A) ABSTRACT / HEADNOTE

The Supreme Court considered a cluster of appeals arising from the Corporate Insolvency Resolution Process of Dewan Housing Finance Corporation Limited (DHFL) after the Reserve Bank of India superseded its board and initiated insolvency proceedings. The core questions were whether the Committee of Creditors (CoC) and NCLT could approve a Resolution Plan (RP) that: 

(a) allowed the Successful Resolution Applicant (SRA) to appropriate recoveries arising from Section 66 (fraudulent/wrongful trading) applications,

(b) provided a distribution mechanism that did not repay fixed depositors in full,

(c) excluded ex-promoters (whose board was superseded by RBI) from CoC participation and access to RPs.

The Court held that Section 66 claims (fraud/wrongful trading) are conceptually different from avoidance claims under Sections 43–50 and that where applications under both Chapters III and VI are filed the Adjudicating Authority must distinguish and decide each under the relevant statutory heads. The Supreme Court restored the NCLT’s approval of the RP (upholding the CoC’s commercial wisdom) but clarified that

(i) recoveries from Sections 43, 45, 50 (avoidance) shall enure to the CoC,

(ii) recoveries from Section 66 applications shall go to the SRA as agreed in the RP; and directed the NCLT to decide the pending avoidance and Section 66 applications on their merits.

The Court also held that neither the RBI Act nor NHB Act mandates full repayment of deposits in the insolvency resolution; and that superseded directors (vacated on supersession) cannot claim CoC participation or pre-approval access to RPs.

Keywords: Corporate Insolvency Resolution Process; Avoidance applications; Section 66; Committee of Creditors; Commercial wisdom; Fixed depositors; Supersession; Resolution Plan; Maximisation of asset value; NCLAT / NCLT review.

B) CASE DETAILS 

C) INTRODUCTION AND BACKGROUND OF JUDGEMENT

The case arises from the insolvency of DHFL, a regulated housing finance company alleged to have been run in a manner detrimental to depositors and creditors and embroiled in large-scale fraudulent transactions. The RBI superseded DHFL’s board under Section 45-IE and filed the company petition; NCLT admitted CIRP on 03.12.2019 and appointed an Administrator/Resolution Professional. The Administrator invited Expression of Interest and, after transaction audits (Grant Thornton) that identified significant preferential, undervalued and fraudulent transactions, circulated a Request for Resolution Plan Proposal (RFRP). Piramal Capital (SRA) submitted the ultimately accepted RP offering a substantial upfront consideration; crucially, the RFRP and settled commercial arrangements treated recoveries from various avoidance/fraud actions differently some being notionally valued or allocated so that the SRA could retain proceeds of certain claims, notably Section 66 recoveries.

The CoC (with weighted votes from banks, NCD holders, FD holders) approved the RP by an overwhelming majority and NCLT approved it on 07.06.2021. Multiple stakeholders NCD holder 63 Moons, FD holders, ex-promoters challenged the RP before NCLAT and NCLAT modified the RP insofar as it allowed SRA to appropriate Section 66 recoveries, sending the RP back to CoC. The appeals to the Supreme Court followed, raising mixed questions of statutory interpretation (distinguishing Chapter III avoidance remedies and Chapter VI Section 66), the limits of judicial review of CoC’s commercial wisdom, interaction with RBI/NHB statutes regarding depositors, and locus of superseded directors. The Supreme Court’s task: reconcile statutory scheme, protect maximisation principle, and demarcate distributional entitlements among creditors, the SRA and outcomes of avoidance/fraud actions.

D) FACTS OF THE CASE

DHFL had mobilised funds through loans, NCDs, deposits and other instruments and was alleged to have been used in large fraudulent schemes; RBI superseded its board (20.11.2019) and initiated CIRP (petition admitted 03.12.2019). The Administrator called claims (~₹82,247 crore) and appointed transaction auditors (Grant Thornton) who identified ~₹45,050 crore of transactions potentially subject to avoidance or Section 66 proceedings.

The RFRP (revised 16.09.2020) invited RPs with express treatment of Section 66 claims; Piramal submitted successive RPs culminating in a final RP (22.12.2020 / 31.12.2020) offering approx. ₹37,250 crore and containing a clause that Section 66 recoveries would inure to the SRA. The CoC (77 creditors: banks, FI, NCD classes, FD holders) voted and approved the RP (93.65% overall). Administrator filed Plan Approval Application in NCLT (24.02.2021).

63 Moons filed objection (I.A.623) contesting the clause granting SRA Section 66 recoveries. NCLT approved the RP on 07.06.2021 and dismissed I.A.623; appeals followed. NCLAT on 27.01.2022 set aside the clause allowing SRA to appropriate Section 66 recoveries and remitted the plan to CoC for reconsideration; other appeals by depositors and ex-promoters raised distribution and locus issues. Supreme Court heard consolidated appeals and analysed statutory scheme and commercial wisdom.

E) LEGAL ISSUES RAISED

i. Whether Section 66 (fraudulent/wrongful trading) recoveries are conceptually distinct from avoidance remedies under Sections 43–50, and if so whether CoC may allocate Section 66 recoveries to the SRA under an RP?
ii. What is the scope of judicial review by NCLT/NCLAT under Sections 31 & 61 when the CoC, in exercise of commercial wisdom, approves an RP that affects distribution of avoidance/fraud recoveries?
iii. Whether the RP’s distribution mechanism contravenes RBI Act / NHB Act or mandatorily requires full repayment to fixed depositors?
iv. Whether ex-promoters/directors (whose board was superseded under Section 45-IE of RBI Act) retain rights to participate in CoC meetings or access proposed RPs?

F) PETITIONER / APPELLANT’S ARGUMENTS

The SRA and supporting creditors urged that:

(i) CoC’s commercial wisdom is paramount and the RP was a negotiated composite commercial bargain clause on Section 66 recoveries formed part of the overall consideration;

(ii) Section 66 claims are different from avoidance claims and may be allocated to the SRA; (iii) small objectors (63 Moons with <0.3% individual stake) cannot upset a super-majority CoC decision;

(iv) Regulation 37(a) and s.30(2) permit transfer/assignment of assets and commercial arrangements;

(v) RBI/NHB statutes do not mandate full repayment of deposits in CIRP;

(vi) ex-promoters who vacated office upon supersession have no locus to participate in CoC.

G) RESPONDENT’S ARGUMENTS

63 Moons and some FD holders contended that:

(i) recoveries from avoidance proceedings must enure only to benefit creditors;

(ii) permitting SRA to appropriate Section 66 recoveries would unjustly enrich SRA at the expense of creditors;

(iii) the NCLT has a statutory duty under Section 31 to ensure compliance with mandatory requirements of Section 30(2) (including non-contravention of other laws);

(iv) depositors enjoy statutory safeguards under NHB Act / RBI Act and FSP Rules that cannot be negated by RP;

(v) ex-promoters may still press settlement proposals and challenge processes where coercion or illegality is alleged.

H) JUDGMENT 

The Court undertook a statutory and purposive exercise. It emphasised that Chapter III (ss.43–50) avoidance remedies and Section 66 (Chapter VI) fraudulent/wrongful trading remedies operate in different statutory contexts and with different objects: avoidance remedies are to set aside transactions that preferentially or undervaluedly deplete the estate and thus benefit creditors; Section 66 targets fraudulent/wrongful trading by persons in control and is compensatory/punitive in nature.

Where RP and CoC allocation treat these differently, the Adjudicating Authority must distinguish and adjudicate the pending applications under their respective heads and in accordance with powers under Sections 44, 48, 49, 50 and Section 66. The Court held that the NCLAT erred in conflating avoidance and Section 66 recoveries and in interfering with a commercial bargain in absence of manifest illegality or non-compliance with s.30(2) mandatory requirements.

The Court restored the NCLT’s approval of the RP but clarified distributional consequences: proceeds from Sections 43, 45, 50 (avoidance) shall enure to the CoC; proceeds from Section 66 (fraud/wrongful trading) shall accrue to the SRA as per the RP. The court directed NCLT to decide pending applications and pass orders under correct statutory heads. On FD holders’ challenge, the Court found no provision mandating full repayment of deposits and held s.238 (priority of IBC) and CoC’s commercial wisdom limit judicial interference; thus, NCLAT’s dismissal of FD holders’ appeals was sustained.

On ex-promoters, the Court distinguished supersession (RBI Act) from suspension (IBC) supersession causes vacancy and ex-directors cannot claim CoC participation or prior access to RPs, though certified copies of approved RP (public document) may be obtained. The Court cautioned that judicial review under s.31 / s.61(3) is narrow and cannot re-weigh commercial choices of CoC except on specific statutory grounds.

a. RATIO DECIDENDI

The operative ratio is threefold:

(1) Avoidance remedies (ss.43–50) and Section 66 remedies are distinct; each must be adjudicated under its statutory head and its proceeds treated in accordance with the applicable provisions.

(2) Where a RP approved by a duly constituted CoC satisfies mandatory conditions under s.30(2) and Regulations (Reg.36B/Reg.38), the Adjudicating Authority’s role under s.31 is limited; judicial interference cannot substitute commercial wisdom save on statutory infirmities.

(3) Supersession under s.45-IE vacates director’s office; such ex-directors lack locus to participate in CoC or claim pre-approval access to RPs. These principles directed restoration of NCLT approval while clarifying distribution between CoC and SRA.

b. OBITER DICTA

The Court observed (obiter) that reliance by NCLAT on Reg.37A (Liquidation Regs) and foreign jurisprudence was misplaced, since liquidation provisions and foreign approaches cannot be mechanically imported into Indian CIRP framework. The Bench also emphasized the need for transparency and full disclosure to CoC for effective exercise of commercial wisdom. It noted the public-interest dimension when financial service providers are involved, but reaffirmed statutory primacy of IBC architecture in CIRP.

c. GUIDELINES

1. Statutory Distinction: NCLT must segregate and decide each application filed under Chapter III (ss.43–50) and Chapter VI (s.66) and pass orders under corresponding sections (44/48/49/50 and 66).

2. Role of CoC: CoC’s commercial wisdom is paramount in deciding an RP; courts should not revisit commercial balancing unless mandatory statutory requirements are breached.

3. Treatment of Recoveries: Recoveries from avoidance (ss.43–50) enure to CoC/creditors; recoveries under s.66 can be allocated as part of RP consideration to SRA where CoC so decides and statutory conditions are complied with.

4. Regulatory Statutes: Claims under RBI/NHB statutes do not, per se, override IBC’s distribution unless a specific statutory bar exists; s.238 gives IBC overriding effect.

5. Superseded Directors: Supersession leads to vacating office; such persons cannot participate in CIRP proceedings as directors or claim special access to unapproved RPs.

I) CONCLUSION & COMMENTS

The Supreme Court struck a careful balance between two policy imperatives:

(a) preserving the primacy of CoC’s commercial wisdom and the time-bound efficacy of CIRP to maximise asset value,

(b) ensuring statutory remedies for avoidance and fraudulent trading are adjudicated under their proper heads so that distributional entitlements follow from law not unilateral appropriation.

By restoring NCLT’s approval, the Court avoided destabilising a complex commercial compromise achieved via competitive bidding; by clarifying distributional regimes and directing determination of pending applications, it protected creditors’ statutory rights and due process. The decision underscores that RPs can validly allocate certain future recoveries to SRAs if CoC consensually and transparently approves, but courts must ensure that such allocation neither violates mandatory statutory provisions nor results from concealment or illegality. Finally, the judgment offers practical guidance on the interplay of IBC with financial-sector statutes and marks a jurisprudential line: commercial bargains reached by solvent creditors should not be lightly upset, yet statutory claims (avoidance/fraud) must be adjudicated on their own statutory footing.

J) REFERENCES

a. Important Cases Referred

i. Piramal Capital & HFC v. 63 Moons Tech. Ltd. [2025] 4 S.C.R. 344 : 2025 INSC 421 (Supreme Court, 01.04.2025).
ii. K. Sashidhar v. Indian Overseas Bank & Ors., (2019) 12 SCC 150.
iii. M.K. Rajagopalan v. Dr. Periasamy Palani Gounder & Anr., (2024) 1 SCC 42.
iv. Embassy Property Dev. Pvt. Ltd. v. State of Karnataka & Ors., (2020) 13 SCC 308.
v. Cases cited in judgment (Essar, ArcelorMittal, Ebix Singapore, Jaypee Kensington) — see judgment for full list.

b. Important Statutes Referred

i. Insolvency and Bankruptcy Code, 2016 (ss. 30, 31, 43–51, 60, 61, 66, 238).
ii. Insolvency & Bankruptcy Board of India (Insolvency Resolution Process for Corporate Persons) Regulations, 2016 (Reg.36B, Reg.37, Reg.38).
iii. IBBI (Liquidation Process) Regulations, 2016 (Reg.37A).
iv. Reserve Bank of India Act, 1934 (s.45-IE).
v. National Housing Bank Act, 1987 (s.36A).