TaxTMI 
TaxTMI 
2025 (4) TMI 188
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....ce Applications .............89 (iii) Mandatory Requirements of Section 30(2) of the IBC and Regulation 38 of Regulations, 2016 .............95 (iv) Maximization of the value of the assets of the Corporate Debtor .............98 (v) Whether the NCLAT should have entertained the appeals filed by the 63 Moons under Section 61 of the Code and tinkered with the Resolution Plan approved by the CoC and the NCLT? .............101 VII. ANALYSIS IN THE SECOND CATEGORY OF APPEALS ... .............122 (i) Whether the Resolution Plan violated the Provisions Of RBI Act or NHB Act? .............126 VIII. ANALYSIS IN THE THIRD CATEGORY OF APPEALS .............133 IX. CONCLUSION .............143 GLOSSARY 1. BR Act - The Banking Regulation Act, 1949 2. CD - Corporate Debtor 3. CIRP - Corporate Insolvency Resolution Process 4. CoC - Committee of Creditors 5. DHFL - Dewan Housing Finance Corporation Limited 6. EOI - Expression of Interest 7. FD Holders - Fixed Deposit Holders 8. FSP - Financial Service Provider 9. FSP Rules - Financial Service Provider Rules, 2019 10. GT - M/s. Grant Thornton 11. HFC - Housing Finance Companies 12. IBC - The....
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....n 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. 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 t....
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....ein 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 be....
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.....2413- 2415 of 2022 3. Uttar Pradesh State Power Sector Employees Trust v Dewan Housing Finance Corporation Limited & Anr. Civil Appeal No.2396 of 2022 & Civil Appeal No.2402 of 2022 4. U.P. State Power Corporation Contributory Provident Fund Trust v. Dewan Housing Finance Corporation Limited and Anr. " 5. Senbagha Vivek A. & Anr v Dewan Housing Finance Corporation Ltd. & Anr. Diary No.11104 of 2022/ Civil Appeal Nos.8123- 8125 of 2022 6. THDC India Limited Employee Fund v The Administrator, Dewan Housing Finance Corporation Ltd. Civil Appeal No.6286 of 2022 III. APPEALS BY EX PROMOTERS- (a) Impugned Order dated14.02.2022 passed in Company Appeal (AT) (Ins) No. 539of 2021 approving the Resolution Plan; (b) Impugned Order dated 27.01.2022 passed in Company Appeal (AT)(Ins) No. 785 of 2020 and 647 of 2021 holding that the Appellant does not have the right to attend CoC meetings or get a copy of the Resolution Plan approved by the CoC; (c) Impugned Order dated 27.01.2022 passed in Company Appeal (AT) (Ins) No. 370 of 2021, 376-377of 2021, 393 of 2021 which set aside the order directing CoC to consider and vote ....
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....announcement, called upon the creditors of the CD to submit their claims with proof on or before 17.12.2019. v. The Administrator received the claims worth Rs.82,247 Crores. The Administrator, after collating all claims received against the CD and determining of financial position of the CD, constituted CoC on 24.12.2019. The Administrator, on 28.01.2020 issued an invitation for submissions of Expression of Interests (EOI) and Form 'G' for submission of RPs for the CD in accordance with the IBC and the relevant Rules and Regulations 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 Prefere....
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....al 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 (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 ....
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...., 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 ....
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....LAT 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 no....
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....inancial 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 ....
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....th Rules 5, 6 of the FSP Rules before the NCLT for initiating CIRP of DHFL, and the said petition was admitted by the NCLAT vide the order dated 03.12.2019, which was also never challenged by the ex-promoters of DHFL. v. Section 45-IE (4)(a) of the RBI Act states that upon supersession of Board of Directors, the chairman, managing director and other directors shall, from the date of the supersession, vacate their offices. Hence, once the directors vacate their office, they are not a stakeholder of the CD any more and have no locus either to sit in the CoC meetings, demand RP or even challenge the same. vi. Section 29A(c) of IBC explicitly disqualifies the promoters of the CD from being a RA, subject to certain conditions, and the Board of DHFL having been superseded, the promoters did not have any 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 enti....
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....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. ii. As per the settled legal position, the recoveries from Avoidanc....
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....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....
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....27.01.2022 rightly set aside Clause 2.13.3 and directed the CoC to reconsider the same. iii. In K. Sashidhar vs. Indian Overseas Bank and Others (supra), and in Committee of Creditors of Essar Steel India Limited vs. Satish Kumar Gupta and Others, 2020 (8) SCC 531 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....
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....nsactions for Rupee 1 was contrary to the records and unjustified. xi. The amount under Section 43 and 45 of the Code are a small portion of the total amount impugned in the Avoidance applications. There is no difference in the potentiality of recovery from transactions impugned under Section 66 or Section 45 in the present case. The nature of trading in respect of Section 66 applications is not fictitious. The actions of Piramal in filing Section 7 applications makes it evident that the classification of entire transactions as fraudulent by the Administrator was incorrect. xii. The ex-promoters/KW and DW were entitled to participate in the CoC, to have access to all 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 c....
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....erim 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 relev....
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....uch 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....
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....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 exer....
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....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....
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....ent, having effect by virtue of any such law. 24. The Insolvency and Bankruptcy Board of India (IBBI), in exercise of the powers conferred under Section 240 of IBC, has framed the Regulations called "The Insolvency and Bankruptcy Board of India (Insolvency 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, o....
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....ate credit and fraudulent transactions referred to in sections 43 to 51 and section 66 of the Code." 26. The Reserve Bank of India Act, 1934 (RBI Act) was enacted to regulate the issue of Bank Notes and for keeping reserves with a view to securing monetary stability in India and generally to operate the currency and credit system of the country to its advantage. The RBI is also responsible to operate the monetary policy framework in India. The relevant part of the provisions contained in Section 45-IE of RBI Act, under which the RBI had superseded the Board of Directors of DHFL and appointed the Administrator, is reproduced as under: - "45-IE. Supersession of Board of directors of non-banking financial company (other than Government Company). - (1) Where the Bank is satisfied that in the public interest or to prevent the affairs of a non-banking financial company being conducted in a manner detrimental to the interest of the depositors or 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 re....
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....nce 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." (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....
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....ng 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 its....
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....ion plan does not conform to the stated requirements. Reverting to Section 30(2), the enquiry to be done is in respect of whether the resolution plan provides : (i) the payment of insolvency resolution process costs in a specified manner in priority to the repayment of other debts of the corporate debtor, (ii) the repayment of the debts of operational creditors in prescribed manner, (iii) the management of the affairs of the corporate debtor, (iv) the implementation and supervision of the resolution plan, (v) does not contravene any of the provisions of the law for the time being in force, (vi) conforms to such other requirements as may be specified by the Board. The Board referred to is established under Section 188 of the I&B Code. The powers and functions of the Board have been delineated in Section 196 of the I&B Code. None of the specified functions of the Board, directly or indirectly, pertain to regulating the manner in which the financial creditors ought to or ought not to exercise their commercial wisdom during the voting on the resolution plan under Section 30(4) of the I&B Code. The subjective satisfaction of the financial creditors at the time of voting is bound to be a....
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....ed to have been rejected by CoC in exercise of its business decision. 58. Indubitably, the inquiry in such an appeal would be limited to the power exercisable by the resolution professional under Section 30(2) of the I&B Code or, at best, by the adjudicating authority (NCLT) under Section 31(2) read with Section 31(1) of the I&B Code. No other inquiry would be permissible. Further, the jurisdiction bestowed upon the appellate authority (Nclat) is also expressly circumscribed. It can examine the challenge only in relation to the grounds specified in Section 61(3) of the I&B Code, which is limited to matters "other than" enquiry into the autonomy or commercial wisdom of the dissenting financial creditors. Thus, the prescribed authorities (NCLT/NCLAT) have been endowed with limited jurisdiction as specified in the I&B Code and not to act as a court of equity or exercise plenary powers." 36. In Committee of Creditors of Essar Steel India Limited vs. Satish Kumar Gupta and Others (supra), a Three-Judge Bench discussed in detail the issues pertaining to the role of Resolution Professionals, CoCs, and the jurisdiction of NCLT and NCLAT and observed as under: - '64....
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.... day to day running of the corporate debtor; collation of claims and their admissions; and the calling for resolution plans in the manner stated above. After a resolution plan is approved by the requisite majority of the Committee of Creditors, the aforesaid plan must then pass muster of the Adjudicating Authority under Section 31(1) of the Code. The Adjudicating Authority's jurisdiction is circumscribed by Section 30(2) of the Code. In this context, the decision of this Court in K. Sashidhar [K. Sashidhar v. Indian Overseas Bank, (2019) 12 SCC 150: (2019) 4 SCC (Civ) 222] is of great relevance. 66.............. 67. ..... Thus, it is clear that the limited judicial review available, which can in no circumstance trespass upon a business decision of the majority of the Committee of Creditors, has to be within the four corners of Section 30(2) of the Code, insofar as the Adjudicating Authority is concerned, and Section 32 read with Section 61(3) of the Code, insofar as the Appellate Tribunal is concerned, the parameters of such review having been clearly laid down in K. Sashidhar. 68.................. 69. It will be noticed that the non obstante....
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.... under consideration does not take the matter any further." 39. Again, a Three-Judge bench in Ghanashyam Mishra and Sons Private Limited through the Authorised Signatory vs. Edelweiss Asset Reconstruction Company Limited through the Director and Others, (2021) 9 SCC 657 examined the legislative intent of making the RP binding on all the Stakeholders after it gets seal of approval from the Adjudicating Authority, and observed as under: - "64. It could thus be seen, that the legislature has given paramount importance to the commercial wisdom of CoC and the scope of judicial review by adjudicating authority is limited to the extent provided under Section 31 of the I&B Code and of the appellate authority is limited to the extent provided under sub-section (3) of Section 61 of the I&B Code, is no more res integra. 65. Bare reading of Section 31 of the I&B Code would also make it abundantly clear that once the resolution plan is approved by the adjudicating authority, after it is satisfied, that the resolution plan as approved by CoC meets the requirements as referred to in sub-section (2) of Section 30, it shall be binding on the corporate debtor and its employees, ....
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....the constitutionality of the statute relating to economic policy but also in matters of interpretation of economic statutes, where the interpretative manoeuvres of the Court have an effect of transgressing into the law-making power of the legislature and disturbing the delicate balance of separation of powers between the legislature and the judiciary. Judicial restraint must be exercised in such cases as a matter of prudence, since the court neither has the necessary expertise nor the power to hold consultations with stakeholders or experts to decide the direction of economic policy. A court may be inept in laying down a detailed procedure for exercise of the power of withdrawal or modification by a successful resolution applicant without impacting the other procedural steps and the timelines under IBC which are sacrosanct. Thus, judicial restraint must be exercised while intervening in a law governing substantive outcomes through procedure, such as IBC. In this case, if resolution applicants are permitted to seek modifications after subsequent negotiations or a withdrawal after a submission of a resolution plan to the adjudicating authority as a matter of law, it would dictate the....
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....llective business decision, which is arrived at after thorough examination of the proposed resolution plan and assessment made with involvement of experts by the body of persons who are most vitally interested in rapid and efficient decision making. It follows as a necessary corollary that to be worth its name, the commercial wisdom of CoC would come into existence and operation only when all the relevant information is available before it and is duly deliberated upon by all its members, who have direct and substantial interest in the survival of corporate debtor and in the entire CIRP. 162. In light of the aforesaid position of law and its operation in relation to the decision-making process of CoC, it needs hardly any emphasis that each and every aspect relating to the resolution plan, and more particularly its financial layout, has to be before the CoC before it could be said to have arrived at a considered decision in its commercial wisdom." 42. In view of the above legal position settled by this Court in the fleet of judgments, it is no more res integra that the legislature has given paramount importance to the "commercial wisdom" of CoC, and that the scope of the ....
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.... filing Appeal under Section 61 have to be confined to sub-section (3) thereof. 45. Keeping in view the above settled legal position, let us deal with the three categories of Appeals separately. ANALYSIS IN THE FIRST CATEGORY OF (VI) APPEALS: - 46. In the First category of Appeals, the impugned order dated 27.01.2022 passed by the NCLAT, in the Company Appeal Nos. 454-455 and 750 of 2021, in relation to the treatment of recoveries from the Avoidance applications provided in the RP submitted by the SRA - Piramal Capital, is under challenge. As stated earlier, the C.A. Nos. 1632-1634 of 2022 have been filed by the SRA - Piramal Capital, and C.A. Nos.2989-2991 of 2022 have been filed by the Union of India, challenging the impugned judgment to the extent the NCLAT modified the RP and the C.A. Nos. 3694-3695 of 2022 have been filed by the 63 Moons to the extent the NCLAT sent back the RP to CoC for reconsideration. The NCLAT vide the said impugned order has set aside the term in the RP that permitted the SRA to appropriate recoveries if any, from Avoidance applications filed upon Section 66 of the IBC, and sent back the RP to CoC for reconsideration on that aspect. 47. The N....
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....rt in providing the outcome of avoidance transactions to the Successful Resolution Applicant. Adjudicatory power could not have been delegated to the CoC. The Adjudicating Authority has not taken any decision about the applicability of the Venus judgement on the issue of providing the outcome of avoidance transaction to the resolution applicant. The Adjudicating Authority has stated that "as far as the claims of avoidance transactions, CoC has consciously decided that the money realised through these avoidance transactions would accrue to the members of the CoC. At the same time, they have also consciously decided after a lot of deliberations negotiations that money realised if any under Section 66 of the IBC, i.e. fraud and fraudulent transactions, CoC has ascribed the value of lNR one and if any positive money recovery the same would go to the Resolution Applicant of the Corporate Debtor." Therefore, it cannot be considered the findings of the Adjudicating Authority. The CoC was not empowered to exercise such Adjudicatory power and decide. Insolvency Law Committee Report, 2020, specifically provides that the key aim of providing certain transactions is to avoid unjust en....
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....and the NCLT was in contravention of the provisions of any law, for the time being in force, requiring the NCLAT to exercise its jurisdiction under Section 61 of the IBC?" 51. The ancillary questions to the main question would be- (i) What are the Applications for Avoidance of transactions required to be filed by the Resolution Professional in accordance with Chapter III, and what are the Applications in respect of Fraudulent trading or Wrongful trading required to be filed by the Resolution Professional under Section 66 of the IBC? (ii) What are the mandatory requirements as referred in sub-section (2) of Section 30 read with Regulation 38 of the Regulations, 2016? (iii) What is maximization of the value of assets of the Corporate Debtor? (iv) Whether the NCLAT should have entertained the Appeals of the 63 Moons under Section 61 of the Code and interfered with the commercial wisdom exercised by the CoC? 52. In our opinion, the cumulative answers of the ancillary questions would answer the main question. Therefore, let us first of all examine as to what are the Applications required to be filed by the Resolution Professional, popularly know....
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....Chapter VI of the Code. The legislature has consciously kept the Applications in respect of Fraudulent trading or Wrongful trading falling in Chapter VI, outside the purview of Section 25(2), which requires the Resolution Professional to undertake the actions and file applications for the avoidance of transactions in accordance with Chapter III. Both, the Avoidance Applications under Chapter III and the Applications in respect of Fraudulent trading or Wrongful trading under Chapter VI, operate in different situations. The powers of the Adjudicating Authority in respect of the Avoidance Applications filed under Chapter III and the powers of the Adjudicating Authority in respect of the Applications pertaining to the Fraudulent and Wrongful trading filed under Chapter VI, have also been separately circumscribed. 57. In the cases of Preferential transactions as contemplated in Section 43, the Resolution Professional may file an Application, when he is of the opinion that the CD, at a relevant time, had given a preference in such transactions, and in such manner as laid down in sub-section (2), to any persons as referred to in sub-section 4 of Section 43. The Adjudicating Authority m....
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....s of the CD, as it may deem fit. The Adjudicating Authority in such applications may also direct that the Director of the CD shall be liable to make such contribution to the assets of the CD as it may deem fit, as contemplated in Section 66(2). In case of Fraudulent trading or Wrongful trading, it would be a matter of inquiry to be made by the Adjudicating Authority as to whether the business of CD was carried on with intent to defraud creditors of the CD or was carried on for any fraudulent purpose. 61. In view of the above, the Applications filed in respect of "Fraudulent and Wrongful trading" carried on by the CD, could not be termed as "Avoidance Applications" used for the Applications filed under Sections 43, 45 and 50 to avoid or set aside the Preferential, Undervalued or Extortionate 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 o....
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....other requirements as may be specified by the Board. 64. The Resolution Professional then has to submit the RP as approved by the requisite number of votes of CoC to the Adjudicating Authority. In view of sub- section (1) of Section 31, if the Adjudicating Authority is satisfied that the RP approved by the CoC under sub-section (4) of Section 30 meets the requirements as referred to in sub-section (2) of Section 30, it shall by an order approve the RP, which shall be binding on the CD and its employees, members, creditors, statutory authorities, guarantors and stakeholders involved in the RP. Where the Adjudicating Authority is satisfied that the RP does not confirm to the requirements referred to in sub-section (1) of Section 31, it may, by an order reject the RP. 65. Thus, the entire process right from the submission of RPs by the PRAs till the final approval/rejection of the Plan by the Adjudicating Authority has been duly prescribed, which is mandatory in nature. If there is any non-compliance of the mandatory requirements stated in Section 30(2) of IBC, readwith Regulation 38 of the Regulations, 2016, the Adjudicating Authority is empowered to reject the plan as envisage....
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....he 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. (v) Whether the NCLAT should have entertained the appeals filed by the 63 Moons under Section 61 of the Code and tinkered with the Resolution Plan approved by the CoC and the NCLT? - 68. Keeping in view, the above discussed legal position, let us examine the facts of the case to decide whether the Appellate Authority i.e. NCLAT should have entertained the appeals at the instance of 63 Moons, and interfered with the RP approved by the CoC and NCLT, by tinkering with the isolated clauses of the approved RP which pertained to the treatment of recoveries from the Applications under Section 66 of IBC. 69. As stated earlier,....
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....NAPHA Building under Section 66 of the Code as Application "B". c. Fraudulent and undervalued advancement of ICDs by DHFL to certain entities in the past and the subsequent creation of a pledge over the non-convertible debentures issued by DHFL under Sections 45 and 66 of the Code - as Application "C". A copy of the letter dated December 13, 2020, issued by Respondent No. I to Stock Exchange summarising the said transaction is annexed with Appeal Paper book. The amount involved therein is Rs.1,058.32 crores. V. 7th Application filed on February 3 2021, under Sections 45, 60 (5) and 66 of the Code - The Application is about disbursement made to certain entities as developer loans and loans against property. The amount involved therein is Rs. 4,793.36 crores. VI. 8th Application was filed on February 20 2021, under Section 45, 60 (5) and 66 of the Code. The Application is in relation to irregularities in disbursements of Other Large Product Loan (OLPL) by the DHFL in the past. The amount involved therein is Rs. 6,182.11 crores. The details of the Avoidance applications in the tabular chart are mentioned below : Rs. Crores (Approx) Sr....
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.... avoided or set aside by the NCLT in terms of Section 43, 45, 47, 49, and 50 of the IBC (Avoidance Transactions), if any, observed, found or determined by him and the orders, if any, of the NCLT in respect of such transactions. 2.13.2. The Resolution Applicant intends to pursue, on a best-efforts basis, the application(s) filed by the Administrator before the NCLT in respect of these Avoidance Transactions. Any positive monetary recovery received by the Company as a result of orders passed in relation to the Avoidance Transactions shall be distributed, net of costs and expenses (including taxes), to the Financial Creditors pro rata to the extent the Financial Debt for Financial Creditors, provided that, the CoC may in its discretion adopt a different manner of distribution (which may take into account the order of priority amongst Financial Creditors as laid down in section 53(1) of section of the IBC and such decision of the CoC shall be accepted by the Resolution Applicant, subject to there being no change in the Total Resolution Amount. 2.13.3. The Resolution Applicant ascribes value of INR 1 in respect of any transactions that may be avoided/set aside by the N....
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.... avoided/set aside by the Adjudicating Authority in terms of Section 66 of the IBC, the Resolution Applicant shall ascribe a value under the Resolution Plan to any recoveries that are likely to be made in respect of such transactions and shall propose the manner of continuing and dealing with any legal action initiated and the proposed manner of treatment of any proceeds arising therefrom which the CoC may evaluate as per its discretion. 2.13.3. The Resolution Applicant ascribes value of INR 1 in respect of any transactions that may be avoided/set aside by the NCLT in terms of Section 66 of the IBC. Accordingly, any positive recovery as a result of reversal of transactions avoided or set aside by the NCLT in terms of Section 66 of the IBC would accrue to the sole benefit of the Resolution Applicant. All the costs and expenses incurred or to be incurred towards litigation pertaining to Section 66 of the IBC shall be to the account of the Resolution Applicant. 72. As stated hereinabove, the CoC approved the RP submitted by the Piramal Capital under Option I for the entire assets of the CD offering aggregate amount of Rs.37,250 crores, by majority with 93.65% votes. 73. As ca....
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.... erroneous but also in utter disregard of the legal position settled by this Court in catena of decisions. 76. It is interesting to note that the Appellants before the NCLAT, i.e. - 63 Moons Technologies Limited, Roopjyot Engineering Private Limited, Magico Exports and Consultants Limited, Richmond Traders Private Limited and Sunshine Fibre Private Limited, were the NCD Holders, belonging to different sub- classes. They were represented in CoC by a Debenture Trustee - M/s. Catalyst Trusteeship Private Limited (CTPL). The details of these NCD Holders including their Voting Pattern and Payout were submitted in tabular form before the Court by the learned counsel appearing for the SRA, which is reproduced as under : - Creditor Share in CoC Voting Pattern Payout Other Information 63 Moons Belonged to the class: Catalyst Trusteeship Limited (Secured Public Issue - 2) 0.2% Held NCDs of face value INR 200 Crores. Voted in favour of the Plan. As a class, these NCD holders approved the plan by 98.94 % majority. Received about 40% of their admitted claims without any protest or demur. No other justification provided for voting in favour of the plan Roopjyo....
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....inality and binding force is not provided to the votes cast by the Authorized Representatives of a class of Financial Creditors, a plan of resolution involving large number of parties may never fructify. In the instant case, the vote cast by the Authorized Representative - M/s. Catalyst Trusteeship on behalf of the class of Financial Creditors he represented, was binding on the 63 Moons and other Appellants before the NCLAT, and therefore they were estopped from raising any objection before the NCLT or NCLAT against the RP approved by the requisite majority of CoC. 78. The NCLAT has also erroneously placed reliance on the decision of the Single Bench of the Delhi High Court in Venus Recruiter (supra). Apart from the fact that the said judgment of Single Bench was set aside by the Division of the said High Court in LPA No. 37 of 2021 (Tata Steel BSL Limited vs. Venus Recruiter Private Limited and Others) decided on 13.01.2023, the whole reliance on the said decision was thoroughly misconceived and misplaced. In the said case, the question for consideration was whether an Avoidance Application under Section 43 of IBC could survive after the approval of RP. The question of consider....
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.... then propose a manner of treatment of recoveries from such applications, the SRA had ascribed INR 1 as a notional valuation of the applications under Section 66. 82. In our opinion, having regard to the Fraudulent trading and Wrongful trading allegedly made by the DHFL, any guess work done by the compliant RAs would have been a wild guess due to the uncertainties in recovery of the amount involved in such Fraudulent and Wrongful trading. The value of INR 1 being notional and the CoC having considered the fact that the potential recoveries from the Section 66 Applications was very uncertain had taken conscious decision in accepting the said clause in the RP submitted by the SRA. The relevant Clause 2.13.2 of RP provided that any positive monetary recovery received by the company (SRA) as a result of the orders passed in relation to avoidance transactions shall be distributed, net of costs and expenses (including taxes), to the Financial Creditors pro rata to the extent the financial debt for the Financial Creditors provided that the CoC may in its discretion adopt a different manner of distribution. Therefore, while ascribing a notional value of INR 1 to the Applications under S....
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....ope 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. 85. The NCLAT therefore has clearly transgressed its jurisdiction under Section 61 IBC, by interfering with the clause pertaining to the treatment to the recoveries from the Fraudulent and Wrongful trading under Section 66. 86. It appears that the Administrator has filed common applications under Sections 43, 45 and 50 falling under Chapter III and the Applications pertaining to Fraudulent and Wrongful trading under Section 66 falling under Chapter VI before the NCLT. The Administrator, as such should have mentioned in the Applications the specific provisions under which such Applications were filed, however non-mentioning or wrong mentioning of provision of law in the Applications would not take away the jurisdiction of the NCLT in deciding the said Applications, as the NCLT being the Adjudicating Authority is competent and has jurisdiction to decide all such Applications. It is well settled proposition of law laid down by a Three- Judge Bench of this Court in N. Mani ....
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..... Dewan Housing Finance Corporation Ltd. & Anr. (Civil Appeal No.2396 of 2022): The Appellant in this Appeal was a FD Holder of the CD and has challenged the common judgment dated 27.01.2022 passed by the NCLAT in Company Appeal Nos.759, 760 of 2021. PCHFL is Respondent No. 1 in this Appeal. (4) Uttar Pradesh State Power Corporation Contributory Provident Fund Trust vs. Dewan Housing Finance Corporation Limited and Anr. (Civil Appeal No.2402 of 2022): The Appellant herein was a FD Holder of the CD and has challenged the common judgment dated 27.01.2022 passed by the NCLAT in Company Appeal Nos.759, 760 of 2021. PCHFL is Respondent No. 1 in this Appeal. (5) Senbagha Vivek A. & Anr. vs. Dewan Housing Finance Corporation Ltd. & Anr. (Civil Appeal No.8123-8125 of 2022): The Appellants herein were two individual FD Holders of the CD and have challenged the common judgment dated 27.01.2022 passed by the NCLAT in Company Appeal Nos. 506, 507 and 516 of 2021. PCHFL is Respondent No.6 in this Appeal. (6) THDC India Limited Employee Fund vs. The Administrator, Dewan Housing Finance Corporation Ltd. (Civil Appeal No.6286 of 2022): Insofar as this Appeal is concerned....
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.... The aggrieved Appellants - FD Holders filed the Appeals before the NCLAT challenging the FD Holders order dated 07.06.2021, on the ground that the treatment to the FD Holders violated their rights under the RBI Act and NHB Act to receive full payment of their deposits. The NCLAT vide the impugned orders dismissed all the Appeals against which the present set of Appeals have been filed. (i) WHETHER THE RESOLUTION PLAN VIOLATED THE PROVISIONS OF RBI ACT OR NHB ACT? 93. The bone of contention raised by the learned Counsels for the Appellants - FD Holders in this set of Appeals was that the Distribution mechanism contained in the RP was in violation of Section 36(A) of NHB Act and Section 45(QA) of RBI Act, in as much as the FD Holders were entitled to the full payment of their deposits, in view of the said provisions. In this regard, it may be noted that the NHB Act has been enacted to establish a Bank to be known as "National Housing Bank" to operate as a principal agency to promote housing finance institutions both at local and regional levels and to provide financial and other support to such institutions and for the matters connected therewith or incidental thereto. As per ....
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....ution 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. 96. It is also pertinent to note that the Appellants - FD Holders were represented in the CoC by their Autho....
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....5(d)(i) states that "the Resolution Plan shall include a statement explaining how the Resolution Applicant satisfies or intends to satisfy the requirements of engaging in the business of the Financial Service Provider, as per laws for the time being in force." The learned Counsel appearing for the SRA - Piramal Capital had drawn the attention of the Court to the comprehensive statement included in "Part B - Business Plan" of the RP to the effect that the SRA had the expertise and experience in the financial sector and the ability to carry out the business of the CD as a Financial Service Provider. Such being the compliance of the said Rule 5(d)(i) of FSP Rules, it could not be said that there was any violation of any law for the time being in force as contemplated in Section 30(2)(e) of IBC and as sought to be contended by the learned counsels for the Appellants - FD Holders. 99. In that view of the matter, all the Appeals filed by the Appellants in this Second Category of Appeals being devoid of merits deserve to be dismissed. (VIII) ANALYSIS IN THE THIRD CATEGORY OF APPEALS 100. In this Third category, following Appeals are covered : - (1) The Civil Appeal Nos. ....
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....ere not given any opportunity to participate in the said proceedings under the guise that the entire Board of Directors of DHFL was superseded under the RBI Act, and therefore the Ex-Directors did not have any right, which suspended Directors would have under the IBC. Mr. Sibal had strenuously taken the Court to the voluminous record and raised all possible issues, with regard to the Clause in question, with regard to the treatment to Recoveries under the Applications filed under Section 66 of the Code and the permissibility of ascribing INR 1 towards such transactions etc. In short, Mr. Sibal had vehemently challenged the commercial wisdom exercised by the CoC while approving the plan. 102. We have already discussed and dealt with, in the earlier part of this judgment, all the said issues including the scope of judicial review by the NCLT and NCLAT over the commercial wisdom exercised by the CoC, and also examined the legality of the clause in the RP with regard to the treatment of Recoveries from the Avoidance Applications. We have also examined in detail the issue with regard to the maximization of the value of assets of the CD. Hence, the same are not dealt with in this set ....
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....case) and the powers of the Board of Directors of the CD had stood suspended in view of Section 17(1)(b) of the IBC. 106. It may be noted that this is one of the rare cases where the Board of Directors had first stood superseded under the RBI Act, and then the Directors of the CD - DHFL had stood suspended under the IBC. As such, in our opinion, the legal effects in both the situations would be different, as the "Supersession" of the Board of Directors is very much different from the "Suspension" of the Directors. In common parlance also the use of the word "Supersession" has a different connotation than that of the word "Suspension." As per the Black's Law Dictionary (11th Edition) the word, "Supersede" means to annul, make void or repeal; and the word "Suspend" means to interrupt, postpone, defer, or to temporarily keep a person from performing a function or occupying an office. Thus, the effect of Supersession is permanent in nature, whereas the effect of Suspension is temporary in nature. 107. It is true that as per Section 24 of IBC, the Resolution Professional is required to give a notice of each of the meetings of the CoC to the members of the suspended Board of Di....
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....notice of such meetings." 109. In the instant case, however, it deserves to be noted that the RBI having superseded the Board of Directors and appointed the Administrator, the Appellants - Ex-Directors had deemed to have vacated their offices. They having been arrested in connection with the criminal proceedings filed against them, were in the judicial custody all throughout the CIRP proceedings. The said Administrator having initiated the CIRP proceedings, was thereafter continued by the CoC as the Resolution Professional to conduct the CIRP under the provisions contained in the IBC. Under the circumstances, the Appellants - KW and DW, who were the Directors of DHFL at the relevant time, having deemed to have vacated their offices on the supersession of the Board of Directors under the RBI Act, could not have claimed any right to attend the meetings of CoC or to participate in the CIRP proceedings initiated under the IBC, which right otherwise would have been available to the Directors suspended under the IBC. In absence of any specific provision in the IBC or the Regulations 2016, they, as the members of the superseded Board of Directors, could not have made any claim to have ....