IBC | Supreme Court Upholds Primacy of CoC’s Commercial Wisdom in DHFL Resolution Plan, Restores NCLT Order

Commercial Wisdom of CoC Is Non-Justiciable Except On Limited Grounds — Supreme Court delivered a landmark judgment in Piramal Capital & Housing Finance Ltd. vs Union of India & Others and connected matters, settling multiple contentious issues under the Insolvency and Bankruptcy Code (IBC). The Court categorically reaffirmed that the Committee of Creditors (CoC) enjoys paramount commercial authority and neither NCLT nor NCLAT can interfere with its decisions beyond the limited scope under Sections 31 and 61 of the IBC.

In restoring the resolution plan approved for Dewan Housing Finance Corporation Ltd (DHFL) — one of India's largest NBFC insolvencies — the Court laid down that appropriation of Section 66 recoveries by the successful resolution applicant (SRA), Piramal Capital, was legally permissible and flowed directly from the CoC's commercial decision.

The Court held that judicial review under IBC is strictly circumscribed. The NCLT's jurisdiction is confined to examining whether the Resolution Plan complies with Section 30(2) and Regulation 38 of the CIRP Regulations. The NCLAT’s powers under Section 61 are even narrower, restricted to only the five grounds mentioned in Section 61(3) of IBC.

The Court remarked: "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."

Reiterating the doctrine from K. Sashidhar v. Indian Overseas Bank, the Court emphasized that the CoC's “commercial wisdom” is not open to judicial review and is beyond the jurisdiction of both the NCLT and NCLAT unless statutory violations under Section 30(2) or Section 61(3) are clearly established.

Referring to Ebix Singapore v. CoC of Educomp, the Court stated: “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 interpretative manoeuvres of the Court have the effect of transgressing into the law-making power of the legislature.”

The Court extensively dealt with the critical issue — whether recoveries from Section 66 (fraudulent and wrongful trading) applications could be appropriated by the Resolution Applicant.

The Court explained that: Applications under Sections 43, 45, and 50 (Preferential, Undervalued, and Extortionate transactions) are classified as “Avoidance Applications” falling under Chapter III of the Code.

Section 66 Applications, dealing with fraudulent and wrongful trading, fall under Chapter VI and are distinct.

The Court observed: “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)(j).”

Rejecting NCLAT’s view that Section 66 recoveries cannot be assigned to the Resolution Applicant, the Court upheld the Resolution Plan's clause that allowed Piramal Capital to appropriate recoveries from pending Section 66 proceedings, stating:

"Any recovery under Section 66 would be for the benefit of Piramal Capital... This was a conscious decision made by the CoC after considering all relevant factors, including uncertainty and speculative nature of such recoveries."

While addressing arguments regarding maximisation of the value of DHFL's assets, the Supreme Court reiterated that: “The CoC must consider the maximisation of value. However, what constitutes maximisation of value is a matter for the CoC’s commercial wisdom and not for judicial review.”

The Court referred to Essar Steel v. Satish Kumar Gupta, observing: “What is left to the majority decision of the CoC 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 various classes of creditors.”

Fixed Deposit (FD) Holders challenged the Resolution Plan alleging violation of Section 36(A) of the NHB Act and Section 45(QA) of the RBI Act claiming full repayment of their deposits.

The Court categorically rejected this argument stating: “Neither Section 36(A) of the NHB Act nor Section 45(QA) of the RBI Act mandates full payment of deposits... They empower authorities to direct repayment where necessary, but do not guarantee full repayment or priority to deposits.”

The Supreme Court also pointed out that the FD Holders were fully represented in the CoC through their Authorized Representative. Despite voting against the Resolution Plan, the majority decision of the CoC binds them under IBC’s democratic voting mechanism.

Quoting Jaypee Kensington, the Court held: “For the larger benefit and common good, the democratic principle of determinative role of majority is embedded in the scheme of the Code... Once the Authorized Representative votes as per majority instructions, individual dissenting creditors are bound.”

Former promoters Kapil and Dheeraj Wadhawan, who were in judicial custody during the CIRP, contended that they were denied participation and copies of Resolution Plans.

The Supreme Court noted: “Supersession of the Board under Section 45-IE of the RBI Act is different from suspension under Section 17 of the IBC. Supersession has a permanent effect and strips directors of all rights to participate or receive notice of CoC meetings.”

The Court distinguished this case from Vijay Kumar Jain v. Standard Chartered, holding that erstwhile directors of DHFL had no right to demand copies of Resolution Plans during CIRP. However, after NCLT approval, the Plan became a public document under Section 74 of the Evidence Act, entitling them only to seek a certified copy.

Criticizing the NCLAT’s interference, the Court observed: “The NCLAT has clearly transgressed its jurisdiction under Section 61(3) of IBC by interfering with the clause pertaining to recoveries from fraudulent and wrongful trading applications.”

The Court further held: “In absence of any perversity, that was palpable on the face of the approved Resolution Plan, and the CoC having taken a firm commercial decision after negotiations and deliberations, NCLAT ought not to have interfered.”

Restoring the Resolution Plan approved by the NCLT, the Court directed:

• All pending avoidance applications under Sections 43, 45, 50 shall, when decided, enure to the benefit of the CoC.

• All recoveries arising out of Section 66 applications shall accrue to the Successful Resolution Applicant (Piramal Capital).

• The Resolution Plan approved by CoC with 93.65% majority and subsequently approved by NCLT on 07.06.2021 stands restored.

The Court concluded: “In view of the settled legal position, the NCLAT ought not to have tinkered with the commercial decision of CoC duly approved by the NCLT.”

Date of decision-  1st April 2025