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

Held: Applications filed in respect of “Fraudulent and Wrongful trading” carried on by CD, could not be termed as “Avoidance Applications” used for Applications filed u/ss.43, 45 and 50 to avoid or set aside the Preferential, Undervalued or Extortionate transactions – If the Resolution Professional has filed common applications u/s.43, 45, 50 and also u/s.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 – If finality and binding force is not provided to votes cast by Authorised representative-ARs of a class of Financial Creditors, RP involving large number of parties may never fructify – Vote cast by AR on behalf of the class of Financial Creditors he represented was binding on respondent and other appellants and thus, they were estopped from raising any objection before NCLT/NCLAT against RP approved by majority of CoC – When s.26 specifically states that filing of an Avoidance Application u/s.25(2)(j) shall not affect CIRP proceedings, and Reg.37(a) of Regulations 2016 also permits provision in RP for transfer of assets of Corporate Debtor-CD to one or more persons, reference of Reg.37A of Liquidation Process Regulations in the impugned order unwarranted and ex-facie fallacious – NCLAT also misdirected itself by relying on foreign texts and jurisprudence, which could not be made applicable to insolvency regime of India – In absence of any perversity palpable on the face of approved RP, and CoC having taken a firm commercial decision by voting overwhelmingly in favour of RP, NCLAT ought not to have interfered – NCLAT clearly transgressed its jurisdiction u/s.61, by interfering with the clause pertaining to treatment of recoveries u/s.66 – Impugned judgment and order passed by the NCLAT set aside, and the judgment and order passed by the NCLT granting its approval to the Plan Approval Application, and thereby approving the Resolution Plan, upheld – However, the NCLT to decide the Avoidance Applications filed by the Administrator u/ss.43, 45, and 50, and the Applications u/s.66. [Paras 65, 67, 77, 79, 80, 83, 86, 87] Insolvency and Bankruptcy Code, 2016 – ss.30(2), 31 – Insolvency and Bankruptcy Board of India (Insolvency Resolution Process for Corporate Persons) Regulations, 2016 – Reg.38 – Mandatory requirements under, a Resolution Professional required to confirm on the receipt of the Resolution Plans submitted by the Prospective Resolution Applicants:

Held: Entire process, from submission of Resolution Plans by the Prospective Resolution Applicants till final approval/rejection of the Plan by Adjudicating Authority has been duly prescribed, which is mandatory in nature – If there is any non-compliance of mandatory requirements stated in s.30(2), read with Reg.38, Adjudicating Authority is empowered to reject the plan as envisaged in s.31(2) – If however, the plan approved by CoC meets with requirements u/s.30(2), the Adjudicating Authority has to approve such plan u/s.31(1), which would be binding to all stakeholders. [Para 65]

Insolvency and Bankruptcy Code, 2016 – Chapter III and Chapter VI, ss.43, 45, 50, 66 – Avoidance Applications to be filed by the Resolution Professional in accordance with Chapter III, and applications in respect of Fraudulent trading or Wrongful trading required to be filed by the Resolution Professional u/s.66 under Chapter VI – Difference between: Held: There is a clear distinction between Avoidance Applications under Chapter III and Applications in respect of Fraudulent trading or Wrongful trading under Chapter VI, both operate in different situations – Applications filed in respect of “Fraudulent and Wrongful trading” carried on by CD, could not be termed as “Avoidance Applications” used for Applications filed u/ss.43, 45 and 50 to avoid or set aside the Preferential, Undervalued or Extortionate transactions – There is clear demarcation of powers of the Adjudicating Authority to pass orders in the Avoidance Applications filed by the Resolution Professional u/ss.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, u/s.66 falling under Chapter VI of the IBC, and have been separately circumscribed – If the Resolution Professional has filed common applications u/ss.43, 45, 50 and also u/s.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. [Paras 56, 61, 86] Insolvency and Bankruptcy Code, 2016 – Insolvency and Bankruptcy Board of India (Insolvency Resolution Process for Corporate Persons) Regulations, 2016 – Reg. 37 – Approval of Resolution Plan by Committee of Creditors – Maximization of value of assets of the Corporate Debtor:

Held: Decisions of Committee of Creditors-CoC must reflect the fact that it has taken into account maximization of value of assets of Corporate Debtor-CD, and interest of all stakeholders has been adequately balanced – Entire process has to be carried out in an absolutely transparent manner, and each and every aspect relating to the Resolution Plan, 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 – CoC, if after considering such measures for maximization of value of assets of CD as proposed in RP approves the plan after exercising its commercial wisdom, then scope of judicial review by the Adjudicating Authority u/s.31 will be limited only to the extent of satisfying itself about the compliance of requirements of s.30(2). [Paras 66-67]

National Housing Bank Act, 1987 – s.36(A) – Reserve Bank of India Act, 1934 – s.45(QA) – Resolution Plan-RP, if violative of the provisions of RBI Act or NHB Act – Fixed Deposit Holders, including appellants, challenged RP before NCLT on the ground that RP failed to provide for full repayment of their deposits – Upon recommendation of NCLT, Committee of Creditors-CoC reconsidered distribution keeping in view benefit of FD Holders, which resolution was rejected – Appeals filed by FD Holders dismissed by the NCLAT:

Held: None of the provisions mandates full payment of deposits or confers any right upon depositors to have full payment of such deposits – Also nothing to suggest that any authorized officer under the NHB Act or the CLB under the RBI Act passed any order to make full payment of deposits to the appellants – Thus, RP providing for Distribution mechanism, not contrary to any of the provisions of the RBI Act or of the NHB Act. [Paras 95, 99] Reserve Bank of India Act, 1934 – s.45-IE – Supersession of Board of Directors by RBI and thereafter the Directors vacated their offices, and then the Directors stood suspended under the IBC – Difference between “Supersession” and “Suspension” – Right of ex-promoters/directors to participate in Committee of Creditors-CoC meetings, and interference in the company affairs, and right to get copy of Resolution Plan approved by CoC:

Held: Legal effects in both situations would be different, as “Supersession” of Board of Directors is different from “Suspension” – In common parlance also the use of the word “Supersession” has different connotation than that of the word “Suspension” – Effect of supersession is permanent in nature and effect of suspension is temporary in nature – Appellants-Ex-Directors having deemed to have vacated their offices on supersession of Board of Directors under the RBI Act, could not have claimed any right to attend meetings of CoC/participate in CIRP proceedings initiated under the IBC, which right otherwise would have been available to 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 copy of proposed RPs submitted by the PRAs during the CIRP proceedings – Insolvency and Bankruptcy Code, 2016. [Paras 106, 109] Insolvency and Bankruptcy Code, 2016 – ss.31, 61 – NCLT and NCLAT – Scope of judicial review:

Held: Legislature has given paramount importance to the “commercial wisdom” of Committee of Creditors-CoC, and that the scope of judicial review by Adjudicating Authority-NCLT is limited to the extent provided u/s.31, and that of Appellate Authority-NCLAT is limited to the extent provided u/s.61(3) – Once Resolution Plan-RP is approved by the requisite majority of CoC, and placed before Adjudicating Authority for approval u/s.31, Adjudicating Authority has to only see whether such RP as approved by CoC meets the requirements of s.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 s.31, it may by an order reject the RP – 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 u/s.60(5), however such residual jurisdiction does not in any manner impact s.30(2), which circumscribes the jurisdiction of the Adjudicating Authority, when it comes to the confirmation of RP – Scope of interference by Appellate Authority-NCLAT is also very limited and restricted to specific grounds u/s.61(3). [Paras 42-44]