SCI (2025.04.01) In Piramal Capital and Housing Finance Ltd. Vs 63 Moons Technologies Ltd. and Ors. [(2025) ibclaw.in 120 SC, 2025 INSC 421, Civil Appeal Nos. 1632-1634 of 2022 with Diary No. 6037 of 2022, and other appeals] held that;
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 judicial review by the Adjudicating Authority (NCLT) is limited to the extent provided under Section 31, and that of the Appellate Authority (NCLAT) is limited to the extent provided under sub-section (3) of Section 61 of the IBC.
It is true that the NCLT has to decide all the questions on law or fact arising out of or in relation to the insolvency resolution or liquidation under the residuary jurisdiction vested in NCLT under Section 60(5), however as held in Essar Steel (supra), such residual jurisdiction does not in any manner impact Section 30(2) of the Code, which circumscribes the jurisdiction of the Adjudicating Authority, when it comes to the confirmation of RP, as has been mandated by Section 31(1) of the Code.
Similarly, the scope of interference by the Appellate Authority i.e., NCLAT under Section 61 in the Appeals arising out of the order approving a RP under Section 31, is also very limited and restricted to the specific grounds mentioned in sub-section (3) of Section 61. The grounds for filing Appeal under Section 61 have to be confined to sub-section (3) thereof.
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.
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.
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 of the IBC.
If the finality and binding force is not provided to the votes cast by the Authorized Representatives of a class of Financial Creditors, a plan of resolution involving large number of parties may never fructify. In the instant case, the vote cast by the Authorized Representative – M/s. Catalyst Trusteeship on behalf of the class of Financial Creditors he represented, was binding on the 63 Moons and other Appellants before the NCLAT, and therefore they were estopped from raising any objection before the NCLT or NCLAT against the RP approved by the requisite majority of CoC.
In our opinion, when Section 26 specifically states that the filing of an Avoidance Application under Section 25(2)(j) by the Resolution Professional shall not affect the proceedings of CIRP, and when the Regulation 37(a) of the CIRP Regulations 2016 also permits a provision to be made in the RP for transfer of all or part of the assets of Corporate Debtor to one or more persons, the reference of Regulation 37A of Liquidation Process Regulations in the impugned order was absolutely unwarranted and ex-facie fallacious.
it is well settled by this Court that the Court should be wary of transplanting international doctrines, which might have been evolved as responses to the specific needs of the jurisdictional regimes.
As discussed earlier, the SRA had raised its offer to the extent of Rs.37,250 crores, which had factored the potential recoveries from Section 66 Applications. Thus, the RP approved by the CoC was an outcome of the commercial bargain struck between the SRA and the CoC after several rounds of negotiations and deliberations.
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.
Nonetheless, pertinently the RP after having been approved by the NCLT under Section 31 of IBC, would become a “Public Document” within the meaning of Section 74 of the Indian Evidence Act, and therefore, they would be entitled to get, at the most, a certified copy of the approved RP.
Excerpts of the Order;
# 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.
(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 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 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: –
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. Thus, what is left to the majority decision of the Committee of Creditors is the “feasibility and viability” of a resolution plan, which obviously takes into account all aspects of the plan, including the manner of distribution of funds among the various classes of creditors. As an example, take the case of a resolution plan which does not provide for payment of electricity dues. It is certainly open to the Committee of Creditors to suggest a modification to the prospective resolution applicant to the effect that such dues ought to be paid in full, so that the carrying on of the business of the corporate debtor does not become impossible for want of a most basic and essential element for the carrying on of such business, namely, electricity. This may, in turn, be accepted by the resolution applicant with a consequent modification as to distribution of funds, payment being provided to a certain type of operational creditor, namely, the electricity distribution company, out of upfront payment offered by the proposed resolution applicant which may also result in a consequent reduction of amounts payable to other financial and operational creditors. What is important is that it is the commercial wisdom of this majority of creditors which is to determine, through negotiation with the prospective resolution applicant, as to how and in what manner the corporate resolution process is to take place.”37. On the issue of jurisdiction of the Adjudicating Authority i.e. NCLT and the Appellate Tribunal i.e. NCLAT, it was held in Essar Steel (supra) as under:-
“Jurisdiction of the Adjudicating Authority and the Appellate Tribunal
65. As has already been seen hereinabove, it is the Adjudicating Authority which first admits an application by a financial or operational creditor, or by the corporate debtor itself under Sections 7, 9 and 10 of the Code. Once this is done, within the parameters fixed by the Code, and as expounded upon by our judgments in Innoventive Industries Ltd. v. Icici Bank [Innoventive Industries Ltd. v. Icici Bank, (2018) 1 SCC 407 : (2018) 1 SCC (Civ) 356] and Macquarie Bank Ltd. v. Shilpi Cable Technologies Ltd. [Macquarie Bank Ltd. v. Shilpi Cable Technologies Ltd., (2018) 2 SCC 674 : (2018) 2 SCC (Civ) 288] , the Adjudicating Authority then appoints an interim resolution professional who takes administrative decisions as to the day to day running of the corporate debtor; collation of claims and their admissions; and the calling for resolution plans in the manner stated above. After a resolution plan is approved by the requisite majority of the Committee of Creditors, the aforesaid plan must then pass muster of the Adjudicating Authority under Section 31(1) of the Code. The Adjudicating Authority’s jurisdiction is circumscribed by Section 30(2) of the Code. In this context, the decision of this Court in K. Sashidhar [K. Sashidhar v. Indian Overseas Bank, (2019) 12 SCC 150: (2019) 4 SCC (Civ) 222] is of great relevance.
66. …………….
67. …..Thus, it is clear that the limited judicial review available, which can in no circumstance trespass upon a business decision of the majority of the Committee of Creditors, has to be within the four corners of Section 30(2) of the Code, insofar as the Adjudicating Authority is concerned, and Section 32 read with Section 61(3) of the Code, insofar as the Appellate Tribunal is concerned, the parameters of such review having been clearly laid down in K. Sashidhar.
68. ……….
69. It will be noticed that the non obstante clause of Section 60(5) speaks of any other law for the time being in force, which obviously cannot include the provisions of the Code itself. Secondly, Section 60(5)(c) is in the nature of a residuary jurisdiction vested in NCLT so that NCLT may decide all questions of law or fact arising out of or in relation to insolvency resolution or liquidation under the Code. Such residual jurisdiction does not in any manner impact Section 30(2) of the Code which circumscribes the jurisdiction of the Adjudicating Authority when it comes to the confirmation of a resolution plan, as has been mandated by Section 31(1) of the Code. A harmonious reading, therefore, of Section 31(1) and Section 60(5) of the Code would lead to the result that the residual jurisdiction of NCLT under Section 60(5)(c) cannot, in any manner, whittle down Section 31(1) of the Code, by the investment of some discretionary or equity jurisdiction in the Adjudicating Authority outside Section 30(2) of the Code, when it comes to a resolution plan being adjudicated upon by the Adjudicating Authority. This argument also must needs be rejected.”
# 38. The Court also considered the amendment to Section 30(4) i.e. fourth proviso which was added to sub-section (4) which came into force from 23.11.2017, and observed as under: –
“68. Suffice it to observe that the amended provision merely restates as to what the financial creditors are expected to bear in mind whilst expressing their choice during consideration of the proposal for approval of a resolution plan. No more and no less. Indubitably, the legislature has consciously not provided for a ground to challenge the justness of the “commercial decision” expressed by the financial creditors—be it to approve or reject the resolution plan. The opinion so expressed by voting is non-justiciable. Further, in the present cases, there is nothing to indicate as to which other requirements specified by the Board at the relevant time have not been fulfilled by the dissenting financial creditors. As noted earlier, the Board established under Section 188 of the I&B Code can perform powers and functions specified in Section 196 of the I&B Code. That does not empower the Board to specify requirements for exercising commercial decisions by the financial creditors in the matters of approval of the resolution plan or liquidation process. Viewed thus, the amendment under consideration does not take the matter any further.”
# 39. Again, a Three-Judge bench in Ghanashyam Mishra and Sons Private Limited through the Authorised Signatory vs. Edelweiss Asset Reconstruction Company Limited through the Director and Others,8 examined the legislative intent of making the RP binding on all the Stakeholders after it gets seal of approval from the Adjudicating Authority, and observed as under: –
“64. It could thus be seen, that the legislature has given paramount importance to the commercial wisdom of CoC and the scope of judicial review by adjudicating authority is limited to the extent provided under Section 31 of the I&B Code and of the appellate authority is limited to the extent provided under sub-section (3) of Section 61 of the I&B Code, is no more res integra.
65. Bare reading of Section 31 of the I&B Code would also make it abundantly clear that once the resolution plan is approved by the adjudicating authority, after it is satisfied, that the resolution plan as approved by CoC meets the requirements as referred to in sub-section (2) of Section 30, it shall be binding on the corporate debtor and its employees, members, creditors, guarantors and other stakeholders. Such a provision is necessitated since one of the dominant purposes of the I&B Code is revival of the corporate debtor and to make it a running concern.”
40. Recently, this Court in Ebix Singapore Private Limited vs. Committee of Creditors of Educomp Solutions Limited and Another,9 reiterating that the Adjudicating Authority is prohibited from second-guessing the commercial wisdom of the parties or directing unilateral modification to the RPs, as held in Essar Steel (supra) and K. Sashidhar (supra), further held as under-
“157. These are binding precedents. Absent a clear legislative provision, this Court will not, by a process of interpretation, confer on the adjudicating authority a power to direct an unwilling CoC to renegotiate a submitted resolution plan or agree to its withdrawal, at the behest of the resolution applicant. The adjudicating authority can only direct the CoC to re-consider certain elements of the resolution plan to ensure compliance under Section 30(2) IBC, before exercising its powers of approval or rejection, as the case may be, under Section 31 [Essar Steel (India) Ltd. (CoC) v. Satish Kumar Gupta, (2020) 8 SCC 531, para 73 : (2021) 2 SCC (Civ) 443] . In State of A.P. v. P. Laxmi Devi [State of A.P. v. P. Laxmi Devi, (2008) 4 SCC 720], while determining the constitutionality of a statute, this Court observed that it should be wary of transgressing into the domain of the legislature, especially in matters relating to economic and regulatory legislation. This Court observed : (P. Laxmi Devi case [State of A.P. v. P. Laxmi Devi, (2008) 4 SCC 720]
“80. … As regards economic and other regulatory legislation judicial restraint must be observed by the court and greater latitude must be given to the legislature while adjudging the constitutionality of the statute because the court does not consist of economic or administrative experts. It has no expertise in these matters, and in this age of specialisation when policies have to be laid down with great care after consulting the specialists in the field, it will be wholly unwise for the court to encroach into the domain of the executive or legislative (sic legislature) and try to enforce its own views and perceptions.”
158. Judicial restraint must not only be exercised while adjudicating upon the constitutionality of the statute relating to economic policy but also in matters of interpretation of economic statutes, where the interpretative manoeuvres of the Court have an effect of transgressing into the law-making power of the legislature and disturbing the delicate balance of separation of powers between the legislature and the judiciary. Judicial restraint must be exercised in such cases as a matter of prudence, since the court neither has the necessary expertise nor the power to hold consultations with stakeholders or experts to decide the direction of economic policy. A court may be inept in laying down a detailed procedure for exercise of the power of withdrawal or modification by a successful resolution applicant without impacting the other procedural steps and the timelines under IBC which are sacrosanct. Thus, judicial restraint must be exercised while intervening in a law governing substantive outcomes through procedure, such as IBC. In this case, if resolution applicants are permitted to seek modifications after subsequent negotiations or a withdrawal after a submission of a resolution plan to the adjudicating authority as a matter of law, it would dictate the commercial wisdom and bargaining strategies of all prospective resolution applicants who are seeking to participate in the process and the successful resolution applicants who may wish to negotiate a better deal, owing to myriad factors that are peculiar to their own case. The broader legitimacy of this course of action can be decided by the legislature alone, since any other course of action would result in a flurry of litigation which would cause the delay that IBC seeks to disavow.”
# 41. What is “commercial wisdom” of CoC has been very aptly put by this Court in a latest decision in M.K. Rajagopalan vs. Dr. Periasamy Palani Gounder and Another (supra), which is worth reproducing: –
“160. As noticed hereinbefore, commercial wisdom of CoC is given such a status of primacy that the same is considered rather a matter non-justiciable in any adjudicatory process, be it by the adjudicating authority or even by this Court. However, the commercial wisdom of CoC means a considered decision taken by CoC with reference to the commercial interests and the interest of revival of the corporate debtor and maximisation of value of its assets. This wisdom is not a matter of rhetoric but is denoting a well-considered decision by the protagonist of CIRP i.e. CoC. As observed by this Court in K. Sashidhar [K. Sashidhar v. Indian Overseas Bank, (2019) 12 SCC 150 : (2019) 4 SCC (Civ) 222] , the financial creditors forming CoC “act on the basis of thorough examination of the proposed resolution plan and assessment made by their team of experts. The opinion on the subject-matter expressed by them after due deliberations in CoC meetings through voting, as per voting shares, is a collective business decision.” This Court also observed in K. Sashidhar [K. Sashidhar v. Indian Overseas Bank, (2019) 12 SCC 150 : (2019) 4 SCC (Civ) 222] that “[t]here is an intrinsic assumption that financial creditors are fully informed about the viability of the corporate debtor and feasibility of the proposed resolution plan.”
161. These observations read with the observations in Essar Steel [Essar Steel India Ltd. (CoC) v. Satish Kumar Gupta, (2020) 8 SCC 531 : (2021) 2 SCC (Civ) 443] with reference to the reasons stated in the Report of Bankruptcy Law Reforms Committee of November 2015, make it clear that commercial wisdom of CoC is assigned primacy in CIRP for it represents collective business decision, which is arrived at after thorough examination of the proposed resolution plan and assessment made with involvement of experts by the body of persons who are most vitally interested in rapid and efficient decision making. It follows as a necessary corollary that to be worth its name, the commercial wisdom of CoC would come into existence and operation only when all the relevant information is available before it and is duly deliberated upon by all its members, who have direct and substantial interest in the survival of corporate debtor and in the entire CIRP.
162. In light of the aforesaid position of law and its operation in relation to the decision-making process of CoC, it needs hardly any emphasis that each and every aspect relating to the resolution plan, and more particularly its financial layout, has to be before the CoC before it could be said to have arrived at a considered decision in its commercial wisdom.”
# 42. In view of the above legal position settled by this Court in the fleet of judgments, it is no more res integra that the legislature has given paramount importance to the “commercial wisdom” of CoC, and that the scope of the judicial review by the Adjudicating Authority (NCLT) is limited to the extent provided under Section 31, and that of the Appellate Authority (NCLAT) is limited to the extent provided under sub-section (3) of Section 61 of the IBC. After a RP is approved by the requisite majority of the CoC, it must pass the muster of Adjudicating Authority under Section 31(1) of the IBC. Section 31 also makes it abundantly clear that once the RP is approved by the Adjudicating Authority, after it is satisfied that the RP as approved by the CoC meets the requirements as referred to in sub-section (2) of Section 30, it shall be binding on the CD and its employees, members, creditors, guarantors and stakeholders. The legislature has consciously not provided for a ground to challenge the justness of the “commercial decision” taken by the Financial Creditors, because one of the dominant purposes of the IBC is revival of the CD and to make it a running concern.
# 43. While considering the feasibility and viability of the Prospective Resolution Plans, the CoC can always suggest a modification therein and exercise its commercial wisdom. However, once the RP is approved by the requisite majority of CoC, and when such RP is placed before the Adjudicating Authority for its approval under Section 31, the Adjudicating Authority has to only see whether such RP as approved by the CoC meets the requirements as referred to in Section 30(2). It is only where the Adjudicating Authority is satisfied that the RP does not confirm to the requirements of sub-section (1) of Section 31, it may by an order reject the RP. It is true that the NCLT has to decide all the questions on law or fact arising out of or in relation to the insolvency resolution or liquidation under the residuary jurisdiction vested in NCLT under Section 60(5), however as held in Essar Steel (supra), such residual jurisdiction does not in any manner impact Section 30(2) of the Code, which circumscribes the jurisdiction of the Adjudicating Authority, when it comes to the confirmation of RP, as has been mandated by Section 31(1) of the Code.
# 44. Similarly, the scope of interference by the Appellate Authority i.e., NCLAT under Section 61 in the Appeals arising out of the order approving a RP under Section 31, is also very limited and restricted to the specific grounds mentioned in sub-section (3) of Section 61. The grounds for filing Appeal under Section 61 have to be confined to sub-section (3) thereof.
# 45. Keeping in view the above settled legal position, let us deal with the three categories of Appeals separately.
(VI) ANALYSIS IN THE FIRST CATEGORY OF APPEALS: –
# 46. In the First category of Appeals, the impugned order dated 27.01.2022 passed by the NCLAT, in the Company Appeal Nos. 454-455 and 750 of 2021, in relation to the treatment of recoveries from the Avoidance applications provided in the RP submitted by the SRA – Piramal Capital, is under challenge. As stated earlier, the C.A. Nos.1632-1634 of 2022 have been filed by the SRA – Piramal Capital, and C.A. Nos.2989-2991 of 2022 have been filed by the Union of India, challenging the impugned judgment to the extent the NCLAT modified the RP and the C.A. Nos. 3694-3695 of 2022 have been filed by the 63 Moons to the extent the NCLAT sent back the RP to CoC for reconsideration. The NCLAT vide the said impugned 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.
(i) QUESTIONS:
# 50. Having regard to the submissions made by the learned counsels for the parties, and to the findings arrived at by the NCLAT in the impugned order, the main question that falls for consideration before this Court is-
“Whether the RP in question approved by the CoC and the NCLT was in contravention of the provisions of any law, for the time being in force, requiring the NCLAT to exercise its jurisdiction under Section 61 of the IBC?”
# 51. The ancillary questions to the main question would be-
(i) What are the Applications for Avoidance of transactions required to be filed by the Resolution Professional in accordance with Chapter III, and what are the Applications in respect of Fraudulent trading or Wrongful trading required to be filed by the Resolution Professional under Section 66 of the IBC?
(ii) What are the mandatory requirements as referred in sub-section (2) of Section 30 read with Regulation 38 of the Regulations, 2016?
(iii) What is maximization of the value of assets of the Corporate Debtor?
(iv) Whether the NCLAT should have entertained the Appeals of the 63 Moons under Section 61 of the Code and interfered with the commercial wisdom exercised by the CoC?
# 52. In our opinion, the cumulative answers of the ancillary questions would answer the main question. Therefore, let us first of all examine as to what are the Applications required to be filed by the Resolution Professional, popularly known as the Avoidance Applications?
(ii) AVOIDANCE APPLICATIONS: –
# 53. One of the duties statutorily cast upon the Resolution Professional in Clause (j) of sub-section (2) of Section 25 of the Code is that the Resolution Professional shall file application for Avoidance of transactions in accordance with Chapter III, if any. Having regard to the said Chapter III, which pertains to “Liquidation Process,” it appears that there are three types of Applications that could be filed by the Resolution Professional for avoidance transactions.
(i) Application for avoidance of Preferential transactions under Section 43,
(ii) Application for avoidance of Undervalued transactions under Section 45 and
(iii) Application for avoidance of Extortionate Credit transactions under Section 50.
# 54. Section 26 specifically 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. Meaning thereby, irrespective of the pendency of the Avoidance Applications filed by the Resolution Professional, the CIRP Proceedings could be proceeded further.
# 55. So far as Section 66 is concerned, the same falls under Chapter VI and it pertains to the “Fraudulent trading or Wrongful trading.” Sub-section 1 of Section 66 provides that if during the CIRP or a Liquidation process, it is found that any business of the CD has been carried on with intent to defraud creditors of the CD or for any fraudulent purpose, the Adjudicating Authority may on the application of the Resolution Professional, pass an order that any persons who were knowingly parties to the carrying on of the business in such manner, shall be liable to make such contributions to the assets of the CD, as it may deem fit. From the bare reading of Section 66(1), it is very much discernible that the said provision pertains to the “Fraudulent trading or Wrongful trading” in respect of the business of the CD.
# 56. Thus, there is a clear distinction between the Avoidance Applications that may be filed by the Resolution Professional in view of Section 25(2)(j), for avoidance of transactions in accordance with Chapter III of the Code, and the Applications that may be filed by the Resolution Professional in respect of the Fraudulent trading or Wrongful trading under Section 66, which falls under Chapter VI of the Code. The legislature has consciously kept the Applications in respect of Fraudulent trading or Wrongful trading falling in Chapter VI, outside the purview of Section 25(2), which requires the Resolution Professional to undertake the actions and file applications for the avoidance of transactions in accordance with Chapter III. Both, the Avoidance Applications under Chapter III and the Applications in respect of Fraudulent trading or Wrongful trading under Chapter VI, operate in different situations. The powers of the Adjudicating Authority in respect of the Avoidance Applications filed under Chapter III and the powers of the Adjudicating Authority in respect of the Applications pertaining to the Fraudulent and Wrongful trading filed under Chapter VI, have also been separately circumscribed.
# 57. In the cases of Preferential transactions as contemplated in Section 43, the Resolution Professional may file an Application, when he is of the opinion that the CD, at a relevant time, had given a preference in such transactions, and in such manner as laid down in sub-section (2), to any persons as referred to in sub-section 4 of Section 43. The Adjudicating Authority may pass any of the orders as specified in Clauses (a) to (g) of Section 44, in such Application filed by the Resolution Professional under Section 43(1).
# 58. Similarly, in the cases of Undervalued transactions as contemplated in Section 45, the Resolution Professional may file an Avoidance Application if he determines that certain transactions were made during the relevant period prescribed under Section 46 which were undervalued. In such applications, the Resolution Professional may pray to declare such transactions as void and to reverse the effect of such transaction in accordance with Chapter III. The Adjudicating Authority may pass any of the orders specified in Clauses (a) to (d) of Section 48 in such Application filed under Section 45(1). He may also pass orders specified in Clause (i) and (ii) of Section 49, in respect of the Undervalued transactions referred to in Section 45(2).
# 59. In case of Extortionate Credit transactions, as contemplated in Section 50, the Resolution Professional may file Avoidance Application, where the CD had been a party to an Extortionate Credit transaction involving the receipt of financial or operational debt during the period within two years preceding the insolvency commencement date, and where the terms of such transactions required exorbitant payments to be made by the CD. In case of such Extortionate Credit transactions, the Adjudicating Authority may pass any of the orders specified in Clause (a) to (e) of Section 51. It is pertinent to note that in all these types of Avoidance Applications falling under Chapter III, the transactions in question, the properties involved and the persons with whom such transactions were made, could be ascertained by the Adjudicating Authority and therefore it is empowered to pass orders to avoid or set aside such transactions, under Sections 44, 48, 49 and 51, as the case may be.
# 60. However, in cases of “Fraudulent or Wrongful trading” in respect of the business of the CD as contemplated in Section 66, the properties and the persons involved may or may not be ascertainable and therefore the Adjudicating Authority is not empowered to pass orders to avoid or set aside such transactions, but is empowered to pass orders to the effect that any persons, who were knowingly parties to the carrying on of business in such manner, shall be liable to make such contributions to the assets of the CD, as it may deem fit. The Adjudicating Authority in such applications may also direct that the Director of the CD shall be liable to make such contribution to the assets of the CD as it may deem fit, as contemplated in Section 66(2). In case of Fraudulent trading or Wrongful trading, it would be a matter of inquiry to be made by the Adjudicating Authority as to whether the business of CD was carried on with intent to defraud creditors of the CD or was carried on for any fraudulent purpose.
# 61. In view of the above, the Applications filed in respect of “Fraudulent and Wrongful trading” carried on by the CD, could not be termed as “Avoidance Applications” used for the Applications filed under Sections 43, 45 and 50 to avoid or set aside the Preferential, Undervalued or Extortionate transactions, as the case may be. There is clear demarcation of powers of the Adjudicating Authority to pass orders in the Avoidance Applications filed by the Resolution Professional under Section 43, 45 and 50 falling under Chapter III and the Applications filed by the Resolution Professional in respect of the Fraudulent and Wrongful trading of CD, under Section 66 falling under Chapter VI of the IBC. If the Resolution Professional has filed common applications under Sections 43, 45, 50 and also under Section 66, the Adjudicating Authority shall have to distinguish the same and decide as to which provision would be attracted to which of the Applications, and then shall exercise the powers and pass the orders in terms of the provisions of IBC.
(iii) Mandatory Requirements of Section 30(2) of the IBC and Regulation 38 of Regulations, 2016
# 62. After having elaborated upon the Avoidance Applications, let us see what are the mandatory requirements, a Resolution Professional is required to confirm on the receipt of the RPs submitted by the PRAs. As per sub-section (1) of Section 30, a RA may submit a RP along with an affidavit stating that he is eligible under Section 29(A), to the Resolution Professional prepared on the basis of the information memorandum. On the receipt of RPs from the eligible RAs, the Resolution Professional has to examine each RP to confirm that each RP provides for the payment of Insolvency Resolution Process cost in the manner specified by the Board in priority to the payment of other debts of the CD, and provides for the payment of debts of operational creditors in such manner as may be prescribed by the Board, as required under sub-section (2) of Section 30. The Resolution Professional has also to confirm that each RP provides for the management of the affairs of CD after the approval of the RP; the implementation and supervision of the RP; and also that the plan does not contravene any of the provisions of the law for the time being in force, and such other requirements specified by the Board. The other mandatory contents of a RP have been specified in Regulation 38 of the Regulations, 2016.
# 63. The Resolution Professional, in view of sub-section (3) of Section 30 has to present to the CoC for its approval such RPs which confirm the conditions referred to in sub-section (2) thereof. Sub-Section (4) of Section 30 states that the CoC may approve the RP by a vote of not less than 66% of the voting share of the Financial Creditors, after considering its feasibility and viability, the manner of distribution proposed, which may take into account the order of priority amongst Creditors as laid down in sub-section (1) of Section 53, including the priority and value of the security interest of a secured creditor, and such other requirements as may be specified by the Board.
# 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 envisaged in sub-section (2) of Section 31. If however, the plan approved by the CoC as per Section 30(4), meets with the requirements under Section 30(2), the Adjudicating Authority has to approve such plan under Section 31(1), which would be binding to all the stakeholders as stated therein.
(iv) Maximization of the value of the assets of the Corporate Debtor
# 66. Much emphasis was laid, during the course of the arguments, for the maximization of the value of the assets of the CD. It hardly needs to be emphasized that in CIRP, the role of the CoC is that of a protagonist, who takes the key decisions in its commercial wisdom and also takes the consequences thereof. It cannot be gainsaid that the decisions of CoC must reflect the fact that it has taken into account the maximization of the value of the assets of the CD, and that the interest of all the stakeholders has been adequately balanced. However, “What is maximization of the assets” has not been defined in the Code though stated in the Preamble. Of course, it has been referred in Regulation 37 of the Regulations, 2016, which states that RPs shall provide for the measures as may be necessary for insolvency resolution of the CD, for maximization of the value of its assets, which may include the measures as provided in Clauses (a) to (l) thereof. Since the Preamble of IBC envisages “maximization of the value of the assets of the Corporate Debtor,” and to promote entrepreneurship, the measures necessary for maximization of assets stated in Regulation 37, amongst others, will have to be taken into consideration by the CoC while considering the proposed RPs for approval.
# 67. As observed in K. Sashidhar (supra), the Financial Creditors forming CoC, act on the basis of thorough examination of the proposed RPs and the assessment made by their team of experts. The entire process has to be carried out in an absolutely 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.
(v) Whether the NCLAT should have entertained the appeals filed by the 63 Moons under Section 61 of the Code and tinkered with the Resolution Plan approved by the CoC and the NCLT? –
# 68. Keeping in view, the above discussed legal position, let us examine the facts of the case to decide whether the Appellate Authority i.e. NCLAT should have entertained the appeals at the instance of 63 Moons, and interfered with the RP approved by the CoC and NCLT, by tinkering with the isolated clauses of the approved RP which pertained to the treatment of recoveries from the Applications under Section 66 of IBC.
# 69. As stated earlier, based on the Audit Reports of GT, the auditors appointed by the Administrator to carry out the Transaction Audit and to unearth the transactions that could be avoided/set aside under the IBC, the Administrator had filed the Applications before the NCLT regarding the Preferential, Undervalued and Extortionate Transactions seeking to avoid/set aside the same under Sections 43 to 51 and 66 of IBC. The summary of these Applications referred to by the NCLAT in the impugned order is reproduced hereunder: –
I. 1st Application filed on August 30 2020, under Section 60 (5) & 66 of the Code. The Application is in respect of the investigation and observations of the transaction auditor, filed by the Administrator in respect of disbursements made by DHFL to certain entities, referred to as the Bandra Books Entities, under Section 60(5) and Section 66 of the Code on August 30, 2020, against Kapil Wadhawan, Dheeraj Wadhawan, Township Developers India Ltd, Wadhawan Holdings Private Limited, Dheeraj Township Developers Private Limited, Wadhawan Consolidated Holdings Pvt. Ltd., Wadhawan Global Hotels & Resorts Pvt. Ltd, Wadhawan Lifestyle Retail Pvt. Ltd. and certain other entities. The amount involved therein is Rs. 17,394 crores.
II. 2nd Application was filed on September 27 2020, under Section 60 (5) & 66 of the Code. The Application is about certain irregularities in loan disbursements towards the development of SRA projects undertaken by DHFL in the past. The amount involved therein is Rs. 12,705.53 crores.
III. 3rd Application was filed on October 5 2020, under Sections 45, 46, 49, 60(5) and 66 of the Code. The Application is in relation to the undervalued and fraudulent nature of certain agreements entered into by the Company at the time the Company sold its stake in Pramercia Life Insurance Limited to DHFL Investments Limited and certain ICDs given by the DHFL to ICD entities. The amount involved therein is Rs. 2, 150.84 crores.
IV. 4th, 5th and 6th Applications filed in December 2020 – The Applications are about:
a. Disbursement to specific entities in the form of loans against property and utilisation of the same towards premature redemption of certain NCDs, undertaken by DHFL in the past under Sections 43, 45 and 66 of the Code – as Application “A”.
b. Diversion of excess funds from the account of DHFL for purchase of NAPHA Building under Section 66 of the Code as Application “B”.
c. Fraudulent and undervalued advancement of ICDs by DHFL to certain entities in the past and the subsequent creation of a pledge over the non-convertible debentures issued by DHFL under Sections 45 and 66 of the Code – as Application “C”.
A copy of the letter dated December 13, 2020, issued by Respondent No. I to Stock Exchange summarising the said transaction is annexed with Appeal Paper book. The amount involved therein is Rs.1,058.32 crores.
V. 7th Application filed on February 3 2021, under Sections 45, 60 (5) and 66 of the Code – The Application is about disbursement made to certain entities as developer loans and loans against property. The amount involved therein is Rs. 4,793.36 crores.
VI. 8th Application was filed on February 20 2021, under Section 45, 60 (5) and 66 of the Code. The Application is in relation to irregularities in disbursements of Other Large Product Loan (OLPL) by the DHFL in the past. The amount involved therein is Rs. 6,182.11 crores.
# 70. As transpiring from the voluminous documents produced on record by the learned counsels for the parties, it appears that during the course of meetings of CoC, the PRAs had submitted various RPs, amongst which a RP dated 16.10.2020, was submitted by the Piramal Capital bidding for Group A assets under Option II offering 15,000 crores plus an amount of 10% for FD Holders. Then, a RP dated 09.11.2020 was submitted bidding for Group A assets under Option II offering bid amount of Rs.23,700 crores. Another RP dated 17.11.2020 was submitted bidding for Group A assets under Option II offering bid amount of Rs.27,500 crores. RP dated 14.12.2020 was submitted bidding for the entire assets under Option I offering bid amount of Rs.34,950 crores, and bidding for Group A assets under Option II offering bid amount of Rs.27,200 crores. Lastly, Piramal Capital presented the RP dated 22.12.2020 bidding for the entire assets under Option I for Rs. 37,250 crores, or for Group A assets under Option II bidding for Rs.27,200 crores. The treatment of Avoidance transactions under the Resolution Plan dated 22.12.2020 was as under: –
“Re: Treatment of avoidance transactions under the Resolution Plan.
(xxxi) As regards avoidance transactions, the Resolution Plan provided as follows, in line with the RFRP dated 16 September 2020:
“2.13. Treatment of preferential transactions, undervalued transactions, transactions and fraudulent trading. extortionate
2.13.1. The Administrator shall submit, to the CoC, details of the transactions avoided or set aside by the NCLT in terms of Section 43, 45, 47, 49, and 50 of the IBC (Avoidance Transactions), if any, observed, found or determined by him and the orders, if any, of the NCLT in respect of such transactions.
2.13.2. The Resolution Applicant intends to pursue, on a best-efforts basis, the application(s) filed by the Administrator before the NCLT in respect of these Avoidance Transactions. Any positive monetary recovery received by the Company as a result of orders passed in relation to the Avoidance Transactions shall be distributed, net of costs and expenses (including taxes), to the Financial Creditors pro rata to the extent the Financial Debt for Financial Creditors, provided that, the CoC may in its discretion adopt a different manner of distribution (which may take into account the order of priority amongst Financial Creditors as laid down in section 53(1) of section of the IBC and such decision of the CoC shall be accepted by the Resolution Applicant, subject to there being no change in the Total Resolution Amount.
2.13.3. The Resolution Applicant ascribes value of INR 1 in respect of any transactions that may be avoided/set aside by the NCLT in terms of section 66 of the IBC. Accordingly, any positive recovery as a result of reversal of transactions avoided or set aside by the NCLT in terms of section 66 of the IBC would accrue to the sole benefit of the Resolution Applicant. All the costs and expenses incurred or to be incurred towards litigation pertaining to section 66 of the IBC shall be to the account of the Resolution Applicant. “
# 71. The Chart juxtaposing the Provisions of RFRP dated 16.9.2020 and the Provisions of the RP dated 22.12.2020 in respect of treatment of avoidance transactions produced at Annexure-A/7 in C.A. No.1632-1634 of 2022 may be reproduced as under:-
# 72. As stated hereinabove, the CoC approved the RP submitted by the Piramal Capital under Option I for the entire assets of the CD offering aggregate amount of Rs.37,250 crores, by majority with 93.65% votes.
# 73. As can be seen from the record, the 18th Meeting of CoC was convened on 24.12.2020-25.12.2020, and all legally Compliant RPs received by the Administrator were presented for consideration and were put to vote during the voting window 30.12.2020 – 15.01.2021. The NCD Holder – 63 Moons also voted in favour of the RP within its class of Debenture Holders, and the RP was approved by a majority of 98.94% votes of the Debenture Holders. The Authorized Representative of the class of Debenture Holders (M/s. Catalyst Trusteeship Limited) also voted in favour of the RP before the CoC. As a result thereof, the RP was approved by the majority of CoC with 93.65% votes exercising their commercial wisdom. It is also very pertinent to note that the said 18th meeting of CoC was attended not only by the Financial Creditors and the Administrator/Resolution Professional, but also by the representatives of the Financial Creditors, the Advisory Committee of the Administrator, the Legal Counsels of CoC, 29A Consultants, Valuers etc.
# 74. When the Administrator/Resolution Professional filed an application being I.A. No.449 of 2021 (Plan Approval Application) before the NCLT seeking approval under Section 31 of IBC on 24.02.2021, the 63 Moons filed an I.A. being No. 623 of 2021 on 05.03.2021, challenging the provisions of RP which provided that the Recoveries under Section 66 would go to the benefit of SRA. The NCLT vide order dated 07.06.2021 granted its approval to the Plan Approval Application filed by the Administrator, and by separate order dismissed the I.A. No. 623 of 2021 filed by the 63 Moons, holding that the CoC comprising of 77 Financial Creditors had decided in its commercial wisdom to give away the Section 66 Recoveries to the SRA after a hard bargain in exchange of a lumpsum resolution amount of INR 37,250 crores.
# 75. The NCLAT however entertained the Appeals at the instance of the Appellants – 63 Moons and Roopjyot Engineering Private on the ground that the SRA could not have appropriated the Recoveries from the Avoidance Applications under Section 66 IBC, and that the NCLT while approving the RP had not decided whether the recoveries in respect of the Avoidance transactions vested with the CD, should be applied for the benefit of the Creditors of CD, SRA or other Stakeholders. In our opinion, such an approach on the part of NCLAT was not only ex facie fallacious and erroneous but also in utter disregard of the legal position settled by this Court in catena of decisions.
# 76. It is interesting to note that the Appellants before the NCLAT, i.e. – 63 Moons Technologies Limited, Roopjyot Engineering Private Limited, Magico Exports and Consultants Limited, Richmond Traders Private Limited and Sunshine Fibre Private Limited, were the NCD Holders, belonging to different 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: –
# 77. As can be seen from the above table, the said Appellants’ respective classes had voted overwhelmingly in favour of the RP of SRA. Neither the 63 Moons nor Roopjyot & Ors. had voted against the RP nor any justification was offered by them for not voting against the RP. Under the circumstances the said Appellants – NCD Holders before the NCLAT were bound by the decision of their classes in approving the RP, and were estopped from raising any objection against the RP approved by the CoC. Indubitably, as per sub-section 3A of Section 25A, the Authorized Representative under sub-section 6A of Section 21 has a right to cast his vote on behalf of all the Financial Creditors he represents, in accordance with the decision taken by a vote of more than 50% of voting share of the Financial Creditors he represents, who have cast their vote. The vote cast by the Authorized Representative of the class of Financial Creditors, is a vote on behalf of each Financial Creditor to the extent of his voting share. Once the said process is carried out and the Authorized Representative is handed down a particular decision by the requisite majority of voting share, he has to vote accordingly, and his vote would bind all the Financial Creditors he represented. The individual Financial Creditor would thereafter be estopped from raising objection against the decision taken by the majority of the Financial Creditors. As observed in Jaypee Kensington Boulevard Apartments Welfare Association & Others vs. NBCC (India) Limited & Others,10 in the larger benefit and for common good, the democratic principles of the determinative role of the opinion of majority have been duly incorporated in the scheme of the Code, particularly in the provisions relating to voting on RP and binding nature of the vote of Authorized Representative, on the entire class of the Financial Creditors he represents. If the finality and binding force is not provided to the votes cast by the Authorized Representatives of a class of Financial Creditors, a plan of resolution involving large number of parties may never fructify. In the instant case, the vote cast by the Authorized Representative – M/s. Catalyst Trusteeship on behalf of the class of Financial Creditors he represented, was binding on the 63 Moons and other Appellants before the NCLAT, and therefore they were estopped from raising any objection before the NCLT or NCLAT against the RP approved by the requisite majority of CoC.
# 78. The NCLAT has also erroneously placed reliance on the decision of the Single Bench of the Delhi High Court in Venus Recruiter (supra). Apart from the fact that the said judgment of Single Bench was set aside by the Division of the said High Court in LPA No. 37 of 2021 (Tata Steel BSL Limited vs. Venus Recruiter Private Limited and Others) decided on 13.01.2023, the whole reliance on the said decision was thoroughly misconceived and misplaced. In the said case, the question for consideration was whether an Avoidance Application under Section 43 of IBC could survive after the approval of RP. The question of considering the treatment of the proceeds of the Avoidance Applications was not involved as involved in the instant case.
# 79. The reliance on the Regulation 37A of the Liquidation Regulations by the NCLAT was also thoroughly misplaced for holding that the said Regulation empowered a Liquidator to assign or transfer a non-realisable asset during the liquidation of a CD, however such provision is absent in CIRP Regulations, 2016. In our opinion, when Section 26 specifically states that the filing of an Avoidance Application under Section 25(2)(j) by the Resolution Professional shall not affect the proceedings of CIRP, and when the Regulation 37(a) of the CIRP Regulations 2016 also permits a provision to be made in the RP for transfer of all or part of the assets of Corporate Debtor to one or more persons, the reference of Regulation 37A of Liquidation Process Regulations in the impugned order was absolutely unwarranted and ex-facie fallacious.
# 80. Similarly, the NCLAT has also misdirected itself by relying on the foreign texts and jurisprudence, which could not be made applicable to the insolvency regime of India. Apart from the fact that such foreign texts and precedents relied upon by the NCLAT merely indicated that the proceeds from the Avoidance Applications may be for the benefit of the creditors in a situation when the RP does not deal with its treatment, it is well settled by this Court that the Court should be wary of transplanting international doctrines, which might have been evolved as responses to the specific needs of the jurisdictional regimes.
# 81. The submission, with regard to the notional value of INR 1 ascribed to Section 66 Applications under the RP, made by the learned counsel appearing for the Respondents in the Appeals filed by the Piramal Capital deserves to be considered only for its rejection. As transpiring from the record of the case, notional valuation of Section 66 Applications was made in response to the provision of RFRP issued by the Administrator. In the valuation reports submitted by the Valuers appointed by the Administrator, NIL value was ascribed to the Avoidance Applications filed by the Administrator, and accordingly the other compliant RAs had also ascribed NIL value to the said Applications. However, according to the SRA, since clause 3.13.2(x) of RFRP required the RAs to ascribe a value to Section 66 applications and then propose a manner of treatment of recoveries from such applications, the SRA had ascribed INR 1 as a notional valuation of the applications under Section 66.
# 82. In our opinion, having regard to the Fraudulent trading and Wrongful trading allegedly made by the DHFL, any guess work done by the compliant RAs would have been a wild guess due to the uncertainties in recovery of the amount involved in such Fraudulent and Wrongful trading. The value of INR 1 being notional and the CoC having considered the fact that the potential recoveries from the Section 66 Applications was very uncertain had taken conscious decision in accepting the said clause in the RP submitted by the SRA. The relevant Clause 2.13.2 of RP provided that any positive monetary recovery received by the company (SRA) as a result of the orders passed in relation to avoidance transactions shall be distributed, net of costs and expenses (including taxes), to the Financial Creditors pro rata to the extent the financial debt for the Financial Creditors provided that the CoC may in its discretion adopt a different manner of distribution. Therefore, while ascribing a notional value of INR 1 to the Applications under Section 66, the SRA had agreed for the distribution of the recoveries that may be made under the Avoidance Applications filed under Sections 43, 45, 47, 49 and 50 for the benefit of the CoC.
# 83. During the course of hearing of these Appeals also, the learned Senior Advocate Mr. Abhishek Manu Singhvi for the SRA and the learned Senior Advocate Mr. Tushar Mehta appearing for the CoC had stated in no uncertain terms that the benefit of avoiding/setting aside of any transaction under Sections 43, 45, 47, 49 and 50 shall enure to the benefit of the Creditors of DHFL, whereas any recovery under Section 66 would be for the benefit of Piramal Capital. As discussed earlier, the SRA had raised its offer to the extent of Rs.37,250 crores, which had factored the potential recoveries from Section 66 Applications. Thus, the RP approved by the CoC was an outcome of the commercial bargain struck between the SRA and the CoC after several rounds of negotiations and deliberations. The said plan approved by the CoC was also further approved by the NCLT under Section 31(1) of IBC. In absence of any perversity, that was palpable on the face of the approved RP, and the CoC having taken a firm commercial decision with regard to the impugned clause of RP by voting overwhelmingly in favour of the RP, the NCLAT ought not to have interfered with the said clause of RP approved by the CoC and the NCLT.
# 84. As per the legislative intent and as per the broad contours of the provisions of IBC, the commercial wisdom of CoC has been given the prominent status, with the least judicial intervention, for ensuring the completion of Resolution Process within the prescribed timelines. As stated earlier, in Essar Steel (supra), this Court after discussing earlier judgments had observed that what is left to the majority decision of the CoC is the “feasibility and viability” of a RP, which obviously takes into account all aspects of the plan, including the manner of distribution of funds among the various classes of Creditors. The legislature has consciously not provided for a ground to challenge the justness of the commercial decision expressed by the Financial Creditors – be it to approve or reject the RP. Similar view is taken by the Three Judge Bench in Ghanashyam Mishra (supra) to the effect that the legislature has given paramount importance to the commercial wisdom of the CoC and the scope of judicial review by the Adjudicating Authority is limited to the extent provided under Section 31 and by the Appellate Authority limited to the extent provided under sub-section (3) of Section 61 of IBC.
# 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 v/s Sangeetha Theatre,11 that if an authority has a power under the law, merely because while exercising that power, the source of power is not specifically referred to or a reference is made to a wrong provision of law, that by itself would not vitiate the exercise of power, so long as the power exists and can be traced to a source available in law. We have already elaborately discussed about the scope and powers of NCLT to pass orders in Avoidance Applications as circumscribed in Sections 44, 48, 49 and 51 and the powers of the NCLT to pass orders in the applications filed under Section 66. Hence, it is directed, for the sake of clarity, that the NCLT shall decide each of the Applications filed by the Administrator and pending before it after considering the relevant provisions applicable to such Applications, and shall pass the orders accordingly in terms of the provisions contained in Sections 44, 48, 49 and 51 falling under Chapter III and in terms of provisions contained in Section 66 falling under Chapter VI, as the case may be.
# 87. In view of the aforesaid discussion and findings, all the Appeals in this category deserve to be allowed by setting aside the impugned order dated 27.01.2022 passed by the NCLAT and restoring the order dated 07.06.2021 passed by the NCLT in the Plan Approval Order.
(VII) ANALYSIS IN THE SECOND CATEGORY OF APPEALS
# 88. The Second category of Appeals cover the Appeals filed by several Fixed Deposit Holders and one Non-Convertible Debenture Holder of the CD, challenging the RP dated 22.12.2020. The details of the said Appellants and the impugned judgments may be stated as under: –
(1) Raghu KS and Ors. vs. Piramal Capital & Housing Finance Limited & Ors. (Diary No.6037 of 2022): This Civil Appeal has been filed by 41 individual FD Holders challenging the judgment dated 07.02.2022 passed by the NCLAT in Company Appeal No. 538 of 2021. PCHFL is Respondent No.1 in this appeal.
(2) Vinay Kumar Mittal & Ors. vs. Dewan Housing Finance Corporation Ltd. & Ors. (Civil Appeal No.2413-2415 of 2022) (“V.K. Mittal”): These appeals have been filed by 14 individual FD Holders challenging the common judgment dated 27.01.2022 passed by the NCLAT in Company Appeal Nos.506, 507 and 516 of 2021. PCHFL is Respondent No.6 in these Appeals.
(3) Uttar Pradesh State Power Sector Employees Trust vs. Dewan Housing Finance Corporation Ltd. & Anr. (Civil Appeal No.2396 of 2022): The Appellant in this Appeal was a FD Holder of the CD and has challenged the common judgment dated 27.01.2022 passed by the NCLAT in Company Appeal Nos.759, 760 of 2021. PCHFL is Respondent No.1 in this Appeal.
(4) Uttar Pradesh State Power Corporation Contributory Provident Fund Trust vs. Dewan Housing Finance Corporation Limited and Anr. (Civil Appeal No.2402 of 2022): The Appellant herein was a FD Holder of the CD and has challenged the common judgment dated 27.01.2022 passed by the NCLAT in Company Appeal Nos.759, 760 of 2021. PCHFL is Respondent No.1 in this Appeal.
(5) Senbagha Vivek A. & Anr. vs. Dewan Housing Finance Corporation Ltd. & Anr. (Civil Appeal No.8123-8125 of 2022): The Appellants herein were two individual FD Holders of the CD and have challenged the common judgment dated 27.01.2022 passed by the NCLAT in Company Appeal Nos. 506, 507 and 516 of 2021. PCHFL is Respondent No.6 in this Appeal.
(6) THDC India Limited Employee Fund vs. The Administrator, Dewan Housing Finance Corporation Ltd. (Civil Appeal No.6286 of 2022): Insofar as this Appeal is concerned, the Appellant herein (“THDC”) represents NCD Holders of the CD. THDC has challenged the judgment dated 04.02.2022 passed by the NCLAT in Company Appeal No.90 of 2022. In the CoC, the appellant’s class voted in favour of the RP. THDC did not raise any objection against the RP before the NCLT and filed the Appeal directly before the NCLAT against the order dated 07.06.2021 approving the Resolution Plan (“Plan Approval Order”).
# 89. Leave granted in the Diary No.6037 of 2022.
# 90. The facts have already been narrated while dealing with the First Category of Appeals, and therefore are not repeated here. Suffice it to state that the CD was admitted into CIRP on 03.12.2019. The Piramal Capital had submitted the RP, which came to be approved by a majority of 93.65% of the CoC of the CD. The aggregate claim of FD Holders as a class was INR 5,375 Crore and their voting share was about 6.18%. The CoC in its 18th Meeting had passed two Resolutions which were placed for voting, one for approval of RP and second for approval of the Distribution mechanism for the disbursal of the total resolution amount amongst the creditors. The Distribution mechanism was approved by the majority of 86.95% of CoC. Under the Distribution mechanism, it was provided as under: –
(i) FD Holders having an admitted claim of upto INR 2 lakhs were to be repaid their entire deposit amount; and
(ii) FD Holders having an admitted claim of more than INR 2 lakhs would receive an amount equivalent to liquidation value of security created for the benefit of the Depositors for the additional aggregate claim above INR 2 lakhs.
# 91. Some of the FD Holders including the Appellants in this second category of Appeals, challenged the said RP before the NCLT on the ground that the RP had failed to provide for full repayment of their deposits.
# 92. The NCLT on 07.06.2021 approved the said RP by passing the Plan Approval Order. The NCLT also passed a separate order disposing of the Applications filed by the FD Holders recommending that CoC may reconsider the distribution of resolution amount keeping in view the interest of the FD Holders and other small investors. In the light of the said order, the CoC in its 20th Meeting put to vote a Resolution for maintaining parity between the FD Holders and other Secured Creditors. The said Resolution was rejected by approximately 89% of CoC. The aggrieved Appellants – FD Holders filed the Appeals before the NCLAT challenging the FD Holders order dated 07.06.2021, on the ground that the treatment to the FD Holders violated their rights under the RBI Act and NHB Act to receive full payment of their deposits. The NCLAT vide the impugned orders dismissed all the Appeals against which the present set of Appeals have been filed.
(i) WHETHER THE RESOLUTION PLAN VIOLATED THE PROVISIONS OF RBI ACT OR NHB ACT?
# 93. The bone of contention raised by the learned Counsels for the Appellants – FD Holders in this set of Appeals was that the Distribution mechanism contained in the RP was in violation of Section 36(A) of NHB Act and Section 45(QA) of RBI Act, in as much as the FD Holders were entitled to the full payment of their deposits, in view of the said provisions. In this regard, it may be noted that the NHB Act has been enacted to establish a Bank to be known as “National Housing Bank” to operate as a principal agency to promote housing finance institutions both at local and regional levels and to provide financial and other support to such institutions and for the matters connected therewith or incidental thereto. As per Section 2(d) of the said NHB Act, “Housing Finance Institution” includes every institution, whether incorporated or not, which primarily transacts or has any one of the principal objects, the transacting of the business of providing finance for housing, whether directly or indirectly. The Chapter V of the said NHB Act incorporates the provisions relating to the “Housing Finance Institutions.” Section 28 thereof states that in this Chapter the term ‘deposit’ shall have the meaning assigned to it in Section 45-I of the RBI Act. Further Section 36(A) of the NHB Act empowers the Officer authorized by the Central Government, to direct the housing finance institution, which fails to repay any deposit accepted by it in accordance with the terms and conditions of deposit, to make repayment of such deposit or part thereof, if he is satisfied that it is necessary to do so to safeguard the interest of the housing finance institution, the depositors or in the public interest.
# 94. The RBI Act has been enacted to regulate the issue of Bank notes and the keeping of reserves with a view to securing monetary stability in India and generally to operate the currency and credit system of the country to regulate to its advantage. The Chapter III(B) of the RBI Act incorporates the “Provisions relating to the Non-Banking Institutions receiving deposits and financial institutions.” Section 45-I(bb) defines “Deposit” and Section 45-I(f) defines “Non-Banking Financial Company.” Section 45(QA) empowers the Company Law Board (CLB) to direct by order, the Non-Banking Financial Company which has failed to repay the deposit accepted by it in accordance with the terms and conditions of such deposit, to make repayment of such deposit or part thereof, if the CLB is satisfied that it is necessary to do so to safeguard the interest of the company, the depositors or in the public interest.
# 95. It is not disputed that the CD – DHFL being a Housing Finance Institution and Non-Banking Financial Company, was governed by the NHB Act and RBI Act, however pertinently, neither Section 36(A) of NHB Act nor Section 45 (QA) of RBI Act mandates full payment of the deposits of the FD Holders, as sought to be contended by the learned counsels for the Appellants. Both the Sections 36(A) of NHB Act and 45(QA) of the RBI Act containing almost similar provisions, require the Housing Finance Institution or the Non-Banking Financial Company, as the case may be, to repay the deposits accepted by it in accordance with the terms and conditions of such deposit, however from the bare reading of the said provisions it clearly transpires that in case of 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 Authorized Representative – Ms. Charu Desai and the NCD Holders were represented in the CoC by their Authorized Representative – M/s. Catalyst Trusteeship Limited, as permitted under Section 21 (6A) (b) of IBC readwith Regulation 16 (A) of the CIRP Regulations, 2016. Such Authorized Representatives are entitled to attend the meetings and vote in the CoC on behalf of the Group of Creditors that they represent, in accordance with the prior instructions they would have received from their respective groups. It is true that in the instant case, the FD Holders, as a class, had voted against the RP and the Distribution mechanism, and were thus classified as the “Dissenting Financial Creditors.” However, the said Distribution mechanism was approved by a majority of 86.95% of CoC. The Appellants – FD Holders therefore had filed applications before the NCLT. The NCLT vide the order dated 07.06.2021 approved the RP by passing Plan Approval Order, and by separate order disposed of the Applications filed by the FD Holders, recommending the CoC to reconsider the Distribution mechanism in the interest of various creditors viz. Public Depositors, FD Holders, NCD Holders, Small Investors, EPF Trust etc.
# 97. As stated earlier, the CoC rejected the said recommendation by approximately 89% of the CoC in its 20th Meeting, which decision came to be challenged before the NCLAT. The NCLAT also vide the impugned order dismissed the same by holding inter alia that the Administrator was under no obligation to ensure full payment of deposits to the FD Holders under the RBI Act or the NHB Act, and that the decision about the payments to the creditors fell within the commercial wisdom of CoC which was not amenable to judicial review, subject to fair and equitable play. We do not find any legal infirmity in the said impugned order passed by the NCLAT. We have already discussed in detail about the scope of judicial review by the NCLT under Section 31 and by NCLAT under Section 61 of the IBC, and the legal position settled by this Court in catena of decisions. Hence, the same is not reiterated herein.
# 98. We also do not find any substance in the submissions made by the learned counsels for the Appellants that the RP violated Rule 5(d)(i) of the Financial Service Providers and Application to Adjudicating Authority Rules, 2019 (FSP Rules). In this regard, it may be noted that the said Rule 5(d)(i) states that “the Resolution Plan shall include a statement explaining how the Resolution Applicant satisfies or intends to satisfy the requirements of engaging in the business of the Financial Service Provider, as per laws for the time being in force.” The learned Counsel appearing for the SRA – Piramal Capital had drawn the attention of the Court to the comprehensive statement included in “Part B – Business Plan” of the RP to the effect that the SRA had the expertise and experience in the financial sector and the ability to carry out the business of the CD as a Financial Service Provider. Such being the compliance of the said Rule 5(d)(i) of FSP Rules, it could not be said that there was any violation of any law for the time being in force as contemplated in Section 30(2)(e) of IBC and as sought to be contended by the learned counsels for the Appellants – FD Holders.
# 99. In that view of the matter, all the Appeals filed by the Appellants in this Second Category of Appeals being devoid of merits deserve to be dismissed.
(VIII) ANALYSIS IN THE THIRD CATEGORY OF APPEALS
# 100. In this Third category, following Appeals are covered:
(1) The Civil Appeal Nos. 1707-1712 of 2022 have been filed by the ex-promoter Kapil Wadhawan challenging the impugned judgment and order dated 14.02.2022 in Company Appeal No. 539 of 2021 passed by the NCLAT, dismissing the Appellants challenge to the RP of Piramal Capital, which was approved by the NCLT vide order dated 07.06.2021.
(2) The Appellant Kapil Wadhawan has also challenged the common impugned judgment and order dated 27.01.2022 in Company Appeal No. 785 of 2020 and 674 of 2021 passed by the NCLAT holding that the Appellant, though was erstwhile Director, Promoter, Shareholder and Guarantor of DHFL, had no right to a copy of RP approved by the CoC.
(3) The Appellant Kapil Wadhawan has also challenged the common impugned judgment and order dated 27.01.2022 in Company Appeal Nos. 370, 376-377 and 393 of 2021 passed by the NCLAT, whereby the NCLAT has set aside the order dated 19.05.2021 passed by the NCLT directing the CoC to consider and vote on 2nd Settlement Proposal of KW of the Appellant.
(4) The Civil Appeal No. 2567 of 2022 has been filed by another ex-promoter Dheeraj Wadhawan challenging the common impugned judgment and order dated 27.01.2022 in Company Appeal No. 785 of 2020 and 647 of 2021 passed by the NCLAT, holding that the erstwhile Director, Promoter, Shareholder and Guarantor of DHFL was not entitled to participate in the meeting of CoC.
(5) The Civil Appeal Nos. 2987-2988 of 2022 have been filed by the SRA – Piramal Capital challenging the impugned judgment and order dated 27.01.2022 in Company Appeal No. 785 of 2020 and 647 of 2021 passed by the NCLAT, in which it has been held that the erstwhile Directors who had vacated the offices were not entitled to share any document, however the copy of RP after the approval from Adjudicating Authority cannot be treated as a confidential document, and therefore a certified copy may be issued to the erstwhile Directors as per the Rules.
# 101. The core issue raised by learned Senior Counsel Mr. Kapil Sibal appearing for the erstwhile Directors KW and DW was that the Resolution Professional, that is the Administrator in this case, and the CoC had not undertaken any efforts for value maximization of DHFL’s assets and businesses, which is the underlying object of the IBC. According to him the Appellants – Ex-Promoters/ Directors were kept out of the entire CIRP proceedings and were not given any opportunity to participate in the said proceedings under the guise that the entire Board of Directors of DHFL was superseded under the RBI Act, and therefore the Ex-Directors did not have any right, which suspended Directors would have under the IBC. Mr. Sibal had strenuously taken the Court to the voluminous record and raised all possible issues, with regard to the Clause in question, with regard to the treatment to Recoveries under the Applications filed under Section 66 of the Code and the permissibility of ascribing INR 1 towards such transactions etc. In short, Mr. Sibal had vehemently challenged the commercial wisdom exercised by the CoC while approving the plan.
# 102. We have already discussed and dealt with, in the earlier part of this judgment, all the said issues including the scope of judicial review by the NCLT and NCLAT over the commercial wisdom exercised by the CoC, and also examined the legality of the clause in the RP with regard to the treatment of Recoveries from the Avoidance Applications. We have also examined in detail the issue with regard to the maximization of the value of assets of the CD. Hence, the same are not dealt with in this set of Appeals. Suffice it to say that when majority of the creditors in their wisdom, and after negotiations with the PRA as to how and in what manner the Corporate Resolution Process should be undertaken, had explored the feasibility and viability of the RP, while approving the same, and when the said Plan was also approved by the NCLT, the NCLAT ought not to have tinkered with a Clause of the said Plan with regard to the treatment of Recoveries from the Applications under Section 66 of the IBC.
103. So far as the right of the Ex-Directors/ Promoters to participate in the Meetings of CoC and right to get the copy of RP approved by the CoC is concerned, it may be noted that the RBI in exercise of its powers conferred under Section 45-IE (1) of RBI Act had superseded the Board of Directors of DHFL, on being satisfied that the DHFL had conducted its affairs detrimental to the interest of its depositors and creditors. The RBI, therefore, had appointed one Shri R. Subramaniakumar – Ex-MD and CEO of the Indian Overseas Bank vide communication dated 20.11.2019. The RBI thereafter, on 29.11.2019, had filed a Company Petition under Section 227 read with Section 239 (2) (zk) of IBC before the NCLT for initiating CIRP proceedings.
# 104. It may be noted that as per sub-section (4) of Section 45 – (IE) of the RBI Act, on passing of the order of supersession of the Board of Directors of a Non-Banking Financial Company (DHFL), the Chairman, Managing Director and other Directors have to vacate their offices from the date of supersession of the Board of Directors, and then all the powers, functions and duties, which are required to be exercised by them under the provisions of RBI Act or any other law for the time being in force, have to be exercised and discharged by the Administrator appointed by the RBI, till the Board of Directors of such company is reconstituted.
# 105. Thus, by virtue of the said provision contained in Section 45-IE and by virtue of the order passed by the RBI thereunder, the Board of Directors of DHFL had stood superseded and their offices also stood vacated on the appointment of the Administrator. Thereafter, on the initiation of CIRP and on the appointment of an Interim Resolution Professional by the Adjudicating Authority, the management of the affairs of the CD had stood vested in the Interim Resolution Professional (the Administrator in this case) and the powers of the Board of Directors of the CD had stood suspended in view of Section 17(1)(b) of the IBC.
# 106. It may be noted that this is one of the rare cases where the Board of Directors had first stood superseded under the RBI Act, and then the Directors of the CD – DHFL had stood suspended under the IBC. As such, in our opinion, the legal effects in both the situations would be different, as the “Supersession” of the Board of Directors is very much different from the “Suspension” of the Directors. In common parlance also the use of the word “Supersession” has a different connotation than that of the word “Suspension.” As per the Black’s Law Dictionary (11th Edition) the word, “Supersede” means to annul, make void or repeal; and the word “Suspend” means to interrupt, postpone, defer, or to temporarily keep a person from performing a function or occupying an office. Thus, the effect of Supersession is permanent in nature, whereas the effect of Suspension is temporary in nature.
# 107. It is true that as per Section 24 of IBC, the Resolution Professional is required to give a notice of each of the meetings of the CoC to the members of the suspended Board of Directors, alongwith the members of CoC including the Authorized Representatives and the Operational Creditors or their representatives. However, as per sub-section 4 of Section 24, though the Directors of suspended Board of Directors have a right to attend the meetings of CoC, they do not have any right to vote in such meetings. Meaning thereby, such suspended Directors would have a right only to receive the notice of meetings of CoC and to attend the same, but would not have the right to vote in the meetings.
# 108. This Court in Vijay Kumar Jain vs. Standard Chartered Bank and Others,12 while recognizing the rights of the members of the erstwhile Board of Directors to receive a copy of RPs, that may be discussed in the meetings of CoC, has observed as under: –
“21. Under Regulation 24(2)(e), the resolution professional has to take a roll call of every participant attending through videoconferencing or other audio and visual means, and must state for the record that such person has received the agenda and all relevant material for the meeting which would include the resolution plan to be discussed at such meeting. Regulation 35 makes it clear that the resolution professional shall provide fair value and liquidation value to every member of the committee only after receipt of resolution plans in accordance with the Code [see Regulation 35(2)]. Also, under Regulation 38(1-A), a resolution plan shall include a statement as to how it has dealt with the interest of all stakeholders, and under sub-regulation (3)(a), a resolution plan shall demonstrate that it addresses the cause of default. This Regulation also, therefore, recognises the vital interest of the erstwhile Board of Directors in a resolution plan together with the cause of default. It is here that the erstwhile Directors can represent to the Committee of Creditors that the cause of default is not due to the erstwhile management, but due to other factors which may be beyond their control, which have led to non-payment of the debt. Therefore, a combined reading of the Code as well as the Regulations leads to the conclusion that members of the erstwhile Board of Directors, being vitally interested in resolution plans that may be discussed at meetings of the Committee of Creditors, must be given a copy of such plans as part of “documents” that have to be furnished along with the notice of such meetings.”
# 109. In the instant case, however, it deserves to be noted that the RBI having superseded the Board of Directors and appointed the Administrator, the Appellants – Ex-Directors had deemed to have vacated their offices. They having been arrested in connection with the criminal proceedings filed against them, were in the judicial custody all throughout the CIRP proceedings. The said Administrator having initiated the CIRP proceedings, was thereafter continued by the CoC as the Resolution Professional to conduct the CIRP under the provisions contained in the IBC. Under the circumstances, the Appellants – KW and DW, who were the Directors of DHFL at the relevant time, having deemed to have vacated their offices on the supersession of the Board of Directors under the RBI Act, could not have claimed any right to attend the meetings of CoC or to participate in the CIRP proceedings initiated under the IBC, which right otherwise would have been available to the Directors suspended under the IBC. In absence of any specific provision in the IBC or the Regulations 2016, they, as the members of the superseded Board of Directors, could not have made any claim to have a copy of proposed RPs submitted by the PRAs during the CIRP proceedings. Nonetheless, pertinently the RP after having been approved by the NCLT under Section 31 of IBC, would become a “Public Document” within the meaning of Section 74 of the Indian Evidence Act, and therefore, they would be entitled to get, at the most, a certified copy of the approved RP.
# 110. In that view of the matter, we do not find any merits in the Appeals filed by the Appellants in this Third Category of Appeals.
(IX) CONCLUSION
# 111. The upshot of the above discussion and findings is as follows: –
(1) The impugned judgment and order dated 27.01.2022 passed by the NCLAT in Company Appeal Nos. 454-455 and 750 of 2021 is set aside, and the judgment and order dated 07.06.2021 passed by the Adjudicating Authority/ NCLT granting its approval to the Plan Approval Application, and thereby approving the Resolution Plan, is upheld. However, it is clarified and directed that the NCLT shall decide the Avoidance Applications filed by the Administrator under Section 43, 45, and 50, and shall separately decide the Applications under Section 66, and it shall pass the orders in accordance with the powers conferred upon it under Section 44, 48, 49, 50, and under Section 66, as the case may be. The recoveries/benefits that may follow from such Applications shall be appropriated in favour of the CoC in case of Avoidance Applications under Section 43, 45 and 50, and in favour of SRA-Piramal Capital in case of Applications under Section 66 of IBC.
(2) The Civil Appeal Nos. 1632-1634 of 2022 filed by the Piramal Capital and Housing Finance Limited and the Civil Appeal Nos. 2989-2991 of 2022 filed by the Union Bank of India stand allowed.
(3) The Civil Appeal Nos. 3694-3695 of 2022 filed by 63 Moons Technologies Limited stands disposed of.
(4) The Appeal arising out of D. No. 6037 of 2022 filed by Raghu K.S. & Others, Civil Appeal Nos. 2413-2415 of 2022 filed by Vinay Kumar Mittal & Others, Civil Appeal No. 2396 of 2022 filed by Uttar Pradesh State Power Sector Employees Trust and Civil Appeal No. 2402 of 2022 filed by Uttar Pradesh State Power Corporation Contributory Provident Fund Trust, Civil Appeal Nos. 8123-8125 of 2022 filed by Senbagha Vivek A & Another and Civil Appeal No. 6286 of 2022 filed by THDC India Limited Employee Provident Fund are dismissed.
(5) The Civil Appeal Nos. 1707-1712 of 2022 filed by Kapil Wadhawan, Civil Appeal No. 2567 of 2022 filed by Dheeraj Wadhawan and Civil Appeal Nos. 2987-2988 of 2022 filed by Piramal Capital and Housing Finance Limited are dismissed.
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