IBC Triumphs: Supreme Court Upholds Commercial Wisdom in DHFL Resolution, Clarifies Treatment of Avoidance Recoveries

The Hon’ble Supreme Court, vide its judgment dated April 1, 2025, in the matter of Piramal Capital and Housing Finance Limited (Formerly known as Dewan Housing Finance Corporation Limited) v. 63 Moons Technologies Limited & Others, dealt with multiple appeals (appeals regarding avoidance applications, appeals by FD Holders / NCD Holders and Appeals by ex-promoters) which concerned the insolvency resolution of DHFL. In this landmark judgment, the Hon’ble Court examined various critical issues such as whether resolution plans can allow successful resolution applicants to retain recoveries from avoidance applications (especially under Section 66 of the IBC), the rights of ex-promoters during the CIRP, and the interaction of IBC with statutes like the RBI Act and NHB Act.

The appeals stemmed from an NCLAT order that partially modified the approved resolution plan of Piramal Capital, directing the CoC to reconsider the clause allowing the Successful Resolution Applicant to retain recoveries from Section 66 applications.

The Key Findings of the Hon’ble Supreme Court were as follows:

• Commercial Wisdom of CoC is Paramount: The Hon’ble Supreme Court unequivocally reaffirmed that the commercial wisdom of the CoC holds paramount importance and is non-justiciable. The discretion of the Ld. NCLT is circumscribed by Section 31 of the IBC, limited to scrutinizing the Resolution Plan for compliance with Section 30(2) requirements. Similarly, Ld. NCLAT has a limited scope of judicial review under Section 61(3) of the IBC, confined to specific grounds such as contravention of law or material irregularity. The CoC’s decision, formed after thorough examination and expert assessment of the resolution plan’s feasibility and viability, constitutes a collective business decision that should not be interfered with by judicial bodies. The Court relied upon the landmark judgements in K. Sashidhar v. Indian Overseas Bank, Committee of Creditors of Essar Steel India Limited v. Satish Kumar Gupta, and K. Rajagopalan v. Dr. Periasamy Palani Gounder
• Distinction Between Avoidance and Fraudulent/Wrongful Trading Transactions:
  The Court drew a critical distinction between:

• Avoidance transactions under Sections 43 to 51 (such as preferential, undervalued, and extortionate transactions), which are typically meant to benefit the creditors and restore value to the corporate debtor; and
• Fraudulent or wrongful trading under Section 66, where transactions involve fraud or misconduct by directors, and are meant to protect the corporate debtor from further losses.

The Court held that resolution applicants may be permitted, with CoC approval, to deal with recoveries under Section 66 as part of the resolution plan—especially where such assignments are embedded in the commercial structure of the plan.

• Rights of Fixed Deposit Holders / NCD Holders: The Court found that neither Section 36(A) of the NHB Act nor Section 45(QA) of the RBI Act mandates full repayment of deposits; these provisions allow for the repayment of the deposit “or part thereof”. Furthermore, individual FD and NCD holders who were part of a class represented by an Authorized Representative were bound by the majority decision of their class in the CoC, even if they had personally dissented. Once the Authorized Representative casts a vote on behalf of the class based on the majority decision, individual members of that class are estopped from raising objections against the approved resolution plan.
• Status and Rights of Erstwhile Promoters: The Court distinguished between the supersession of a Board of Directors and their suspension under the IBC. It held that superseded directors are deemed to have vacated their offices permanently and, unlike suspended directors, do not have a right to attend CoC meetings or participate in the CIRP proceedings. However, the Court clarified that an approved Resolution Plan becomes a “Public Document”, and therefore, erstwhile directors are entitled to obtain a certified copy of the approved RP.
• IBC Overrides Other Statutes: The Court held that Section 238 of the IBC gives it primacy over conflicting provisions in other statutes, including the RBI Act and NHB Act.

In light of this judgment, it is advisable for the resolution applicants to ensure that if they intend to claim rights over recoveries, they must show that it was factored into their bid amount to avoid post-approval litigation. Furthermore, companies undergoing insolvency can be assured that the commercial wisdom of the CoC will play a crucial and protected role in determining the outcomes of insolvency cases, fostering timely resolution and value maximization.