Piramal Capital and Housing Finance Limited (Formerly Known as Dewan Housing Finance Corporation Limited) v. 63 Moons Technologies Limited & Others

Judgment / Order of the Supreme Court

INDEX*

* Ed. Note: Pagination as per the original Judgment.

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(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

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

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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

Judgment

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)

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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 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 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.

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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 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 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

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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 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. xii. Civil Appeal Nos. 2987-2988 of 2022 have been filed by the Appellant Piramal Capital challenging the impugned

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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. Name of the matter Party/CoC No. 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 Civil Appeal (Formerly known as Dewan Housing Finance Nos.1632- Corporation Limited) v 63 Moons Technologies 1634 of 2022 Limited and Ors.

2. Union Bank of India v 63 Moons Technologies Civil Appeal Limited and Ors Nos. 2989– 2991 of 2022

3. 63 Moons Technologies Limited v Piramal Capital Civil Appeal and Housing Finance Corporation Limited (Formerly Nos. 3694- known as Dewan Housing Finance Corporation 3695 of 2022 Limited) & Ors 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 of 2022; (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.

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1. Raghu KS and Ors. v Piramal Capital and Housing Diary No. Finance Limited & Ors 6037 of 2022

2. Vinay Kumar Mittal & Ors. V. Dewan Housing Civil Appeal Finance Corporation Ltd. &Ors Nos.2413- 2415 of 2022

3. Uttar Pradesh State Power Sector Employees Civil Appeal Trust v Dewan Housing Finance Corporation No.2396 Limited & Anr. 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 Diary Corporation Ltd. & Anr. No.11104 of 2022/ Civil Appeal Nos.8123- 8125 of 2022

6. THDC India Limited Employee Fund v The Civil Appeal Administrator, Dewan Housing Finance Corporation No.6286 of Ltd. 2022 III. APPEALS BY EX PROMOTERS- (a) Impugned Order dated 14.02.2022 passed in Company Appeal (AT) (Ins) No. 539 of 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 Civil Appeal (Formerly known as Dewan Housing Finance Nos.2987- Corporation Limited) v Dheeraj Wadhawan and Anr. 2988 of 2022

3. Dheeraj Wadhawan v The Administrator Civil Appeal No.2567 of 2022

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(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 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 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.

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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 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 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.

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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 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. 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

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(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 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. 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

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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. 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 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:

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“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. (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 isolated a singular part of a composite and inter-connected RP,

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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 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.

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xi. The impugned judgment has far-reaching, and undesirable consequences contrary to the intent of the Legislature. (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 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)

1 (2019) 12 SCC 150 2 (2020) 11 SCC 467

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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. (III) So far as Third category of Appeals filed by the ex-promoters 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 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.

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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. 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 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

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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 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 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

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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 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 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.

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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 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 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.

3 2020 SCC OnLine Del 1479 4 (2024) 1 SCC 42

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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 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 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.

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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 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 vide its judgment dated 27.01.2022 rightly set aside Clause 2.13.3 and directed the CoC to reconsider the same.

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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. 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 Professional to ensure that the assignment was done for proper consideration, and in the instant case, the

6 2020 (8) SCC 531

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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 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.

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xii. The ex-promoters/KW and DW were entitled to participate in the CoC, to have access to all 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 ex-promoter/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 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

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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 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 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 sub- section (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

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after confirming that the same are in consonance with sub-section (2) of Section 30, would present the same to the CoC for its approval. The relevant part of Section 30 is quoted below. “30. Submission of Resolution Plan – ……………….. (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. 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

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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. 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 “sixty-six” 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

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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 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.

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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 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;

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(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; (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 sub-section (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-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

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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 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

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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 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

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of India (Insolvency 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- (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) …………………………….

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(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 sub-regulation (4A) of regulation 36B. (5) to (8) ………………………………. (9) A creditor, who is aggrieved by non-implementation 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 person, who is eligible to submit a resolution plan for insolvency resolution of the corporate debtor. Explanation. - For the purposes of this sub-regulation, “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

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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 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

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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 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 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.”

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(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 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 sub-section (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 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

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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 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.

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

7 (2019) 2 SCC 1

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Act, and also the earlier judgments, emphasized on the prescription of time-limit 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 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,