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of <h1>Supreme Court upholds resolution plan approval, clarifies NCLT and NCLAT jurisdiction limits under IBC Sections 43, 45, 50, 66</h1> <h3>PIRAMAL CAPITAL AND HOUSING FINANCE LIMITED (FORMERLY KNOWN AS DEWAN HOUSING FINANCE CORPORATION LIMITED) Versus 63 MOONS TECHNOLOGIES LIMITED & OTHERS</h3> SC upheld NCLT's approval of resolution plan, setting aside NCLAT's order. Court distinguished between avoidance applications under Sections 43, 45, 50 ... Avoidance of transactions - Fraudulent or Wrongful trading under Section 66 of the IBC - Validity of Resolution Plan (RP), approved by the CoC and the NCLT, requiring the NCLAT to exercise its jurisdiction under Section 61 of the IBC. What are the Applications for Avoidance of transactions required to be filed by the Resolution Professional in accordance with Chapter III, and what are the Applications in respect of Fraudulent trading or Wrongful trading required to be filed by the Resolution Professional under Section 66 of the IBC? - HELD THAT:- The Applications filed in respect of 'Fraudulent and Wrongful trading' carried on by the CD, could not be termed as 'Avoidance Applications' used for the Applications filed under Sections 43, 45 and 50 to avoid or set aside the Preferential, Undervalued or Extortionate transactions, as the case may be. There is clear demarcation of powers of the Adjudicating Authority to pass orders in the Avoidance Applications filed by the Resolution Professional under Section 43, 45 and 50 falling under Chapter III and the Applications filed by the Resolution Professional in respect of the Fraudulent and Wrongful trading of CD, under Section 66 falling under Chapter VI of the IBC. If the Resolution Professional has filed common applications under Sections 43, 45, 50 and also under Section 66, the Adjudicating Authority shall have to distinguish the same and decide as to which provision would be attracted to which of the Applications, and then shall exercise the powers and pass the orders in terms of the provisions of IBC. What are the mandatory requirements as referred in sub-section (2) of Section 30 read with Regulation 38 of the Regulations, 2016? - HELD THAT:- The entire process right from the submission of RPs by the PRAs till the final approval/rejection of the Plan by the Adjudicating Authority has been duly prescribed, which is mandatory in nature. If there is any non-compliance of the mandatory requirements stated in Section 30(2) of IBC, readwith Regulation 38 of the Regulations, 2016, the Adjudicating Authority is empowered to reject the plan as envisaged in sub-section (2) of Section 31. If however, the plan approved by the CoC as per Section 30(4), meets with the requirements under Section 30(2), the Adjudicating Authority has to approve such plan under Section 31(1), which would be binding to all the stakeholders as stated therein. What is maximization of the value of assets of the Corporate Debtor? - HELD THAT:- The entire process has to be carried out in an absolutely transparent manner, and each and every aspect relating to the RP, and more particularly its financial layout and the measures proposed for maximization of the value of the assets of the CD, has to be placed before the CoC. The CoC, if after considering such measures for maximization of the value of the assets of the CD as proposed by the RA in the RP submitted by it, and considering the feasibility, viability and such other requirements as mandated in the IBC and in the Regulations, 2016, approves the plan with the requisite number of votes as required under Section 30(4), after exercising its commercial wisdom, then the scope of judicial review by the Adjudicating Authority under Section 31 will be limited only to the extent of satisfying itself about the compliance of the requirements of Section 30(2). The judicial review by the Appellate Authority under Section 61 in the appeal against the order of Adjudicating Authority approving the plan, is further limited to the grounds mentioned in Clauses (i) to (v) specified in sub- section (3) of Section 61. Whether the NCLAT should have entertained the Appeals of the 63 Moons under Section 61 of the Code and interfered with the commercial wisdom exercised by the CoC? - HELD THAT:- As per the legislative intent and as per the broad contours of the provisions of IBC, the commercial wisdom of CoC has been given the prominent status, with the least judicial intervention, for ensuring the completion of Resolution Process within the prescribed timelines. As stated earlier, in Essar Steel [2019 (11) TMI 731 - SUPREME COURT], this Court after discussing earlier judgments had observed that what is left to the majority decision of the CoC is the 'feasibility and viability' of a RP, which obviously takes into account all aspects of the plan, including the manner of distribution of funds among the various classes of Creditors. The legislature has consciously not provided for a ground to challenge the justness of the commercial decision expressed by the Financial Creditors, be it to approve or reject the RP. Similar view is taken by the Three Judge Bench in Ghanashyam Mishra [2021 (4) TMI 613 - SUPREME COURT] to the effect that the legislature has given paramount importance to the commercial wisdom of the CoC and the scope of judicial review by the Adjudicating Authority is limited to the extent provided under Section 31 and by the Appellate Authority limited to the extent provided under sub-section (3) of Section 61 of IBC. The NCLAT therefore has clearly transgressed its jurisdiction under Section 61 IBC, by interfering with the clause pertaining to the treatment to the recoveries from the Fraudulent and Wrongful trading under Section 66. Whether the Resolution Plan violated the provisions of RBI Act or NHB Act? - HELD THAT:- Both the Sections 36(A) of NHB Act and 45(QA) of the RBI Act containing almost similar provisions, require the Housing Finance Institution or the Non-Banking Financial Company, as the case may be, to repay the deposits accepted by it in accordance with the terms and conditions of such deposit, however from the bare reading of the said provisions it clearly transpires that in case of non- payment of such deposits, the authorized officer or the CLB as the case may be on being satisfied that it is necessary to safeguard the interest of the company, or of the depositors in the public interest may direct such institution or the company to make repayment of such deposit or part thereof. None of the said provisions mandates full payment of deposits or confers any right upon the depositors to have full payment of such deposits. There is also nothing on record to suggest that any authorized officer under the NHB Act or the CLB under the RBI Act has passed any order to make full payment of deposits to the Appellants. Hence, it could not be said, by any stretch of imagination, that the RP in question, providing for the Distribution mechanism, was contrary to any of the provisions of the RBI Act or of the NHB Act. The CoC rejected the said recommendation by approximately 89% of the CoC in its 20th Meeting, which decision came to be challenged before the NCLAT. The NCLAT also vide the impugned order dismissed the same by holding inter alia that the Administrator was under no obligation to ensure full payment of deposits to the FD Holders under the RBI Act or the NHB Act, and that the decision about the payments to the creditors fell within the commercial wisdom of CoC which was not amenable to judicial review, subject to fair and equitable play. Conclusion - The impugned judgment and order passed by the NCLAT is set aside, and the judgment and order passed by the Adjudicating Authority/ NCLT granting its approval to the Plan Approval Application, and thereby approving the Resolution Plan, is upheld. However, it is clarified and directed that the NCLT shall decide the Avoidance Applications filed by the Administrator under Section 43, 45, and 50, and shall separately decide the Applications under Section 66, and it shall pass the orders in accordance with the powers conferred upon it under Section 44, 48, 49, 50, and under Section 66, as the case may be. Appeal dismissed. 1. ISSUES PRESENTED and CONSIDEREDThe core legal questions considered were:(i) Whether the Resolution Plan (RP) approved by the Committee of Creditors (CoC) and the National Company Law Tribunal (NCLT) was in contravention of any law, requiring intervention by the National Company Law Appellate Tribunal (NCLAT) under Section 61 of the Insolvency and Bankruptcy Code (IBC).(ii) What constitutes Avoidance Applications under Chapter III and applications for Fraudulent or Wrongful trading under Section 66 of the IBCRs.(iii) What are the mandatory requirements under Section 30(2) of the IBC and Regulation 38 of the Regulations, 2016Rs.(iv) What is meant by maximization of the value of the assets of the Corporate Debtor (CD)Rs.(v) Whether NCLAT should have entertained the appeals filed by 63 Moons and interfered with the commercial wisdom of the CoCRs.(vi) Whether the RP violated the provisions of the Reserve Bank of India Act (RBI Act) or the National Housing Bank Act (NHB Act) concerning the repayment of depositsRs.(vii) Whether the ex-promoters had any right to participate in CoC meetings or access the RPRs.2. ISSUE-WISE DETAILED ANALYSIS(i) Avoidance ApplicationsThe IBC provides for Avoidance Applications under Chapter III for Preferential, Undervalued, and Extortionate Credit transactions. Section 66, under Chapter VI, pertains to Fraudulent or Wrongful trading. The Court clarified that the powers of the Adjudicating Authority in these applications are distinct, with Section 66 focusing on contributions to the assets of the CD by those involved in fraudulent trading.(ii) Mandatory Requirements of Section 30(2) of the IBC and Regulation 38The RP must comply with Section 30(2) and Regulation 38, ensuring payment of insolvency resolution process costs, debts of operational creditors, and management of the CD post-approval. The CoC's approval of the RP is based on feasibility, viability, and compliance with these requirements.(iii) Maximization of the Value of the Assets of the Corporate DebtorThe CoC's role is to ensure maximization of the CD's assets, which is not explicitly defined in the IBC but is crucial in the approval of RPs. The CoC must consider all measures for asset maximization as per Regulation 37 of the Regulations, 2016.(iv) NCLAT's Intervention in the 63 Moons AppealsThe NCLAT's decision to interfere with the RP approved by the CoC and NCLT was found to be erroneous. The Court emphasized the limited scope of judicial review by NCLAT under Section 61, which should not extend to questioning the commercial wisdom of the CoC, especially when the RP meets all legal requirements.(v) Resolution Plan's Compliance with RBI Act and NHB ActThe Court found no violation of the RBI Act or NHB Act in the RP's distribution mechanism. Sections 36(A) of the NHB Act and 45(QA) of the RBI Act do not mandate full repayment of deposits, and no orders were issued under these sections to require such repayment.(vi) Rights of Ex-PromotersThe ex-promoters, having been superseded under the RBI Act, had no right to participate in CoC meetings or access the RP. The RBI's supersession of the Board of Directors resulted in the vacation of their offices, distinguishing their situation from directors merely suspended under the IBC.3. SIGNIFICANT HOLDINGSThe Court reiterated the primacy of the CoC's commercial wisdom in the insolvency resolution process, with limited judicial review by NCLT and NCLAT. It emphasized that the CoC's decisions, made after thorough examination and expert consultation, should not be second-guessed by judicial bodies unless there is a contravention of the law.Key principles established include the distinct treatment of Avoidance Applications and applications under Section 66, the non-mandatory nature of full deposit repayment under the RBI and NHB Acts, and the lack of rights for ex-promoters to participate in the CIRP after supersession by the RBI.The Court concluded by affirming the NCLT's approval of the RP and dismissing the appeals challenging the RP's provisions and the rights of ex-promoters.
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