the Adjudicating Authority.
16. Section 31 being important for the purpose of these
appeals, the relevant part thereof is reproduced
hereunder: –
“31. Approval of Resolution Plan –
(1) If the Adjudicating Authority is satisfied that
the resolution plan as approved by the
committee of creditors under sub-section (4) of
section 30 meets the requirements as referred
to in sub-section (2) of section 30, it shall by
Civil Appeal Nos. 1632-1634 of 2022 Page 53 of 145
order approve the resolution plan which shall be
binding on the corporate debtor and its
employees, members, creditors, including the
Central Government, any State Government or
any local authority to whom a debt in respect of
the payment of dues arising under any law for
the time being in force, such as authorities to
whom statutory dues are owed, guarantors and
other stakeholders involved in the resolution
plan.
Provided that the Adjudicating Authority shall,
before passing an order for approval of
resolution plan under this sub-section, satisfy
that the resolution plan has provisions for its
effective implementation.
(2) Where the Adjudicating Authority is satisfied
that the resolution plan does not confirm to the
requirements referred to in sub-section (1), it
may, by an order, reject the resolution plan.
(3) & (4) …………………………………..”
17. Section 32 pertains to the Appeal to be filed from an
order approving the RP in the manner and on the
grounds laid down in sub-section (3) of Section 61.
18. The jurisdiction of the Adjudicating Authority (NCLT)
for corporate persons is circumscribed in sub-section
(5) of Section 60, which reads as under:
“60. Adjudicating authority for corporate
persons:
(1) to (4)………………….
(5) Notwithstanding anything to the contrary
contained in any other law for the time being in
force, the National Company Law Tribunal shall
have jurisdiction to entertain or dispose of— (a)
any application or proceeding by or against the
Civil Appeal Nos. 1632-1634 of 2022 Page 54 of 145
corporate debtor or corporate person; (b) any
claim made by or against the corporate debtor
or corporate person, including claims by or
against any of its subsidiaries situated in India;
and (c) any question of priorities or any question
of law or facts, arising out of or in relation to the
insolvency resolution or liquidation proceedings
of the corporate debtor or corporate person
under this Code.
(6)………………………..”
19. Section 61 provides for the Appeals and Appellate
Authority. The relevant part thereof is reproduced as
under:
“61. Appeals and Appellate Authority. –
(1) Notwithstanding anything to the contrary
contained under the Companies Act 2013 (18 of
2013), any person aggrieved by the order of the
Adjudicating Authority under this part may prefer
an appeal to the National Company Law
Appellate Tribunal.
(2) ……………………………………
(3) An appeal against an order approving a
resolution plan under section 31 may be filed on
the following grounds, namely:
(i) the approved resolution plan is in
contravention of the provisions of any law for the
time being in force;
(ii) there has been material irregularity in
exercise of the powers by the resolution
professional during the corporate insolvency
resolution period;
(iii) the debts owed to operational creditors of
the corporate debtor have not been provided for
in the resolution plan in the manner specified by
the Board;
Civil Appeal Nos. 1632-1634 of 2022 Page 55 of 145
(iv) the insolvency resolution process costs
have not been provided for repayment in priority
to all other debts; or
(v) the resolution plan does not comply with any
other criteria specified by the Board.
(4) & (5) …………………………………….”
20. So far as Avoidance applications under Chapter-III
are concerned, Section 43 pertains to the Application
to be filed in respect of the Preferential transactions
and the relevant time therefor, and Section 44
pertains to the orders that may be passed by the
Adjudicating Authority in such application filed under
Section 43(1). Section 45 pertains to the Application
to be filed for the avoidance of Undervalued
transactions, and Section 46 pertains to the relevant
period for avoidable transactions. Section 47 pertains
to the Application that may be filed by Creditor in
cases of Undervalued transactions, and the orders to
be passed by the Adjudicating Authority in such
Application. Section 48 pertains to the orders that may
be passed by the Adjudicating Authority in cases of
Undervalued transactions contemplated under subsection (1) of Section 45, and Section 49 pertains to
the orders that may be passed by the Adjudicating
Authority on being satisfied that CD has entered into
an Undervalued transaction as referred to in sub-
Civil Appeal Nos. 1632-1634 of 2022 Page 56 of 145
section (2) of Section 45. Section 50 pertains to the
Application to be filed in respect of Extortionate Credit
transactions and Section 51 pertains to the orders that
may be passed by the Adjudicating Authority in the
Application made under Section 50(1) of IBC.
21. Section 66 pertaining to the “Fraudulent trading or
Wrongful trading” being relevant for the purpose of the
present Appeals, the same is reproduced hereunder:
–
“66. Fraudulent trading or wrongful trading.
–
1) If during the corporate insolvency resolution
process or a liquidation process, it is found that
any business of the corporate debtor has been
carried on with intent to defraud creditors of the
corporate debtor or for any fraudulent purpose,
the Adjudicating Authority may on the
application of the resolution professional pass
an order that any persons who were knowingly
parties to the carrying on of the business in such
manner shall be liable to make such
contributions to the assets of the corporate
debtor as it may deem fit.
(2) On an application made by a resolution
professional during the corporate insolvency
resolution process, the Adjudicating Authority
may by an order direct that a director or partner
of the corporate debtor, as the case may be,
shall be liable to make such contribution to the
assets of the corporate debtor as it may deem
fit, if—
(a) before the insolvency commencement
date, such director or partner knew or ought
to have known that there was no
reasonable prospect of avoiding the
Civil Appeal Nos. 1632-1634 of 2022 Page 57 of 145
commencement of a corporate insolvency
resolution process in respect of such
corporate debtor; and
(b) such director or partner did not exercise
due diligence in minimising the potential loss
to the creditors of the corporate debtor.
(3) Notwithstanding anything contained in this
section, no application shall be filed by a
resolution profession under sub-Section (2), in
respect of such default against which initiation
of corporate insolvency resolution process is
suspended as per Section 10A.
Explanation. — For the purposes of this section
a director or partner of the corporate debtor, as
the case may be, shall be deemed to have
exercised due diligence if such diligence was
reasonably expected of a person carrying out
the same functions as are carried out by such
director or partner, as the case may be, in
relation to the corporate debtor.”
22. Section 67 deals with the proceedings under Section
66. It reads as under: –
“67. Proceedings under Section 66. –
(1) Where the Adjudicating Authority has passed
an order under sub-section (1) or sub-section
(2) of section 66, as the case may be, it may give
such further directions as it may deem
appropriate for giving effect to the order, and in
particular, the Adjudicating Authority may—
(a) provide for the liability of any person under
the order to be a charge on any debt or
obligation due from the corporate debtor to him,
or on any mortgage or charge or any interest in
a mortgage or charge on assets of the corporate
debtor held by or vested in him, or any person
on his behalf, or any person claiming as
Civil Appeal Nos. 1632-1634 of 2022 Page 58 of 145
assignee from or through the person liable or
any person acting on his behalf; and
(b) from time to time, make such further
directions as may be necessary for enforcing
any charge imposed under this section.
Explanation. —For the purposes of this section,
“assignee” includes a person to whom or in
whose favour, by the directions of the person
held liable under clause (a) the debt, obligation,
mortgage or charge was created, issued or
transferred or the interest created, but does not
include an assignee for valuable consideration
given in good faith and without notice of any of
the grounds on which the directions have been
made.
(2) Where the Adjudicating Authority has passed
an order under sub-section (1) or sub-section
(2) of section 66, as the case may be, in relation
to a person who is a creditor of the corporate
debtor, it may, by an order, direct that the whole
or any part of any debt owed by the corporate
debtor to that person and any interest thereon
shall rank in the order of priority of payment
under section 53 after all other debts owed by
the corporate debtor.”
23. Section 238 states that the provisions of IBC shall
have effect, notwithstanding anything inconsistent
therewith contained in any other law for the time being
in force or any instrument, having effect by virtue of
any such law.
24. The Insolvency and Bankruptcy Board of India (IBBI),
in exercise of the powers conferred under Section 240
of IBC, has framed the Regulations called “The
Insolvency and Bankruptcy Board of India (Insolvency
Civil Appeal Nos. 1632-1634 of 2022 Page 59 of 145
Resolution Process for Corporate Persons)
Regulations, 2016 (for short, Regulations, 2016)
laying down a detailed procedure required to be
followed for the Insolvency Resolution Process for
Corporate Persons. Regulation 37 of the said
Regulations requires the RP to provide for the
measures, as may be necessary, for Insolvency
Resolution of the CD for maximization of value of its
assets. Regulation 38 states about the mandatory
contents of the RP. Regulation 39 states about the
procedure to be followed while approving the Plan,
also prescribing time limit for each stage of the
process. The relevant part of Regulation 39 is
reproduced as under:
“Regulation 39- Approval of Resolution plan
–
(1) ………………………………….
(2) The resolution professional shall submit to
the committee all resolution plans which comply
with the requirements of the Code and
regulations made thereunder along with the
details of following transactions, if any,
observed, found or determined by him: –
(a) preferential transactions under section 43;
(b) undervalued transactions under section 45;
(c) extortionate credit transactions under section
50; and
(d) fraudulent transactions under section 66,
and the orders, if any, of the adjudicating
authority in respect of such transactions.
(3) The committee shall-
Civil Appeal Nos. 1632-1634 of 2022 Page 60 of 145
(a) evaluate the resolution plans received under
sub-regulation (2) as per evaluation matrix;
(b) record its deliberations on the feasibility and
viability of each resolution plan; and
(c) vote on all such resolution plans
simultaneously.
(3A) Where only one resolution plan is put to
vote, it shall be considered approved if it
receives requisite votes.
(3B) …………………………….
(4) The resolution professional shall endeavour
to submit the resolution plan approved by the
committee to the Adjudicating Authority at least
fifteen days before the maximum period for
completion of corporate insolvency resolution
process under section 12, along with a
compliance certificate in Form H of the
Schedule and the evidence of receipt of
performance security required under subregulation (4A) of regulation 36B.
(5) to (8) ……………………………….
(9) A creditor, who is aggrieved by nonimplementation of a resolution plan approved
under sub-section (1) of section 31, may apply
to the Adjudicating Authority for directions.”
25. The IBBI has also framed the Regulations called the
IBBI (Liquidation Process) Regulations, 2016. Since,
the NCLAT has referred to Regulation 37A thereof,
the same is reproduced as under:
“Regulation 37A – Assignment of not readily
realizable assets. –
1) A liquidator may assign or transfer a not
readily realisable asset through a transparent
process, in consultation with the stakeholders’
consultation committee in accordance with
regulation 31A, for a consideration to any
Civil Appeal Nos. 1632-1634 of 2022 Page 61 of 145
person, who is eligible to submit a resolution
plan for insolvency resolution of the corporate
debtor.
Explanation. – For the purposes of this subregulation, “not readily realisable asset” means
any asset included in the liquidation estate
which could not be sold through available
options and includes contingent or disputed
assets and assets underlying proceedings for
preferential, undervalued, extortionate credit
and fraudulent transactions referred to in
sections 43 to 51 and section 66 of the Code.”
26. The Reserve Bank of India Act, 1934 (RBI Act) was
enacted to regulate the issue of Bank Notes and for
keeping reserves with a view to securing monetary
stability in India and generally to operate the currency
and credit system of the country to its advantage. The
RBI is also responsible to operate the monetary policy
framework in India. The relevant part of the provisions
contained in Section 45-IE of RBI Act, under which the
RBI had superseded the Board of Directors of DHFL
and appointed the Administrator, is reproduced as
under: –
“45-IE. Supersession of Board of directors of
non-banking financial company (other than
Government Company). —
(1) Where the Bank is satisfied that in the public
interest or to prevent the affairs of a non-banking
financial company being conducted in a manner
detrimental to the interest of the depositors or
Civil Appeal Nos. 1632-1634 of 2022 Page 62 of 145
creditors, or of the non-banking financial
company (other than Government Company), or
for securing the proper management of such
company or for financial stability, it is necessary
so to do, the Bank may, for reasons to be
recorded in writing, by order, supersede the
Board of Directors of such company for a period
not exceeding five years as may be specified in
the order, which may be extended from time to
time, so, however, that the total period shall not
exceed five years.
(2) The Bank may, on supersession of the Board
of Directors of the non-banking financial
company under sub-section (1), appoint a
suitable person as the Administrator for such
period as it may determine.
(3) to (9)……………………..”
27. Section 45 (QA) of RBI Act having been relied upon,
the same is reproduced as under:
“45QA. Power of Company Law Board to
order repayment of deposit. —
(1) Every deposit accepted by a non-banking
financial company, unless renewed, shall be
repaid in accordance with the terms and
condition of such deposit.
(2) Where a non-banking financial company has
failed to repay and deposit or part thereof in
accordance with the terms and conditions of
such deposit, the Company Law Board
constituted under section 10E of the Companies
Act, 1956 (1 of 1956), may, if it is satisfied, either
on its own motion or on an application of the
depositor, that it is necessary so to do to
safeguard the interests of the company, the
depositors or in the public interest, direct, by
order, the non-banking financial company to
make repayment of such deposit or part thereof
Civil Appeal Nos. 1632-1634 of 2022 Page 63 of 145
forthwith or within such time and subject to such
conditions as may be specified in the order:
Provided that the Company Law Board may,
before making any order under this sub-section,
give a reasonable opportunity of being heard to
the non-banking financial company and the
other persons interested in the matter.”
28. The NHB Act has been enacted to establish a Bank to
be known as the National Housing Bank to operate as
a principal agency to promote housing finance
institutions, both at local and regional levels and to
provide financial and other support to such institutions
and for matters connected therewith or incidental
thereto. Section 36(A) of NHB Act having been relied
upon, the same is also reproduced for ready
reference:
“36A. Power to order repayment of deposit.
—
(1) Every deposit accepted by a housing finance
institution which is a company unless renewed,
shall be repaid in accordance with the terms and
conditions of such deposit.
(2) Where a housing finance institution which is
a company has failed to repay any deposit or
part thereof in accordance with the terms and
conditions of such deposit, such officer of the
National Housing Bank, as may be authorised
by the Central Government for the purpose of
this section (hereinafter referred to as the
“authorised officer”) may, if he is satisfied, either
on his own motion or on any application of the
depositor, that it is necessary so to do to
Civil Appeal Nos. 1632-1634 of 2022 Page 64 of 145
safeguard the interests of the housing finance
institution, the depositors or in the public
interest, direct, by order, such housing finance
institution to make repayment of such deposit or
part thereof forthwith or within such time and
subject to such conditions as may be specified
in the order:
Provided that the authorised officer may, before
making any order under this sub-section, give a
reasonable opportunity of being heard to the
housing finance institution and the other
persons interested in the matter.”
(V) SCOPE OF JUDICIAL REVIEW: –
29. Before adverting to the issues involved in these
Appeals, let us examine the scope of judicial review
by the NCLT under Section 31 and the scope of
judicial review by NCLAT under Section 61 of IBC.
30. From the bare perusal of the Statement of Objects
and Reasons, it is discernible that one of the prime
objects of IBC is to provide for implementation of the
Insolvency Resolution Process in a time bound
manner for maximization of value of assets in order to
balance the interests of the stakeholders. The
Legislature in order to fill up critical gaps in the
corporate insolvency framework, had made
amendments in certain provisions by Act of 26 of
2019, making the RP approved by the Adjudicating
Civil Appeal Nos. 1632-1634 of 2022 Page 65 of 145
Authority binding on the Central Government, any
State Government or local authority to whom a debt
is owned in respect of payment of dues arising under
any law for the time being in force.
31. If one glances through the scheme of the IBC, its
purpose is also explicitly spelt out from the various
provisions of the Act itself. The role and importance of
the CoC have been stated in Section 21, the duties of
the Resolution Professional in Section 25, the
approval of RP by the Adjudicating Authority in
Section 31. Certain mandates have been given in
Section 31 for the effective implementation of the RP,
as approved by the CoC. The said requirements are
(i) the RP must be approved by the CoC by a vote of
not less than 66% of voting share of the financial
creditors, as contemplated in sub-section (4) of
Section 30. (ii) the RP submitted by the Resolution
Professional must confirm the requirements of subsection (2) of Section 30. The mandatory contents of
the RP have also been stated in Regulation 38 of the
Regulations, 2016. Thus, having regard to Section 31,
it is clear that the Adjudicating Authority i.e. NCLT, if it
is satisfied that the RP as approved by the CoC under
sub-section (4) of Section 30 meets the requirements
Civil Appeal Nos. 1632-1634 of 2022 Page 66 of 145
as referred to in sub-section (2) of Section 30, it shall
by an order approve the RP, which shall be binding on
all the stakeholders. The Adjudicating Authority can
reject the RP under sub-section (2) of Section 31,
where it is satisfied that the RP does not confirm to
the requirements referred to in sub-section (1)
thereof.
32. At this juncture, it is also necessary to refer to Section
61 which deals with the grounds on which Appeals
could be preferred before the Appellate Authority i.e.
NCLAT against the order approving the RP under
Section 31 by the NCLT. As per sub-section (3) of
Section 61, an appeal against an order of approving
the RP under Section 31 could be filed on one of the
five grounds mentioned therein. One of the grounds
on which an Appeal could be filed is, when the
approval of RP by the NCLT is in contravention of the
provisions of any law for the time being in force.
Another ground is, when there has been material
irregularity in exercise of the powers by the Resolution
Professional during the Corporate Insolvency
Resolution period. There are other three grounds with
which we are not concerned in the present set of
Appeals. Suffice it to say that there are specific
Civil Appeal Nos. 1632-1634 of 2022 Page 67 of 145
grounds mentioned in the sub-section (3) for
preferring of an Appeal before the NCLAT under
Section 61 of the Code. Thus, the powers to be
exercised by the NCLAT under Section 61, have also
been specifically confined to the grounds mentioned
therein.
33. The reasons for circumscribing the powers of NCLT
under Section 31 in approving/rejecting the RP
approved by the CoC and of the NCLAT under Section
61 in entertaining the Appeals arising out of the orders
passed by the NCLT approving the RP on limited
grounds are not far to be culled out. The very
prominent purpose of the IBC has been spelt out in
the long title of the Act itself, which is to promote
entrepreneurship, availability of credit and balance
the interest of all the stakeholders in the CIRP
proceedings in a time bound manner. This Court in
catena of decisions has dealt with the dominant
purpose and objectives of enacting the IBC, while
examining the scope of judicial review by the NCLT
and the NCLAT over the commercial wisdom
exercised by the CoC.
Civil Appeal Nos. 1632-1634 of 2022 Page 68 of 145
34. In Arcelormittal India Private Limited vs. Satish
Kumar Gupta and Others,
7 this Court had
elaborately adverted to the legislative history and
delineated the broad contours of the provisions of the
IBC, from which it could be seen that the commercial
wisdom of CoC has been given prominent status
without any judicial intervention, for ensuring the
completion of Resolution Process within the timelines
prescribed by the IBC. It is also required to be noted
that there is a mandate of completing the Resolution
Process within 270 days (outer limit), failing which an
initiation of Liquidation process has been made
inevitable. This Court in the said judgment after
discussing the scheme of the Act, and also the earlier
judgments, emphasized on the prescription of timelimit for the completion of Insolvency process.
Paragraph 75 of the said judgment being relevant is
reproduced hereunder: –
“75. In fact, even the literal language of Section
12(1) makes it clear that the provision must read
as being mandatory. The expression “shall be
completed” is used. Further, sub-section (3)
makes it clear that the duration of 180 days may
be extended further “but not exceeding 90
days”, making it clear that a maximum of 270
days is laid down statutorily. Also, the proviso to
7 (2019) 2 SCC 1
Civil Appeal Nos. 1632-1634 of 2022 Page 69 of 145
Section 12 makes it clear that the extension
“shall not be granted more than once.”
35. In K. Sashidhar vs. Indian Overseas Bank and
Others (supra), this Court dealt with the discretion of
the Adjudicating Authority (NCLT) and the jurisdiction
of the NCLAT as an Appellate Authority and held as
under: –
“55. Whereas, the discretion of the adjudicating
authority (NCLT) is circumscribed by Section 31
limited to scrutiny of the resolution plan “as
approved” by the requisite per cent of voting
share of financial creditors. Even in that enquiry,
the grounds on which the adjudicating authority
can reject the resolution plan is in reference to
matters specified in Section 30(2), when the
resolution plan does not conform to the stated
requirements. Reverting to Section 30(2), the
enquiry to be done is in respect of whether the
resolution plan provides : (i) the payment of
insolvency resolution process costs in a
specified manner in priority to the repayment of
other debts of the corporate debtor, (ii) the
repayment of the debts of operational creditors
in prescribed manner, (iii) the management of
the affairs of the corporate debtor, (iv) the
implementation and supervision of the
resolution plan, (v) does not contravene any of
the provisions of the law for the time being in
force, (vi) conforms to such other requirements
as may be specified by the Board. The Board
referred to is established under Section 188 of
the I&B Code. The powers and functions of the
Board have been delineated in Section 196 of
the I&B Code. None of the specified functions of
the Board, directly or indirectly, pertain to
regulating the manner in which the financial
Civil Appeal Nos. 1632-1634 of 2022 Page 70 of 145
creditors ought to or ought not to exercise their
commercial wisdom during the voting on the
resolution plan under Section 30(4) of the I&B
Code. The subjective satisfaction of the financial
creditors at the time of voting is bound to be a
mixed baggage of variety of factors. To wit, the
feasibility and viability of the proposed
resolution plan and including their perceptions
about the general capability of the resolution
applicant to translate the projected plan into a
reality. The resolution applicant may have given
projections backed by normative data but still in
the opinion of the dissenting financial creditors,
it would not be free from being speculative.
These aspects are completely within the domain
of the financial creditors who are called upon to
vote on the resolution plan under Section 30(4)
of the I&B Code.
56. ………..
57. On a bare reading of the provisions of the
I&B Code, it would appear that the remedy of
appeal under Section 61(1) is against an “order
passed by the adjudicating authority (NCLT)”,
which we will assume may also pertain to
recording of the fact that the proposed
resolution plan has been rejected or not
approved by a vote of not less than 75% of
voting share of the financial creditors.
Indubitably, the remedy of appeal including the
width of jurisdiction of the appellate authority
and the grounds of appeal, is a creature of
statute. The provisions investing jurisdiction and
authority in NCLT or Nclat as noticed earlier,
have not made the commercial decision
exercised by CoC of not approving the
resolution plan or rejecting the same, justiciable.
This position is reinforced from the limited
grounds specified for instituting an appeal that
too against an order “approving a resolution
plan” under Section 31. First, that the approved
Civil Appeal Nos. 1632-1634 of 2022 Page 71 of 145
resolution plan is in contravention of the
provisions of any law for the time being in force.
Second, there has been material irregularity in
exercise of powers “by the resolution
professional” during the corporate insolvency
resolution period. Third, the debts owed to
operational creditors have not been provided for
in the resolution plan in the prescribed manner.
Fourth, the insolvency resolution plan costs
have not been provided for repayment in priority
to all other debts. Fifth, the resolution plan does
not comply with any other criteria specified by
the Board. Significantly, the matters or
grounds—be it under Section 30(2) or under
Section 61(3) of the I&B Code—are regarding
testing the validity of the “approved” resolution
plan by CoC; and not for approving the
resolution plan which has been disapproved or
deemed to have been rejected by CoC in
exercise of its business decision.
58. Indubitably, the inquiry in such an appeal
would be limited to the power exercisable by the
resolution professional under Section 30(2) of
the I&B Code or, at best, by the adjudicating
authority (NCLT) under Section 31(2) read with
Section 31(1) of the I&B Code. No other inquiry
would be permissible. Further, the jurisdiction
bestowed upon the appellate authority (Nclat) is
also expressly circumscribed. It can examine
the challenge only in relation to the grounds
specified in Section 61(3) of the I&B Code,
which is limited to matters “other than” enquiry
into the autonomy or commercial wisdom of the
dissenting financial creditors. Thus, the
prescribed authorities (NCLT/NCLAT) have
been endowed with limited jurisdiction as
specified in the I&B Code and not to act as a
court of equity or exercise plenary powers.”
Civil Appeal Nos. 1632-1634 of 2022 Page 72 of 145
36. In Committee of Creditors of Essar Steel India
Limited vs. Satish Kumar Gupta and Others
(supra), a Three-Judge Bench discussed in detail the
issues pertaining to the role of Resolution
Professionals, CoCs, and the jurisdiction of NCLT
and NCLAT and observed as under: –
“64. Thus, what is left to the majority decision of
the Committee of Creditors is the “feasibility and
viability” of a resolution plan, which obviously
takes into account all aspects of the plan,
including the manner of distribution of funds
among the various classes of creditors. As an
example, take the case of a resolution plan
which does not provide for payment of electricity
dues. It is certainly open to the Committee of
Creditors to suggest a modification to the
prospective resolution applicant to the effect
that such dues ought to be paid in full, so that
the carrying on of the business of the corporate
debtor does not become impossible for want of
a most basic and essential element for the
carrying on of such business, namely,
electricity. This may, in turn, be accepted by the
resolution applicant with a consequent
modification as to distribution of funds, payment
being provided to a certain type of operational
creditor, namely, the electricity distribution
company, out of upfront payment offered by the
proposed resolution applicant which may also
result in a consequent reduction of amounts
payable to other financial and operational
creditors. What is important is that it is the
commercial wisdom of this majority of creditors
which is to determine, through negotiation with
the prospective resolution applicant, as to how
and in what manner the corporate resolution
process is to take place.”
Civil Appeal Nos. 1632-1634 of 2022 Page 73 of 145
37. On the issue of jurisdiction of the Adjudicating
Authority i.e. NCLT and the Appellate Tribunal i.e.
NCLAT, it was held in Essar Steel (supra) as under:-
“Jurisdiction of the Adjudicating Authority
and the Appellate Tribunal
65. As has already been seen hereinabove, it is
the Adjudicating Authority which first admits an
application by a financial or operational creditor,
or by the corporate debtor itself under Sections
7, 9 and 10 of the Code. Once this is done,
within the parameters fixed by the Code, and as
expounded upon by our judgments
in Innoventive Industries
Ltd. v. Icici Bank [Innoventive Industries
Ltd. v. Icici Bank, (2018) 1 SCC 407 : (2018) 1
SCC (Civ) 356] and Macquarie Bank
Ltd. v. Shilpi Cable Technologies
Ltd. [Macquarie Bank Ltd. v. Shilpi Cable
Technologies Ltd., (2018) 2 SCC 674 : (2018) 2
SCC (Civ) 288] , the Adjudicating Authority then
appoints an interim resolution professional who
takes administrative decisions as to the day to
day running of the corporate debtor; collation of
claims and their admissions; and the calling for
resolution plans in the manner stated above.
After a resolution plan is approved by the
requisite majority of the Committee of Creditors,
the aforesaid plan must then pass muster of the
Adjudicating Authority under Section 31(1) of
the Code. The Adjudicating Authority’s
jurisdiction is circumscribed by Section 30(2) of
the Code. In this context, the decision of this
Court in K. Sashidhar [K. Sashidhar v. Indian
Overseas Bank, (2019) 12 SCC 150: (2019) 4
SCC (Civ) 222] is of great relevance.
66. …………….
Civil Appeal Nos. 1632-1634 of 2022 Page 74 of 145
67. …..Thus, it is clear that the limited judicial
review available, which can in no circumstance
trespass upon a business decision of the
majority of the Committee of Creditors, has to
be within the four corners of Section 30(2) of the
Code, insofar as the Adjudicating Authority is
concerned, and Section 32 read with Section
61(3) of the Code, insofar as the Appellate
Tribunal is concerned, the parameters of such
review having been clearly laid down in K.
Sashidhar.
68. ……….
69. It will be noticed that the non obstante
clause of Section 60(5) speaks of any other
law for the time being in force, which obviously
cannot include the provisions of the Code itself.
Secondly, Section 60(5)(c) is in the nature of a
residuary jurisdiction vested in NCLT so that
NCLT may decide all questions of law or fact
arising out of or in relation to insolvency
resolution or liquidation under the Code. 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 a
resolution plan, as has been mandated by
Section 31(1) of the Code. A harmonious
reading, therefore, of Section 31(1) and Section
60(5) of the Code would lead to the result that
the residual jurisdiction of NCLT under Section
60(5)(c) cannot, in any manner, whittle down
Section 31(1) of the Code, by the investment of
some discretionary or equity jurisdiction in the
Adjudicating Authority outside Section 30(2) of
the Code, when it comes to a resolution plan
being adjudicated upon by the Adjudicating
Authority. This argument also must needs be
rejected.”
Civil Appeal Nos. 1632-1634 of 2022 Page 75 of 145
38. The Court also considered the amendment to
Section 30(4) i.e. fourth proviso which was added to
sub-section (4) which came into force from
23.11.2017, and observed as under: –
“68. Suffice it to observe that the amended
provision merely restates as to what the
financial creditors are expected to bear in mind
whilst expressing their choice during
consideration of the proposal for approval of a
resolution plan. No more and no less.
Indubitably, 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
resolution plan. The opinion so expressed by
voting is non-justiciable. Further, in the present
cases, there is nothing to indicate as to which
other requirements specified by the Board at the
relevant time have not been fulfilled by the
dissenting financial creditors. As noted earlier,
the Board established under Section 188 of the
I&B Code can perform powers and functions
specified in Section 196 of the I&B Code. That
does not empower the Board to specify
requirements for exercising commercial
decisions by the financial creditors in the
matters of approval of the resolution plan or
liquidation process. Viewed thus, the
amendment under consideration does not take
the matter any further.”
39. Again, a Three-Judge bench in Ghanashyam
Mishra and Sons Private Limited through the
Authorised Signatory vs. Edelweiss Asset
Reconstruction Company Limited through the
Civil Appeal Nos. 1632-1634 of 2022 Page 76 of 145
Director and Others,
8 examined the legislative
intent of making the RP binding on all the
Stakeholders after it gets seal of approval from the
Adjudicating Authority, and observed as under: –
“64. It could thus be seen, that the legislature
has given paramount importance to the
commercial wisdom of CoC and the scope of
judicial review by adjudicating authority is
limited to the extent provided under Section 31
of the I&B Code and of the appellate authority is
limited to the extent provided under sub-section
(3) of Section 61 of the I&B Code, is no more res
integra.
65. Bare reading of Section 31 of the I&B Code
would also make it abundantly clear that once
the resolution plan is approved by the
adjudicating authority, after it is satisfied, that
the resolution plan as approved by CoC meets
the requirements as referred to in sub-section
(2) of Section 30, it shall be binding on the
corporate debtor and its employees, members,
creditors, guarantors and other stakeholders.
Such a provision is necessitated since one of
the dominant purposes of the I&B Code is
revival of the corporate debtor and to make it a
running concern.”
40. Recently, this Court in Ebix Singapore Private
Limited vs. Committee of Creditors of Educomp
Solutions Limited and Another,
9 reiterating that
the Adjudicating Authority is prohibited from second8 (2021) 9 SCC 657
9 (2022) 2 SCC 401
Civil Appeal Nos. 1632-1634 of 2022 Page 77 of 145
guessing the commercial wisdom of the parties or
directing unilateral modification to the RPs, as held in
Essar Steel (supra) and K. Sashidhar (supra),
further held as under-
“157. These are binding precedents. Absent a
clear legislative provision, this Court will not, by
a process of interpretation, confer on the
adjudicating authority a power to direct an
unwilling CoC to renegotiate a submitted
resolution plan or agree to its withdrawal, at the
behest of the resolution applicant. The
adjudicating authority can only direct the CoC to
re-consider certain elements of the resolution
plan to ensure compliance under Section 30(2)
IBC, before exercising its powers of approval or
rejection, as the case may be, under Section 31
[Essar Steel (India) Ltd. (CoC) v. Satish Kumar
Gupta, (2020) 8 SCC 531, para 73 : (2021) 2
SCC (Civ) 443] . In State of A.P. v. P. Laxmi
Devi [State of A.P. v. P. Laxmi Devi, (2008) 4
SCC 720], while determining the
constitutionality of a statute, this Court observed
that it should be wary of transgressing into the
domain of the legislature, especially in matters
relating to economic and regulatory legislation.
This Court observed : (P. Laxmi Devi
case [State of A.P. v. P. Laxmi Devi, (2008) 4
SCC 720]
“80. … As regards economic and
other regulatory legislation judicial
restraint must be observed by the
court and greater latitude must be
given to the legislature while
adjudging the constitutionality of
the statute because the court does
not consist of economic or
administrative experts. It has no
expertise in these matters, and in
this age of specialisation when
Civil Appeal Nos. 1632-1634 of 2022 Page 78 of 145
policies have to be laid down with
great care after consulting the
specialists in the field, it will be
wholly unwise for the court to
encroach into the domain of the
executive or legislative (sic
legislature) and try to enforce its
own views and perceptions.”
158. Judicial restraint must not only be
exercised while adjudicating upon the
constitutionality of the statute relating to
economic policy but also in matters of
interpretation of economic statutes, where the
interpretative manoeuvres of the Court have an
effect of transgressing into the law-making
power of the legislature and disturbing the
delicate balance of separation of powers
between the legislature and the judiciary.
Judicial restraint must be exercised in such
cases as a matter of prudence, since the court
neither has the necessary expertise nor the
power to hold consultations with stakeholders or
experts to decide the direction of economic
policy. A court may be inept in laying down a
detailed procedure for exercise of the power of
withdrawal or modification by a successful
resolution applicant without impacting the other
procedural steps and the timelines under IBC
which are sacrosanct. Thus, judicial restraint
must be exercised while intervening in a law
governing substantive outcomes through
procedure, such as IBC. In this case, if
resolution applicants are permitted to seek
modifications after subsequent negotiations or a
withdrawal after a submission of a resolution
plan to the adjudicating authority as a matter of
law, it would dictate the commercial wisdom and
bargaining strategies of all prospective
resolution applicants who are seeking to
participate in the process and the successful
resolution applicants who may wish to negotiate
Civil Appeal Nos. 1632-1634 of 2022 Page 79 of 145
a better deal, owing to myriad factors that are
peculiar to their own case. The broader
legitimacy of this course of action can be
decided by the legislature alone, since any other
course of action would result in a flurry of
litigation which would cause the delay that IBC
seeks to disavow.”
41. What is “commercial wisdom” of CoC has been very
aptly put by this Court in a latest decision in M.K.
Rajagopalan vs. Dr. Periasamy Palani Gounder
and Another (supra), which is worth reproducing: –
“160. As noticed hereinbefore, commercial
wisdom of CoC is given such a status of primacy
that the same is considered rather a matter nonjusticiable in any adjudicatory process, be it by
the adjudicating authority or even by this Court.
However, the commercial wisdom of CoC
means a considered decision taken by CoC with
reference to the commercial interests and the
interest of revival of the corporate debtor and
maximisation of value of its assets. This wisdom
is not a matter of rhetoric but is denoting a wellconsidered decision by the protagonist of CIRP
i.e. CoC. As observed by this Court in K.
Sashidhar [K. Sashidhar v. Indian Overseas
Bank, (2019) 12 SCC 150 : (2019) 4 SCC (Civ)
222] , the financial creditors forming CoC “act on
the basis of thorough examination of the
proposed resolution plan and assessment made
by their team of experts. The opinion on the
subject-matter expressed by them after due
deliberations in CoC meetings through voting,
as per voting shares, is a collective business
decision.” This Court also observed in K.
Sashidhar [K. Sashidhar v. Indian Overseas
Bank, (2019) 12 SCC 150 : (2019) 4 SCC (Civ)
222] that “[t]here is an intrinsic assumption that
Civil Appeal Nos. 1632-1634 of 2022 Page 80 of 145
financial creditors are fully informed about the
viability of the corporate debtor and feasibility of
the proposed resolution plan.”
161. These observations read with the
observations in Essar Steel [Essar Steel India
Ltd. (CoC) v. Satish Kumar Gupta, (2020) 8
SCC 531 : (2021) 2 SCC (Civ) 443] with
reference to the reasons stated in the Report of
Bankruptcy Law Reforms Committee of
November 2015, make it clear that commercial
wisdom of CoC is assigned primacy in CIRP for
it represents collective business decision, which
is arrived at after thorough examination of the
proposed resolution plan and assessment made
with involvement of experts by the body of
persons who are most vitally interested in rapid
and efficient decision making. It follows as a
necessary corollary that to be worth its name,
the commercial wisdom of CoC would come into
existence and operation only when all the
relevant information is available before it and is
duly deliberated upon by all its members, who
have direct and substantial interest in the
survival of corporate debtor and in the entire
CIRP.
162. In light of the aforesaid position of law and
its operation in relation to the decision-making
process of CoC, it needs hardly any emphasis
that each and every aspect relating to the
resolution plan, and more particularly its
financial layout, has to be before the CoC before
it could be said to have arrived at a considered
decision in its commercial wisdom.”
42. In view of the above legal position settled by this
Court in the fleet of judgments, it is no more res
integra that the legislature has given paramount
Civil Appeal Nos. 1632-1634 of 2022 Page 81 of 145
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.
43. While considering the feasibility and viability of the
Prospective Resolution Plans, the CoC can always
suggest a modification therein and exercise its
Civil Appeal Nos. 1632-1634 of 2022 Page 82 of 145
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 as held in Essar Steel (supra), 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.
44. 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
Civil Appeal Nos. 1632-1634 of 2022 Page 83 of 145
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.
45. Keeping in view the above settled legal position, let
us deal with the three categories of Appeals
separately.
(VI) ANALYSIS IN THE FIRST CATEGORY OF
APPEALS: –
46. In the First category of Appeals, the impugned order
dated 27.01.2022 passed by the NCLAT, in the
Company Appeal Nos. 454-455 and 750 of 2021, in
relation to the treatment of recoveries from the
Avoidance applications provided in the RP submitted
by the SRA – Piramal Capital, is under challenge. As
stated earlier, the C.A. Nos.1632-1634 of 2022 have
been filed by the SRA – Piramal Capital, and C.A.
Nos.2989-2991 of 2022 have been filed by the Union
of India, challenging the impugned judgment to the
extent the NCLAT modified the RP and the C.A. Nos.
3694-3695 of 2022 have been filed by the 63 Moons
to the extent the NCLAT sent back the RP to CoC for
reconsideration. The NCLAT vide the said impugned
Civil Appeal Nos. 1632-1634 of 2022 Page 84 of 145
order has set aside the term in the RP that permitted
the SRA to appropriate recoveries if any, from
Avoidance applications filed upon Section 66 of the
IBC, and sent back the RP to CoC for reconsideration
on that aspect.
47. The NCLAT treating the Appeals at the instance of 63
Moons as maintainable under Section 61(3) of IBC,
observed as under:
“9.113 The appellants, aggrieved persons on
account of illegalities perpetrated in the
approved Resolution Plan, have preferred these
appeals, requiring adjudication on an important
question of law. Accordingly, these appeals
have duly urged the requisite ground for Section
61 (3) of the Code.
9.114 Providing the benefit of the outcome of
avoidance applications to the Resolution
Applicant results in unjust enrichment of
Respondent No. 2/RA at the expense of all the
creditors of the Corporate Debtor. Moreover, the
same is vitiated by illegalities and material
irregularities, and the same could not have been
cured on the pretext of the commercial wisdom
of CoC.”
48. The NCLAT in the impugned judgment, while
acknowledging the proposition that the commercial
wisdom of the CoC is supreme so far as commercial
aspects of the RP is concerned, held that the said
principle is not applicable to the present facts where
the issue of illegality has been raised. According to
Civil Appeal Nos. 1632-1634 of 2022 Page 85 of 145
the NCLAT, the depositors of DHFL are the rightful
beneficiaries, if not owners, of the monies that have
been siphoned off by the Promoters/Directors of the
CD. The NCLAT thereafter taking resort to Regulation
37A of IBBI (Liquidation Process) Regulations, 2016,
observed as under:
“9.109 Regulation 37A of the IBBI (Liquidation
Process) Regulations, 2016 (the “Liquidation
Process Regulations”), which empowers a
Liquidator to assign or transfer a not readily
realizable asset during the liquidation of a
Corporate Debtor. The conspicuous absence of
a similar provision in the CIRP Regulations,
which permits assignment or transfer of
recoveries from avoidance transactions to a
resolution applicant, supports the case of the
Appellant that such recoveries cannot be
transferred to a resolution applicant in the CIRP
process, which is qualitatively different and
distinct from the liquidation process.”
49. Ultimately, the NCLAT concluded in Para 16-19 as
under: –
“16. Therefore, before approving the Resolution
Plan, the Adjudicating Authority was obligated to
test the Resolution Plan in terms of Section 30
(2) of the Code. In the instant case, the
Administrator referred the matter to CoC to
decide on the applicability of the Venus
judgement of Delhi High Court in providing the
outcome of avoidance transactions to the
Successful Resolution Applicant. Adjudicatory
power could not have been delegated to the
CoC. The Adjudicating Authority has not taken
Civil Appeal Nos. 1632-1634 of 2022 Page 86 of 145
any decision about the applicability of the Venus
judgement on the issue of providing the
outcome of avoidance transaction to the
resolution applicant. The Adjudicating Authority
has stated that “as far as the claims of
avoidance transactions, CoC has consciously
decided that the money realised through these
avoidance transactions would accrue to the
members of the CoC. At the same time, they
have also consciously decided after a lot of
deliberations negotiations that money realised if
any under Section 66 of the IBC, i.e. fraud and
fraudulent transactions, CoC has ascribed the
value of lNR one and if any positive money
recovery the same would go to the Resolution
Applicant of the Corporate Debtor.” Therefore, it
cannot be considered the findings of the
Adjudicating Authority. The CoC was not
empowered to exercise such Adjudicatory
power and decide. Insolvency Law Committee
Report, 2020, specifically provides that the key
aim of providing certain transactions is to avoid
unjust enrichment of some parties in the
insolvency at the cost of all creditors. The
underlying policy of such a proceeding is to
prevent unjust enrichment of one party at the
expense of other creditors. Thus, factual factors
such as the kind of transactions being provided,
party funding the action, assignment of claims,
and creditors affected by transaction or trading
may be considered when deciding on the
distribution of recoveries. Thus, it was
recommended that instead of providing anything
prescriptive in this regard, the decision on the
treatment of recoveries might be left to the
adjudicating authority.
17. Accordingly, the Adjudicating Authority
should have decided whether the recoveries
vested with the corporate debtor should be
applied for the benefit of creditors of the
corporate debtor, the successful resolution
applicant or other stakeholders. In arriving at
Civil Appeal Nos. 1632-1634 of 2022 Page 87 of 145
this decision, the Adjudicating Authority may
take note of the facts and circumstances of the
case and other listed factors.
18. The Respondents have also argued that the
possibility of recovering monies from avoidance
transactions is very low. However, the amount of
the actual recovery that may be made in the
future is entirely irrelevant. Since Respondent
No. 2 has ascribed a value of lNR 1 to the
avoidance transactions, Respondent No. 2 has
not factored in the avoidance transactions in the
Resolution Plan amount. Moreover, there is no
material on record to suggest that the avoidance
transactions have been factored in Respondent
No. 2 ‘s Resolution Plan. Therefore, the oral
contention of the Respondents that the
avoidance transactions have been factored in
the Resolution Plan amount is unsupported and
not borne out from the material on record.
19. Therefore, the present appeals ought to be
allowed. The term in the Resolution Plan that
permits the Successful Resolution Applicant to
appropriate recoveries, if any, from avoidance
applications filed under Section 66 of the Code
ought to be set aside. The Resolution Plan be
sent back to the CoC for reconsideration on this
aspect.”
(i) QUESTIONS:
50. Having regard to the submissions made by the
learned counsels for the parties, and to the findings
arrived at by the NCLAT in the impugned order, the
main question that falls for consideration before this
Court is-
Civil Appeal Nos. 1632-1634 of 2022 Page 88 of 145
“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?”
51. The ancillary questions to the main question would
be-
(i) 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?
(ii)What are the mandatory requirements as referred
in sub-section (2) of Section 30 read with
Regulation 38 of the Regulations, 2016?
(iii) What is maximization of the value of assets of
the Corporate Debtor?
(iv) 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?
Civil Appeal Nos. 1632-1634 of 2022 Page 89 of 145
52. In our opinion, the cumulative answers of the ancillary
questions would answer the main question.
Therefore, let us first of all examine as to what are
the Applications required to be filed by the Resolution
Professional, popularly known as the Avoidance
Applications?
(ii) AVOIDANCE APPLICATIONS: –
53. One of the duties statutorily cast upon the Resolution
Professional in Clause (j) of sub-section (2) of Section
25 of the Code is that the Resolution Professional shall
file application for Avoidance of transactions in
accordance with Chapter III, if any. Having regard to
the said Chapter III, which pertains to “Liquidation
Process,” it appears that there are three types of
Applications that could be filed by the Resolution
Professional for avoidance transactions.
(i) Application for avoidance of Preferential
transactions under Section 43,
(ii)Application for avoidance of Undervalued
transactions under Section 45 and
(iii) Application for avoidance of Extortionate Credit
transactions under Section 50.
Civil Appeal Nos. 1632-1634 of 2022 Page 90 of 145
54. Section 26 specifically states that the filing of an
Avoidance Application under Clause (j) of subsection (2) of Section 25 by the Resolution
Professional shall not affect the proceedings of CIRP.
Meaning thereby, irrespective of the pendency of the
Avoidance Applications filed by the Resolution
Professional, the CIRP Proceedings could be
proceeded further.
55. So far as Section 66 is concerned, the same falls
under Chapter VI and it pertains to the “Fraudulent
trading or Wrongful trading.” Sub-section 1 of Section
66 provides that if during the CIRP or a Liquidation
process, it is found that any business of the CD has
been carried on with intent to defraud creditors of the
CD or for any fraudulent purpose, the Adjudicating
Authority may on the application of the Resolution
Professional, pass an order that any persons who
were knowingly parties to the carrying on of the
business in such manner, shall be liable to make such
contributions to the assets of the CD, as it may deem
fit. From the bare reading of Section 66(1), it is very
much discernible that the said provision pertains to
the “Fraudulent trading or Wrongful trading” in
respect of the business of the CD.
Civil Appeal Nos. 1632-1634 of 2022 Page 91 of 145
56. Thus, 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.
Civil Appeal Nos. 1632-1634 of 2022 Page 92 of 145
57. In the cases of Preferential transactions as
contemplated in Section 43, the Resolution
Professional may file an Application, when he is of
the opinion that the CD, at a relevant time, had given
a preference in such transactions, and in such
manner as laid down in sub-section (2), to any
persons as referred to in sub-section 4 of Section 43.
The Adjudicating Authority may pass any of the
orders as specified in Clauses (a) to (g) of Section
44, in such Application filed by the Resolution
Professional under Section 43(1).
58. Similarly, in the cases of Undervalued transactions as
contemplated in Section 45, the Resolution
Professional may file an Avoidance Application if he
determines that certain transactions were made
during the relevant period prescribed under Section
46 which were undervalued. In such applications, the
Resolution Professional may pray to declare such
transactions as void and to reverse the effect of such
transaction in accordance with Chapter III. The
Adjudicating Authority may pass any of the orders
specified in Clauses (a) to (d) of Section 48 in such
Application filed under Section 45(1). He may also
pass orders specified in Clause (i) and (ii) of Section
Civil Appeal Nos. 1632-1634 of 2022 Page 93 of 145
49, in respect of the Undervalued transactions
referred to in Section 45(2).
59. In case of Extortionate Credit transactions, as
contemplated in Section 50, the Resolution
Professional may file Avoidance Application, where
the CD had been a party to an Extortionate Credit
transaction involving the receipt of financial or
operational debt during the period within two years
preceding the insolvency commencement date, and
where the terms of such transactions required
exorbitant payments to be made by the CD. In case
of such Extortionate Credit transactions, the
Adjudicating Authority may pass any of the orders
specified in Clause (a) to (e) of Section 51. It is
pertinent to note that in all these types of Avoidance
Applications falling under Chapter III, the
transactions in question, the properties involved and
the persons with whom such transactions were
made, could be ascertained by the Adjudicating
Authority and therefore it is empowered to pass
orders to avoid or set aside such transactions, under
Sections 44, 48, 49 and 51, as the case may be.
60. However, in cases of “Fraudulent or Wrongful trading”
in respect of the business of the CD as contemplated
Civil Appeal Nos. 1632-1634 of 2022 Page 94 of 145
in Section 66, the properties and the persons
involved may or may not be ascertainable and
therefore the Adjudicating Authority is not
empowered to pass orders to avoid or set aside such
transactions, but is empowered to pass orders to the
effect that any persons, who were knowingly parties
to the carrying on of business in such manner, shall
be liable to make such contributions to the assets of
the CD, as it may deem fit. The Adjudicating Authority
in such applications may also direct that the Director
of the CD shall be liable to make such contribution to
the assets of the CD as it may deem fit, as
contemplated in Section 66(2). In case of Fraudulent
trading or Wrongful trading, it would be a matter of
inquiry to be made by the Adjudicating Authority as to
whether the business of CD was carried on with intent
to defraud creditors of the CD or was carried on for
any fraudulent purpose.
61. In view of the above, the 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
Civil Appeal Nos. 1632-1634 of 2022 Page 95 of 145
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.
(iii) Mandatory Requirements of Section 30(2) of the
IBC and Regulation 38 of Regulations, 2016
62. After having elaborated upon the Avoidance
Applications, let us see what are the mandatory
requirements, a Resolution Professional is required
to confirm on the receipt of the RPs submitted by the
PRAs. 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
Civil Appeal Nos. 1632-1634 of 2022 Page 96 of 145
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.
63. The Resolution Professional, in view of sub-section
(3) of Section 30 has to present to the CoC for its
approval such RPs which confirm the conditions
referred to in sub-section (2) thereof. Sub-Section (4)
of Section 30 states that the CoC may approve the
Civil Appeal Nos. 1632-1634 of 2022 Page 97 of 145
RP by a vote of not less than 66% of the voting share
of the Financial Creditors, after considering its
feasibility and viability, the manner of distribution
proposed, which may take into account the order of
priority amongst Creditors as laid down in subsection (1) of Section 53, including the priority and
value of the security interest of a secured creditor,
and such other requirements as may be specified by
the Board.
64. The Resolution Professional then has to submit the
RP as approved by the requisite number of votes of
CoC to the Adjudicating Authority. In view of subsection (1) of Section 31, if the Adjudicating Authority
is satisfied that the RP approved by the CoC under
sub-section (4) of Section 30 meets the requirements
as referred to in sub-section (2) of Section 30, it shall
by an order approve the RP, which shall be binding
on the CD and its employees, members, creditors,
statutory authorities, guarantors and stakeholders
involved in the RP. Where the Adjudicating Authority
is satisfied that the RP does not confirm to the
requirements referred to in sub-section (1) of Section
31, it may, by an order reject the RP.
Civil Appeal Nos. 1632-1634 of 2022 Page 98 of 145
65. Thus, the 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, readwith 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.
(iv) Maximization of the value of the assets of the
Corporate Debtor
66. Much emphasis was laid, during the course of the
arguments, for the maximization of the value of the
assets of the CD. It hardly needs to be emphasized
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
Civil Appeal Nos. 1632-1634 of 2022 Page 99 of 145
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.
67. As observed in K. Sashidhar (supra), the Financial
Creditors forming CoC, act on the basis of thorough
examination of the proposed RPs and the
assessment made by their team of experts. The
entire process has to be carried out in an absolutely
Civil Appeal Nos. 1632-1634 of 2022 Page 100 of 145
transparent manner, and each and every aspect
relating to the RP, and more particularly its financial
layout and the measures proposed for maximization
of the value of the assets of the CD, has to be placed
before the CoC. The CoC, if after considering such
measures for maximization of the value of the assets
of the CD as proposed by the RA in the RP submitted
by it, and considering the feasibility, viability and such
other requirements as mandated in the IBC and in the
Regulations, 2016, approves the plan with the
requisite number of votes as required under Section
30(4), after exercising its commercial wisdom, then
the scope of judicial review by the Adjudicating
Authority under Section 31 will be limited only to the
extent of satisfying itself about the compliance of the
requirements of Section 30(2). The judicial review by
the Appellate Authority under Section 61 in the
appeal against the order of Adjudicating Authority
approving the plan, is further limited to the grounds
mentioned in Clauses (i) to (v) specified in subsection (3) of Section 61.
Civil Appeal Nos. 1632-1634 of 2022 Page 101 of 145
(v) Whether the NCLAT should have entertained the
appeals filed by the 63 Moons under Section 61
of the Code and tinkered with the Resolution Plan
approved by the CoC and the NCLT? –
68. Keeping in view, the above discussed legal position,
let us examine the facts of the case to decide whether
the Appellate Authority i.e. NCLAT should have
entertained the appeals at the instance of 63 Moons,
and interfered with the RP approved by the CoC and
NCLT, by tinkering with the isolated clauses of the
approved RP which pertained to the treatment of
recoveries from the Applications under Section 66 of
IBC.
69. As stated earlier, based on the Audit Reports of GT,
the auditors appointed by the Administrator to carry
out the Transaction Audit and to unearth the
transactions that could be avoided/set aside under
the IBC, the Administrator had filed the Applications
before the NCLT regarding the Preferential,
Undervalued and Extortionate Transactions seeking
to avoid/set aside the same under Sections 43 to 51
and 66 of IBC. The summary of these Applications
referred to by the NCLAT in the impugned order is
reproduced hereunder: –
Civil Appeal Nos. 1632-1634 of 2022 Page 102 of 145
I. 1st Application filed on August 30 2020,
under Section 60 (5) & 66 of the Code. The
Application is in respect of the investigation and
observations of the transaction auditor, filed by
the Administrator in respect of disbursements
made by DHFL to certain entities, referred to as
the Bandra Books Entities, under Section 60(5)
and Section 66 of the Code on August 30, 2020,
against Kapil Wadhawan, Dheeraj Wadhawan,
Township Developers India Ltd, Wadhawan
Holdings Private Limited, Dheeraj Township
Developers Private Limited, Wadhawan
Consolidated Holdings Pvt. Ltd., Wadhawan
Global Hotels & Resorts Pvt. Ltd, Wadhawan
Lifestyle Retail Pvt. Ltd. and certain other
entities. The amount involved therein is Rs.
17,394 crores.
II. 2nd Application was filed on September
27 2020, under Section 60 (5) & 66 of the Code.
The Application is about certain irregularities in
loan disbursements towards the development of
SRA projects undertaken by DHFL in the past.
The amount involved therein is Rs. 12,705.53
crores.
III. 3rd Application was filed on October 5
2020, under Sections 45, 46, 49, 60(5) and 66
of the Code. The Application is in relation to the
undervalued and fraudulent nature of certain
agreements entered into by the Company at the
time the Company sold its stake in Pramercia
Life Insurance Limited to DHFL Investments
Limited and certain ICDs given by the DHFL to
ICD entities. The amount involved therein is Rs.
2, 150.84 crores.
IV. 4th, 5th and 6th Applications filed in
December 2020 – The Applications are about:
a. Disbursement to specific entities in the form
of loans against property and utilisation of the
same towards premature redemption of certain
Civil Appeal Nos. 1632-1634 of 2022 Page 103 of 145
NCDs, undertaken by DHFL in the past under
Sections 43, 45 and 66 of the Code – as
Application “A”.
b. Diversion of excess funds from the account of
DHFL for purchase of NAPHA Building under
Section 66 of the Code as Application “B”.
c. Fraudulent and undervalued advancement of
ICDs by DHFL to certain entities in the past and
the subsequent creation of a pledge over the
non-convertible debentures issued by DHFL
under Sections 45 and 66 of the Code – as
Application “C”.
A copy of the letter dated December 13, 2020,
issued by Respondent No. I to Stock Exchange
summarising the said transaction is annexed
with Appeal Paper book. The amount involved
therein is Rs.1,058.32 crores.
V. 7th Application filed on February 3 2021,
under Sections 45, 60 (5) and 66 of the Code –
The Application is about disbursement made to
certain entities as developer loans and loans
against property. The amount involved therein is
Rs. 4,793.36 crores.
VI. 8th Application was filed on February 20
2021, under Section 45, 60 (5) and 66 of the
Code. The Application is in relation to
irregularities in disbursements of Other Large
Product Loan (OLPL) by the DHFL in the past.
The amount involved therein is Rs. 6,182.11
crores.
Civil Appeal Nos. 1632-1634 of 2022 Page 104 of 145
The details of the Avoidance applications in
the tabular chart are mentioned below:
Rs. Crores (Approx)
Sr.
No.
Avoidance
Application
date
Reference Section Principal
(in
Crores)
Interest
+Notional
amount
Total (in
Crores)
1. 30.08.2020 Bandra
Books
60(5)
and 66
14046 3348 17394
2. 27.09.2020 SRA Loans 60(5)
and 66
10980 1726 12706
3. 05.10.2020 DIL
Transaction
45, 46, 49,
60(5) & 66
1740 125 1865
228 58 286
4. 12.12.2020 LAP Loans 43, 45 and
66
592 56 648
5. 12.12.2020 NAPHA
Properties
66 330 330
6. 12.12.2020 ICD 45 and 66 71 9 80
7. 03.02.2020 DLAP Loans 45,
60(5) & 66
4793 766 5559
8. 20.02.2021 OLPL Loans 45, 60(5) &
66
5382 800 6182
Total filed Total
figures in
crores
38161 6889 45050
70. As transpiring from the voluminous documents
produced on record by the learned counsels for the
parties, it appears that during the course of meetings
of CoC, the PRAs had submitted various RPs,
amongst which a RP dated 16.10.2020, was
submitted by the Piramal Capital bidding for Group A
assets under Option II offering 15,000 crores plus an
amount of 10% for FD Holders. Then, a RP dated
09.11.2020 was submitted bidding for Group A assets
under Option II offering bid amount of Rs.23,700
crores. Another RP dated 17.11.2020 was submitted
Civil Appeal Nos. 1632-1634 of 2022 Page 105 of 145
bidding for Group A assets under Option II offering
bid amount of Rs.27,500 crores. RP dated
14.12.2020 was submitted bidding for the entire
assets under Option I offering bid amount of
Rs.34,950 crores, and bidding for Group A assets
under Option II offering bid amount of Rs.27,200
crores. Lastly, Piramal Capital presented the RP
dated 22.12.2020 bidding for the entire assets under
Option I for Rs. 37,250 crores, or for Group A assets
under Option II bidding for Rs.27,200 crores. The
treatment of Avoidance transactions under the
Resolution Plan dated 22.12.2020 was as under: –
“Re: Treatment of avoidance transactions under
the Resolution Plan.
(xxxi) As regards avoidance transactions, the
Resolution Plan provided as follows, in line with
the RFRP dated 16 September 2020:
“2.13. Treatment of preferential transactions,
undervalued transactions, extortionate
transactions and fraudulent trading.
2.13.1. The Administrator shall submit, to the
CoC, details of the transactions avoided or set
aside by the NCLT in terms of Section 43, 45,
47, 49, and 50 of the IBC (Avoidance
Transactions), if any, observed, found or
determined by him and the orders, if any, of the
NCLT in respect of such transactions.
2.13.2. The Resolution Applicant intends to
pursue, on a best-efforts basis, the
Civil Appeal Nos. 1632-1634 of 2022 Page 106 of 145
application(s) filed by the Administrator before
the NCLT in respect of these Avoidance
Transactions. Any positive monetary recovery
received by the Company as a result of orders
passed in relation to the Avoidance
Transactions shall be distributed, net of costs
and expenses (including taxes), to the Financial
Creditors pro rata to the extent the Financial
Debt for Financial Creditors, provided that, the
CoC may in its discretion adopt a different
manner of distribution (which may take into
account the order of priority amongst Financial
Creditors as laid down in section 53(1) of
section of the IBC and such decision of the CoC
shall be accepted by the Resolution Applicant,
subject to there being no change in the Total
Resolution Amount.
2.13.3. The Resolution Applicant ascribes value
of INR 1 in respect of any transactions that may
be avoided/set aside by the NCLT in terms of
section 66 of the IBC. Accordingly, any positive
recovery as a result of reversal of transactions
avoided or set aside by the NCLT in terms of
section 66 of the IBC would accrue to the sole
benefit of the Resolution Applicant. All the costs
and expenses incurred or to be incurred towards
litigation pertaining to section 66 of the IBC shall
be to the account of the Resolution Applicant. ”
71. The Chart juxtaposing the Provisions of RFRP dated
16.9.2020 and the Provisions of the RP dated
22.12.2020 in respect of treatment of avoidance
Civil Appeal Nos. 1632-1634 of 2022 Page 107 of 145
transactions produced at Annexure-A/7 in C.A.
No.1632-1634 of 2022 may be reproduced as under:-
Provisions of the RFRP dated
16 September 2020
Provisions of the Resolution Plan
3.13.2.[…]
… (w) In the event any
transaction is avoided/set aside
by the Adjudicating Authority in
terms of Sections
43,45,47,49,50 of the IBC, and
any amount is received by the
Administrator or the Resolution
Applicant/Corporate Debtor (as
the case may be) in accordance
with such decision of the
Adjudicating Authority, such
sums shall be for the benefit of
the CoC and shall be a pass
through amount to the
creditors, subject to clause (x)
below.
2.13.1. The Administrator shall
submit to the CoC, details of the
transactions avoided or set aside by
the NCLT in terms of Section 43, 45,
47, 49 and 50 of the IBC (Avoidance
Transactions), if any, observed,
found or determined by him and the
orders, if any, of the NCLT in respect
of such transactions.
2.13.2. The Resolution Applicant
intends to pursue, on a best efforts
basis, the application(s) filed by the
Administrator before the NCLT in
respect of these Avoidance
Transactions. Any positive monetary
recovery received by the Company
as a result of orders passed in
relation to the Avoidance
Transactions shall be distributed, net
of costs and expenses (including
taxes), to the Financial Creditors pro
rata to the extent the Financial Debt
for Financial Creditors, provided
that, the CoC may in its discretion
adopt a different manner of
distribution (which may take into
account the order of priority amongst
Financial Creditors as laid down in
Section 53(1) of the IBC) and such
decision of the CoC shall be
accepted by the Resolution
Applicant, subject to there being no
change in the Total Resolution
Amount.
3.13.2. […]
…(x) In respect of any
transactions that may be
avoided/set aside by the
Adjudicating Authority in terms
of Section 66 of the IBC, the
Resolution Applicant shall
ascribe a value under the
2.13.3. The Resolution Applicant
ascribes value of INR 1 in respect of
any transactions that may be
avoided/set aside by the NCLT in
terms of Section 66 of the IBC.
Accordingly, any positive recovery
as a result of reversal of transactions
avoided or set aside by the NCLT in
terms of Section 66 of the IBC would
Civil Appeal Nos. 1632-1634 of 2022 Page 108 of 145
Resolution Plan to any
recoveries that are likely to be
made in respect of such
transactions and shall propose
the manner of continuing and
dealing with any legal action
initiated and the proposed
manner of treatment of any
proceeds arising therefrom
which the CoC may evaluate as
per its discretion.
accrue to the sole benefit of the
Resolution Applicant. All the costs
and expenses incurred or to be
incurred towards litigation pertaining
to Section 66 of the IBC shall be to
the account of the Resolution
Applicant.
72. As stated hereinabove, the CoC approved the RP
submitted by the Piramal Capital under Option I for the
entire assets of the CD offering aggregate amount of
Rs.37,250 crores, by majority with 93.65% votes.
73. As can be seen from the record, the 18th Meeting of
CoC was convened on 24.12.2020-25.12.2020, and
all legally Compliant RPs received by the
Administrator were presented for consideration and
were put to vote during the voting window 30.12.2020
– 15.01.2021. The NCD Holder – 63 Moons also
voted in favour of the RP within its class of Debenture
Holders, and the RP was approved by a majority of
98.94% votes of the Debenture Holders. The
Authorized Representative of the class of Debenture
Holders (M/s. Catalyst Trusteeship Limited) also
voted in favour of the RP before the CoC. As a result
thereof, the RP was approved by the majority of CoC
with 93.65% votes exercising their commercial
Civil Appeal Nos. 1632-1634 of 2022 Page 109 of 145
wisdom. It is also very pertinent to note that the said
18th meeting of CoC was attended not only by the
Financial Creditors and the Administrator/Resolution
Professional, but also by the representatives of the
Financial Creditors, the Advisory Committee of the
Administrator, the Legal Counsels of CoC, 29A
Consultants, Valuers etc.
74. When the Administrator/Resolution Professional filed
an application being I.A. No.449 of 2021 (Plan
Approval Application) before the NCLT seeking
approval under Section 31 of IBC on 24.02.2021, the
63 Moons filed an I.A. being No. 623 of 2021 on
05.03.2021, challenging the provisions of RP which
provided that the Recoveries under Section 66 would
go to the benefit of SRA. The NCLT vide order dated
07.06.2021 granted its approval to the Plan Approval
Application filed by the Administrator, and by
separate order dismissed the I.A. No. 623 of 2021
filed by the 63 Moons, holding that the CoC
comprising of 77 Financial Creditors had decided in
its commercial wisdom to give away the Section 66
Recoveries to the SRA after a hard bargain in
exchange of a lumpsum resolution amount of INR
37,250 crores.
Civil Appeal Nos. 1632-1634 of 2022 Page 110 of 145
75. The NCLAT however entertained the Appeals at the
instance of the Appellants – 63 Moons and Roopjyot
Engineering Private on the ground that the SRA could
not have appropriated the Recoveries from the
Avoidance Applications under Section 66 IBC, and
that the NCLT while approving the RP had not
decided whether the recoveries in respect of the
Avoidance transactions vested with the CD, should
be applied for the benefit of the Creditors of CD, SRA
or other Stakeholders. In our opinion, such an
approach on the part of NCLAT was not only ex facie
fallacious and erroneous but also in utter disregard of
the legal position settled by this Court in catena of
decisions.
76. It is interesting to note that the Appellants before the
NCLAT, i.e. – 63 Moons Technologies Limited,
Roopjyot Engineering Private Limited, Magico
Exports and Consultants Limited, Richmond Traders
Private Limited and Sunshine Fibre Private Limited,
were the NCD Holders, belonging to different subclasses. They were represented in CoC by a
Debenture Trustee – M/s. Catalyst Trusteeship
Private Limited (CTPL). The details of these NCD
Holders including their Voting Pattern and Payout
Civil Appeal Nos. 1632-1634 of 2022 Page 111 of 145
were submitted in tabular form before the Court by
the learned counsel appearing for the SRA, which is
reproduced as under: –
Creditor Share in
CoC
Voting
Pattern
Payout Other
Information
63 Moons
Belonged
to the
class:
Catalyst
Trusteeship
Limited
(Secured
Public
Issue – 2)
0.2%
Held
NCDs of
face
value
INR 200
Crores.
Voted in
favour of
the Plan.
As a
class,
these
NCD
holders
approved
the plan
by 98.94
%
majority.
Received
about 40%
of their
admitted
claims
without
any
protest or
demur.
No other
justification
provided for
voting in
favour of the
plan
Roopjyot &
Ors.
Belonged
to the
class:
Catalyst
Trusteeship
Limited
(Secured
Public
Issue – I)
Less
than
.01%
Held
NCDs of
purchase
value
INR 49.4
Crores.
Abstained
from
voting.
As a
class,
these
NCD
holders
approved
the plan
by 94.67
%
majority
Received
payments
under the
Resolution
Plan
without
any
protest or
demur.
They did not
raise any
grievance
before the
CoC or the
NCLT and
challenged
the
Resolution
Plan for the
first time
only before
the NCLAT.
Civil Appeal Nos. 1632-1634 of 2022 Page 112 of 145
77. As can be seen from the above table, the said
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.
Indubitably, as per sub-section 3A of Section 25A, the
Authorized Representative under sub-section 6A of
Section 21 has a right to cast his vote on behalf of all
the Financial Creditors he represents, in accordance
with the decision taken by a vote of more than 50%
of voting share of the Financial Creditors he
represents, who have cast their vote. The vote cast
by the Authorized Representative of the class of
Financial Creditors, is a vote on behalf of each
Financial Creditor to the extent of his voting share.
Once the said process is carried out and the
Authorized Representative is handed down a
particular decision by the requisite majority of voting
share, he has to vote accordingly, and his vote would
Civil Appeal Nos. 1632-1634 of 2022 Page 113 of 145
bind all the Financial Creditors he represented. The
individual Financial Creditor would thereafter be
estopped from raising objection against the decision
taken by the majority of the Financial Creditors. As
observed in Jaypee Kensington Boulevard
Apartments Welfare Association & Others vs.
NBCC (India) Limited & Others,
10 in the larger
benefit and for common good, the democratic
principles of the determinative role of the opinion of
majority have been duly incorporated in the scheme
of the Code, particularly in the provisions relating to
voting on RP and binding nature of the vote of
Authorized Representative, on the entire class of the
Financial Creditors he represents. If the finality and
binding force is not provided to the votes cast by the
Authorized Representatives of a class of Financial
Creditors, a plan of resolution involving large number
of parties may never fructify. In the instant case, the
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
10 2021 SCC Online SC 253 (Para. 424)
Civil Appeal Nos. 1632-1634 of 2022 Page 114 of 145
raising any objection before the NCLT or NCLAT
against the RP approved by the requisite majority of
CoC.
78. The NCLAT has also erroneously placed reliance on
the decision of the Single Bench of the Delhi High
Court in Venus Recruiter (supra). Apart from the fact
that the said judgment of Single Bench was set aside
by the Division of the said High Court in LPA No. 37
of 2021 (Tata Steel BSL Limited vs. Venus
Recruiter Private Limited and Others) decided on
13.01.2023, the whole reliance on the said decision
was thoroughly misconceived and misplaced. In the
said case, the question for consideration was
whether an Avoidance Application under Section 43
of IBC could survive after the approval of RP. The
question of considering the treatment of the proceeds
of the Avoidance Applications was not involved as
involved in the instant case.
79. The reliance on the Regulation 37A of the Liquidation
Regulations by the NCLAT was also thoroughly
misplaced for holding that the said Regulation
empowered a Liquidator to assign or transfer a nonrealisable asset during the liquidation of a CD,
however such provision is absent in CIRP
Civil Appeal Nos. 1632-1634 of 2022 Page 115 of 145
Regulations, 2016. In our opinion, when Section 26
specifically states that the filing of an Avoidance
Application under Section 25(2)(j) by the Resolution
Professional shall not affect the proceedings of CIRP,
and when the Regulation 37(a) of the CIRP
Regulations 2016 also permits a provision to be
made in the RP for transfer of all or part of the assets
of Corporate Debtor to one or more persons, the
reference of Regulation 37A of Liquidation Process
Regulations in the impugned order was absolutely
unwarranted and ex-facie fallacious.
80. Similarly, the NCLAT has also misdirected itself by
relying on the foreign texts and jurisprudence, which
could not be made applicable to the insolvency
regime of India. Apart from the fact that such foreign
texts and precedents relied upon by the NCLAT
merely indicated that the proceeds from the
Avoidance Applications may be for the benefit of the
creditors in a situation when the RP does not deal
with its treatment, it is well settled by this Court that
the Court should be wary of transplanting
international doctrines, which might have been
evolved as responses to the specific needs of the
jurisdictional regimes.
Civil Appeal Nos. 1632-1634 of 2022 Page 116 of 145
81. The submission, with regard to the notional value of
INR 1 ascribed to Section 66 Applications under the
RP, made by the learned counsel appearing for the
Respondents in the Appeals filed by the Piramal
Capital deserves to be considered only for its
rejection. As transpiring from the record of the case,
notional valuation of Section 66 Applications was
made in response to the provision of RFRP issued by
the Administrator. In the valuation reports submitted
by the Valuers appointed by the Administrator, NIL
value was ascribed to the Avoidance Applications
filed by the Administrator, and accordingly the other
compliant RAs had also ascribed NIL value to the
said Applications. However, according to the SRA,
since clause 3.13.2(x) of RFRP required the RAs to
ascribe a value to Section 66 applications and then
propose a manner of treatment of recoveries from
such applications, the SRA had ascribed INR 1 as a
notional valuation of the applications under Section
66.
82. In our opinion, having regard to the Fraudulent
trading and Wrongful trading allegedly made by the
DHFL, any guess work done by the compliant RAs
would have been a wild guess due to the
Civil Appeal Nos. 1632-1634 of 2022 Page 117 of 145
uncertainties in recovery of the amount involved in
such Fraudulent and Wrongful trading. The value of
INR 1 being notional and the CoC having considered
the fact that the potential recoveries from the Section
66 Applications was very uncertain had taken
conscious decision in accepting the said clause in the
RP submitted by the SRA. The relevant Clause
2.13.2 of RP provided that any positive monetary
recovery received by the company (SRA) as a result
of the orders passed in relation to avoidance
transactions shall be distributed, net of costs and
expenses (including taxes), to the Financial Creditors
pro rata to the extent the financial debt for the
Financial Creditors provided that the CoC may in its
discretion adopt a different manner of distribution.
Therefore, while ascribing a notional value of INR 1
to the Applications under Section 66, the SRA had
agreed for the distribution of the recoveries that may
be made under the Avoidance Applications filed
under Sections 43, 45, 47, 49 and 50 for the benefit
of the CoC.
83. During the course of hearing of these Appeals also,
the learned Senior Advocate Mr. Abhishek Manu
Singhvi for the SRA and the learned Senior Advocate
Civil Appeal Nos. 1632-1634 of 2022 Page 118 of 145
Mr. Tushar Mehta appearing for the CoC had stated
in no uncertain terms that the benefit of
avoiding/setting aside of any transaction under
Sections 43, 45, 47, 49 and 50 shall enure to the
benefit of the Creditors of DHFL, whereas any
recovery under Section 66 would be for the benefit of
Piramal Capital. As discussed earlier, the SRA had
raised its offer to the extent of Rs.37,250 crores,
which had factored the potential recoveries from
Section 66 Applications. Thus, the RP approved by
the CoC was an outcome of the commercial bargain
struck between the SRA and the CoC after several
rounds of negotiations and deliberations. The said
plan approved by the CoC was also further approved
by the NCLT under Section 31(1) of IBC. In absence
of any perversity, that was palpable on the face of the
approved RP, and the CoC having taken a firm
commercial decision with regard to the impugned
clause of RP by voting overwhelmingly in favour of
the RP, the NCLAT ought not to have interfered with
the said clause of RP approved by the CoC and the
NCLT.
Civil Appeal Nos. 1632-1634 of 2022 Page 119 of 145
84. 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. As stated earlier, 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.
Civil Appeal Nos. 1632-1634 of 2022 Page 120 of 145
85. The NCLAT therefore has clearly transgressed its
jurisdiction under Section 61 IBC, by interfering with
the clause pertaining to the treatment to the
recoveries from the Fraudulent and Wrongful trading
under Section 66.
86. It appears that the Administrator has filed common
applications under Sections 43, 45 and 50 falling
under Chapter III and the Applications pertaining to
Fraudulent and Wrongful trading under Section 66
falling under Chapter VI before the NCLT. The
Administrator, as such should have mentioned in the
Applications the specific provisions under which such
Applications were filed, however non-mentioning or
wrong mentioning of provision of law in the
Applications would not take away the jurisdiction of
the NCLT in deciding the said Applications, as the
NCLT being the Adjudicating Authority is competent
and has jurisdiction to decide all such Applications. It
is well settled proposition of law laid down by a ThreeJudge Bench of this Court in N. Mani v/s Sangeetha
Theatre,
11 that if an authority has a power under the
law, merely because while exercising that power, the
source of power is not specifically referred to or a
11 (2004) 12 SCC 278
Civil Appeal Nos. 1632-1634 of 2022 Page 121 of 145
reference is made to a wrong provision of law, that by
itself would not vitiate the exercise of power, so long
as the power exists and can be traced to a source
available in law. We have already elaborately
discussed about the scope and powers of NCLT to
pass orders in Avoidance Applications as
circumscribed in Sections 44, 48, 49 and 51 and the
powers of the NCLT to pass orders in the applications
filed under Section 66. Hence, it is directed, for the
sake of clarity, that the NCLT shall decide each of the
Applications filed by the Administrator and pending
before it after considering the relevant provisions
applicable to such Applications, and shall pass the
orders accordingly in terms of the provisions
contained in Sections 44, 48, 49 and 51 falling under
Chapter III and in terms of provisions contained in
Section 66 falling under Chapter VI, as the case may
be.
87. In view of the aforesaid discussion and findings, 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.
Civil Appeal Nos. 1632-1634 of 2022 Page 122 of 145
(VII) ANALYSIS IN THE SECOND CATEGORY OF
APPEALS
88. The Second category of Appeals cover the Appeals
filed by several Fixed Deposit Holders and one NonConvertible Debenture Holder of the CD, challenging
the RP dated 22.12.2020. The details of the said
Appellants and the impugned judgments may be
stated as under: –
(1)Raghu KS and Ors. vs. Piramal Capital & Housing
Finance Limited & Ors. (Diary No.6037 of 2022):
This Civil Appeal has been filed by 41 individual
FD Holders challenging the judgment dated
07.02.2022 passed by the NCLAT in Company
Appeal No. 538 of 2021. PCHFL is Respondent
No.1 in this appeal.
(2)Vinay Kumar Mittal & Ors. vs. Dewan Housing
Finance Corporation Ltd. & Ors. (Civil Appeal
No.2413-2415 of 2022) (“V.K. Mittal”): These
appeals have been filed by 14 individual FD
Holders challenging the common judgment dated
27.01.2022 passed by the NCLAT in Company
Appeal Nos.506, 507 and 516 of 2021. PCHFL is
Respondent No.6 in these Appeals.
Civil Appeal Nos. 1632-1634 of 2022 Page 123 of 145
(3)Uttar Pradesh State Power Sector Employees
Trust vs. Dewan Housing Finance Corporation
Ltd. & Anr. (Civil Appeal No.2396 of 2022): The
Appellant in this Appeal was a FD Holder of the
CD and has challenged the common judgment
dated 27.01.2022 passed by the NCLAT in
Company Appeal Nos.759, 760 of 2021. PCHFL is
Respondent No.1 in this Appeal.
(4)Uttar Pradesh State Power Corporation
Contributory Provident Fund Trust vs. Dewan
Housing Finance Corporation Limited and Anr.
(Civil Appeal No.2402 of 2022): The Appellant
herein was a FD Holder of the CD and has
challenged the common judgment dated
27.01.2022 passed by the NCLAT in Company
Appeal Nos.759, 760 of 2021. PCHFL is
Respondent No.1 in this Appeal.
(5)Senbagha Vivek A. & Anr. vs. Dewan Housing
Finance Corporation Ltd. & Anr. (Civil Appeal
No.8123-8125 of 2022): The Appellants herein
were two individual FD Holders of the CD and
have challenged the common judgment dated
27.01.2022 passed by the NCLAT in Company
Civil Appeal Nos. 1632-1634 of 2022 Page 124 of 145
Appeal Nos. 506, 507 and 516 of 2021. PCHFL is
Respondent No.6 in this Appeal.
(6)THDC India Limited Employee Fund vs. The
Administrator, Dewan Housing Finance
Corporation Ltd. (Civil Appeal No.6286 of 2022):
Insofar as this Appeal is concerned, the Appellant
herein (“THDC”) represents NCD Holders of the
CD. THDC has challenged the judgment dated
04.02.2022 passed by the NCLAT in Company
Appeal No.90 of 2022. In the CoC, the appellant’s
class voted in favour of the RP. THDC did not raise
any objection against the RP before the NCLT and
filed the Appeal directly before the NCLAT against
the order dated 07.06.2021 approving the
Resolution Plan (“Plan Approval Order”).
89. Leave granted in the Diary No.6037 of 2022.
90. The facts have already been narrated while dealing
with the First Category of Appeals, and therefore are
not repeated here. Suffice it to state that the CD was
admitted into CIRP on 03.12.2019. The Piramal
Capital had submitted the RP, which came to be
approved by a majority of 93.65% of the CoC of the
CD. The aggregate claim of FD Holders as a class
Civil Appeal Nos. 1632-1634 of 2022 Page 125 of 145
was INR 5,375 Crore and their voting share was
about 6.18%. The CoC in its 18th Meeting had passed
two Resolutions which were placed for voting, one for
approval of RP and second for approval of the
Distribution mechanism for the disbursal of the total
resolution amount amongst the creditors. The
Distribution mechanism was approved by the
majority of 86.95% of CoC. Under the Distribution
mechanism, it was provided as under: –
(i) FD Holders having an admitted claim of upto INR
2 lakhs were to be repaid their entire deposit
amount; and
(ii) FD Holders having an admitted claim of more than
INR 2 lakhs would receive an amount equivalent
to liquidation value of security created for the
benefit of the Depositors for the additional
aggregate claim above INR 2 lakhs.
91. Some of the FD Holders including the Appellants in
this second category of Appeals, challenged the said
RP before the NCLT on the ground that the RP had
failed to provide for full repayment of their deposits.
92. The NCLT on 07.06.2021 approved the said RP by
passing the Plan Approval Order. The NCLT also
passed a separate order disposing of the
Civil Appeal Nos. 1632-1634 of 2022 Page 126 of 145
Applications filed by the FD Holders recommending
that CoC may reconsider the distribution of resolution
amount keeping in view the interest of the FD Holders
and other small investors. In the light of the said
order, the CoC in its 20th Meeting put to vote a
Resolution for maintaining parity between the FD
Holders and other Secured Creditors. The said
Resolution was rejected by approximately 89% of
CoC. The aggrieved Appellants – FD Holders filed the
Appeals before the NCLAT challenging the FD
Holders order dated 07.06.2021, on the ground that
the treatment to the FD Holders violated their rights
under the RBI Act and NHB Act to receive full
payment of their deposits. The NCLAT vide the
impugned orders dismissed all the Appeals against
which the present set of Appeals have been filed.
(i) WHETHER THE RESOLUTION PLAN VIOLATED
THE PROVISIONS OF RBI ACT OR NHB ACT?
93. The bone of contention raised by the learned
Counsels for the Appellants – FD Holders in this set
of Appeals was that the Distribution mechanism
contained in the RP was in violation of Section 36(A)
of NHB Act and Section 45(QA) of RBI Act, in as
Civil Appeal Nos. 1632-1634 of 2022 Page 127 of 145
much as the FD Holders were entitled to the full
payment of their deposits, in view of the said
provisions. In this regard, it may be noted that the
NHB Act has been enacted to establish a Bank to be
known as “National Housing Bank” to operate as a
principal agency to promote housing finance
institutions both at local and regional levels and to
provide financial and other support to such
institutions and for the matters connected therewith
or incidental thereto. As per Section 2(d) of the said
NHB Act, “Housing Finance Institution” includes
every institution, whether incorporated or not, which
primarily transacts or has any one of the principal
objects, the transacting of the business of providing
finance for housing, whether directly or indirectly. The
Chapter V of the said NHB Act incorporates the
provisions relating to the “Housing Finance
Institutions.” Section 28 thereof states that in this
Chapter the term ‘deposit’ shall have the meaning
assigned to it in Section 45-I of the RBI Act. Further
Section 36(A) of the NHB Act empowers the Officer
authorized by the Central Government, to direct the
housing finance institution, which fails to repay any
deposit accepted by it in accordance with the terms
Civil Appeal Nos. 1632-1634 of 2022 Page 128 of 145
and conditions of deposit, to make repayment of such
deposit or part thereof, if he is satisfied that it is
necessary to do so to safeguard the interest of the
housing finance institution, the depositors or in the
public interest.
94. The RBI Act has been enacted to regulate the issue
of Bank notes and the keeping of reserves with a view
to securing monetary stability in India and generally
to operate the currency and credit system of the
country to regulate to its advantage. The Chapter
III(B) of the RBI Act incorporates the “Provisions
relating to the Non-Banking Institutions receiving
deposits and financial institutions.” Section 45-I(bb)
defines “Deposit” and Section 45-I(f) defines “NonBanking Financial Company.” Section 45(QA)
empowers the Company Law Board (CLB) to direct
by order, the Non-Banking Financial Company which
has failed to repay the deposit accepted by it in
accordance with the terms and conditions of such
deposit, to make repayment of such deposit or part
thereof, if the CLB is satisfied that it is necessary to
do so to safeguard the interest of the company, the
depositors or in the public interest.
Civil Appeal Nos. 1632-1634 of 2022 Page 129 of 145
95. It is not disputed that the CD – DHFL being a Housing
Finance Institution and Non-Banking Financial
Company, was governed by the NHB Act and RBI
Act, however pertinently, neither Section 36(A) of
NHB Act nor Section 45 (QA) of RBI Act mandates
full payment of the deposits of the FD Holders, as
sought to be contended by the learned counsels for
the Appellants. 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
Civil Appeal Nos. 1632-1634 of 2022 Page 130 of 145
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.
96. It is also pertinent to note that the Appellants – FD
Holders were represented in the CoC by their
Authorized Representative – Ms. Charu Desai and
the NCD Holders were represented in the CoC by
their Authorized Representative – M/s. Catalyst
Trusteeship Limited, as permitted under Section 21
(6A) (b) of IBC readwith Regulation 16 (A) of the
CIRP Regulations, 2016. Such Authorized
Representatives are entitled to attend the meetings
and vote in the CoC on behalf of the Group of
Creditors that they represent, in accordance with the
prior instructions they would have received from their
respective groups. It is true that in the instant case,
the FD Holders, as a class, had voted against the RP
and the Distribution mechanism, and were thus
classified as the “Dissenting Financial Creditors.”
Civil Appeal Nos. 1632-1634 of 2022 Page 131 of 145
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.
97. As stated earlier, the CoC rejected the said
recommendation by approximately 89% of the CoC
in its 20th Meeting, which decision came to be
challenged before the NCLAT. The 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. We do not find any legal infirmity in the
said impugned order passed by the NCLAT. We have
Civil Appeal Nos. 1632-1634 of 2022 Page 132 of 145
already discussed in detail about the scope of judicial
review by the NCLT under Section 31 and by NCLAT
under Section 61 of the IBC, and the legal position
settled by this Court in catena of decisions. Hence,
the same is not reiterated herein.
98. We also do not find any substance in the submissions
made by the learned counsels for the Appellants that
the RP violated Rule 5(d)(i) of the Financial Service
Providers and Application to Adjudicating Authority
Rules, 2019 (FSP Rules). In this regard, it may be
noted that the said Rule 5(d)(i) states that “the
Resolution Plan shall include a statement explaining
how the Resolution Applicant satisfies or intends to
satisfy the requirements of engaging in the business
of the Financial Service Provider, as per laws for the
time being in force.” The learned Counsel appearing
for the SRA – Piramal Capital had drawn the attention
of the Court to the comprehensive statement
included in “Part B – Business Plan” of the RP to the
effect that the SRA had the expertise and experience
in the financial sector and the ability to carry out the
business of the CD as a Financial Service Provider.
Such being the compliance of the said Rule 5(d)(i) of
FSP Rules, it could not be said that there was any
Civil Appeal Nos. 1632-1634 of 2022 Page 133 of 145
violation of any law for the time being in force as
contemplated in Section 30(2)(e) of IBC and as
sought to be contended by the learned counsels for
the Appellants – FD Holders.
99. In that view of the matter, all the Appeals filed by the
Appellants in this Second Category of Appeals being
devoid of merits deserve to be dismissed.
(VIII) ANALYSIS IN THE THIRD CATEGORY OF
APPEALS
100. In this Third category, following Appeals are covered:
–
(1)The Civil Appeal Nos. 1707-1712 of 2022 have
been filed by the ex-promoter Kapil Wadhawan
challenging the impugned judgment and order
dated 14.02.2022 in Company Appeal No. 539 of
2021 passed by the NCLAT, dismissing the
Appellants challenge to the RP of Piramal Capital,
which was approved by the NCLT vide order dated
07.06.2021.
(2)The Appellant Kapil Wadhawan has also
challenged the common impugned judgment and
order dated 27.01.2022 in Company Appeal No.
785 of 2020 and 674 of 2021 passed by the
Civil Appeal Nos. 1632-1634 of 2022 Page 134 of 145
NCLAT holding that the Appellant, though was
erstwhile Director, Promoter, Shareholder and
Guarantor of DHFL, had no right to a copy of RP
approved by the CoC.
(3)The Appellant Kapil Wadhawan has also
challenged the common impugned judgment and
order dated 27.01.2022 in Company Appeal Nos.
370, 376-377 and 393 of 2021 passed by the
NCLAT, whereby the NCLAT has set aside the
order dated 19.05.2021 passed by the NCLT
directing the CoC to consider and vote on 2nd
Settlement Proposal of KW of the Appellant.
(4)The Civil Appeal No. 2567 of 2022 has been filed
by another ex-promoter Dheeraj Wadhawan
challenging the common impugned judgment and
order dated 27.01.2022 in Company Appeal No.
785 of 2020 and 647 of 2021 passed by the
NCLAT, holding that the erstwhile Director,
Promoter, Shareholder and Guarantor of DHFL
was not entitled to participate in the meeting of
CoC.
(5)The Civil Appeal Nos. 2987-2988 of 2022 have
been filed by the SRA – Piramal Capital
challenging the impugned judgment and order
Civil Appeal Nos. 1632-1634 of 2022 Page 135 of 145
dated 27.01.2022 in Company Appeal No. 785 of
2020 and 647 of 2021 passed by the NCLAT, in
which it has been held that the erstwhile Directors
who had vacated the offices were not entitled to
share any document, however the copy of RP after
the approval from Adjudicating Authority cannot be
treated as a confidential document, and therefore
a certified copy may be issued to the erstwhile
Directors as per the Rules.
101. The core issue raised by learned Senior Counsel Mr.
Kapil Sibal appearing for the erstwhile Directors KW
and DW was that the 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. Mr. Sibal had strenuously taken the Court to the
Civil Appeal Nos. 1632-1634 of 2022 Page 136 of 145
voluminous record and raised all possible issues,
with regard to the Clause in question, with regard to
the treatment to Recoveries under the Applications
filed under Section 66 of the Code and the
permissibility of ascribing INR 1 towards such
transactions etc. In short, Mr. Sibal had vehemently
challenged the commercial wisdom exercised by the
CoC while approving the plan.
102. We have already discussed and dealt with, in the
earlier part of this judgment, all the said issues
including the scope of judicial review by the NCLT
and NCLAT over the commercial wisdom exercised
by the CoC, and also examined the legality of the
clause in the RP with regard to the treatment of
Recoveries from the Avoidance Applications. We
have also examined in detail the issue with regard to
the maximization of the value of assets of the CD.
Hence, the same are not dealt with in this set of
Appeals. Suffice it to say that when majority of the
creditors in their wisdom, and after negotiations with
the PRA as to how and in what manner the Corporate
Resolution Process should be undertaken, had
explored the feasibility and viability of the RP, while
approving the same, and when the said Plan was
Civil Appeal Nos. 1632-1634 of 2022 Page 137 of 145
also approved by the NCLT, the NCLAT ought not to
have tinkered with a Clause of the said Plan with
regard to the treatment of Recoveries from the
Applications under Section 66 of the IBC.
103. So far as the right of the Ex-Directors/ Promoters to
participate in the Meetings of CoC and right to get the
copy of RP approved by the CoC is concerned, it may
be noted that the RBI in exercise of its powers
conferred under Section 45-IE (1) of RBI Act had
superseded the Board of Directors of DHFL, on being
satisfied that the DHFL had conducted its affairs
detrimental to the interest of its depositors and
creditors. The RBI, therefore, had appointed one Shri
R. Subramaniakumar – Ex-MD and CEO of the Indian
Overseas Bank vide communication dated
20.11.2019. The RBI thereafter, on 29.11.2019, had
filed a Company Petition under Section 227 read with
Section 239 (2) (zk) of IBC before the NCLT for
initiating CIRP proceedings.
104. It may be noted that as per sub-section (4) of Section
45 – (IE) of the RBI Act, on passing of the order of
supersession of the Board of Directors of a NonBanking Financial Company (DHFL), the Chairman,
Managing Director and other Directors have to
Civil Appeal Nos. 1632-1634 of 2022 Page 138 of 145
vacate their offices from the date of supersession of
the Board of Directors, and then all the powers,
functions and duties, which are required to be
exercised by them under the provisions of RBI Act or
any other law for the time being in force, have to be
exercised and discharged by the Administrator
appointed by the RBI, till the Board of Directors of
such company is reconstituted.
105. Thus, by virtue of the said provision contained in
Section 45-IE and by virtue of the order passed by
the RBI thereunder, the Board of Directors of DHFL
had stood superseded and their offices also stood
vacated on the appointment of the Administrator.
Thereafter, on the initiation of CIRP and on the
appointment of an Interim Resolution Professional by
the Adjudicating Authority, the management of the
affairs of the CD had stood vested in the Interim
Resolution Professional (the Administrator in this
case) and the powers of the Board of Directors of the
CD had stood suspended in view of Section 17(1)(b)
of the IBC.
106. It may be noted that this is one of the rare cases
where the Board of Directors had first stood
superseded under the RBI Act, and then the Directors
Civil Appeal Nos. 1632-1634 of 2022 Page 139 of 145
of the CD – DHFL had stood suspended under the
IBC. As such, in our opinion, the legal effects in both
the situations would be different, as the
“Supersession” of the Board of Directors is very much
different from the “Suspension” of the Directors. In
common parlance also the use of the word
“Supersession” has a different connotation than that
of the word “Suspension.” As per the Black’s Law
Dictionary (11th Edition) the word, “Supersede”
means to annul, make void or repeal; and the word
“Suspend” means to interrupt, postpone, defer, or to
temporarily keep a person from performing a function
or occupying an office. Thus, the effect of
Supersession is permanent in nature, whereas the
effect of Suspension is temporary in nature.
107. It is true that as per Section 24 of IBC, the Resolution
Professional is required to give a notice of each of the
meetings of the CoC to the members of the
suspended Board of Directors, alongwith the
members of CoC including the Authorized
Representatives and the Operational Creditors or
their representatives. However, as per sub-section 4
of Section 24, though the Directors of suspended
Board of Directors have a right to attend the meetings
Civil Appeal Nos. 1632-1634 of 2022 Page 140 of 145
of CoC, they do not have any right to vote in such
meetings. Meaning thereby, such suspended
Directors would have a right only to receive the notice
of meetings of CoC and to attend the same, but would
not have the right to vote in the meetings.
108. This Court in Vijay Kumar Jain vs. Standard
Chartered Bank and Others,
12 while recognizing the
rights of the members of the erstwhile Board of
Directors to receive a copy of RPs, that may be
discussed in the meetings of CoC, has observed as
under: –
“21. Under Regulation 24(2)(e), the resolution
professional has to take a roll call of every
participant attending through videoconferencing
or other audio and visual means, and must state
for the record that such person has received the
agenda and all relevant material for the meeting
which would include the resolution plan to be
discussed at such meeting. Regulation 35
makes it clear that the resolution professional
shall provide fair value and liquidation value to
every member of the committee only after
receipt of resolution plans in accordance with
the Code [see Regulation 35(2)]. Also, under
Regulation 38(1-A), a resolution plan shall
include a statement as to how it has dealt with
the interest of all stakeholders, and under subregulation (3)(a), a resolution plan shall
demonstrate that it addresses the cause of
default. This Regulation also, therefore,
recognises the vital interest of the erstwhile
Board of Directors in a resolution plan together
12 (2019) 20 SCC 455
Civil Appeal Nos. 1632-1634 of 2022 Page 141 of 145
with the cause of default. It is here that the
erstwhile Directors can represent to the
Committee of Creditors that the cause of default
is not due to the erstwhile management, but due
to other factors which may be beyond their
control, which have led to non-payment of the
debt. Therefore, a combined reading of the
Code as well as the Regulations leads to the
conclusion that members of the erstwhile Board
of Directors, being vitally interested in resolution
plans that may be discussed at meetings of the
Committee of Creditors, must be given a copy of
such plans as part of “documents” that have to
be furnished along with the notice of such
meetings.”
109. In the instant case, however, it deserves to be noted
that the 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
Civil Appeal Nos. 1632-1634 of 2022 Page 142 of 145
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.
110. In that view of the matter, we do not find any merits
in the Appeals filed by the Appellants in this Third
Category of Appeals.
Civil Appeal Nos. 1632-1634 of 2022 Page 143 of 145
(IX) CONCLUSION
111. The upshot of the above discussion and findings is
as follows: –
(1) The 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
Civil Appeal Nos. 1632-1634 of 2022 Page 144 of 145
SRA-Piramal Capital in case of Applications
under Section 66 of IBC.
(2) 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.
(3) The Civil Appeal Nos. 3694-3695 of 2022 filed
by 63 Moons Technologies Limited stands
disposed of.
(4) The Appeal arising out of D. No. 6037 of
2022 filed by Raghu K.S. & Others, Civil
Appeal Nos. 2413-2415 of 2022 filed by Vinay
Kumar Mittal & Others, Civil Appeal No. 2396
of 2022 filed by Uttar Pradesh State Power
Sector Employees Trust and Civil Appeal No.
2402 of 2022 filed by Uttar Pradesh State
Power Corporation Contributory Provident
Fund Trust, Civil Appeal Nos. 8123-8125 of
2022 filed by Senbagha Vivek A & Another and
Civil Appeal No. 6286 of 2022 filed by THDC
India Limited Employee Provident Fund are
dismissed.
Civil Appeal Nos. 1632-1634 of 2022 Page 145 of 145
(5) The Civil Appeal Nos. 1707-1712 of 2022 filed
by Kapil Wadhawan, Civil Appeal No. 2567 of
2022 filed by Dheeraj Wadhawan and Civil
Appeal Nos. 2987-2988 of 2022 filed by
Piramal Capital and Housing Finance Limited
are dismissed.
………………………………J.
[BELA M. TRIVEDI]

….…………………………..….J.
[SATISH CHANDRA SHARMA]
NEW DELHI;
APRIL 1st, 2025.