Supreme Court Upholds Piramal Capital’s Resolution Plan for DHFL

In a significant verdict, the Supreme Court on Tuesday upheld Piramal Capital & Housing Finance’s resolution plan for the defunct Dewan Housing Finance Corporation Ltd (DHFL).

This decision effectively overturned the earlier order by the National Company Law Appellate Tribunal (NCLAT), which had directed the lenders of DHFL to revisit specific aspects of the resolution plan.

These aspects involved assigning a symbolic value of merely ₹1 to approximately ₹45,000 crore worth of bad loans linked to avoidance and fraudulent transactions.

The apex court also dismissed a range of appeals, notably one filed by former DHFL promoter Kapil Wadhawan. He had challenged the resolution plan on the basis that Piramal acquired the debt-ridden company, valued at ₹90,000 crore, for a significantly lower amount of ₹37,000 crore.

The court similarly rejected appeals submitted by fixed deposit holders and non-convertible debenture (NCD) holders, including those by 63 Moons Technologies.

These appeals claimed that the distribution method of recoveries under the resolution plan violated their right to receive full repayment of their investments and deposits.

A bench comprising Justices Bela Trivedi and Satish Chandra Sharma instructed the NCLAT to re-evaluate the manner in which the avoidance transaction applications should be decided, and under which specific provisions of the Insolvency and Bankruptcy Code (IBC), 2016, such decisions must be made.

The Supreme Court further clarified the allocation of recoveries arising from avoidance applications. According to the ruling, any benefits or recoveries from such applications will be distributed based on the applicable sections of the IBC.

Recoveries under Sections 43, 45, and 50—which deal with avoidable transactions such as preferential, undervalued, and extortionate credit transactions—shall be allocated in favour of the Committee of Creditors (CoC).

In contrast, recoveries under Section 66—which pertains to fraudulent and wrongful trading—will be appropriated in favour of Piramal Capital.

Dewan Housing Finance Corporation Ltd, once a major player in India’s housing finance sector, had collapsed under an enormous debt of ₹90,000 crore.

Following its failure to meet repayment obligations, the company was placed under insolvency proceedings through the IBC framework in November 2019.

The total estimated value of potential recoveries from the avoidance applications filed in relation to past fraudulent transactions stands at approximately ₹45,000 crore.

Piramal Capital, along with the CoC led by Union Bank of India, had challenged the NCLAT’s judgment dated January 22, 2022.

They argued that the appellate tribunal had incorrectly interpreted provisions of the IBC, particularly Section 66. According to the CoC, recoveries under Section 66 should rightly be considered as assets of the corporate debtor, and any proceeds generated from such recoveries should be distributed in accordance with the approved resolution plan.

They further contended that the former management of DHFL had engaged in irregular and fraudulent activities, leaving little hope of any real recovery from those transactions, hence the assignment of only a notional value.

The lenders also asserted that the NCLAT had erred in concluding that the CoC does not have the authority to determine how to treat recoveries from avoidance applications.

They maintained that the tribunal had overstepped its jurisdiction by undermining the commercial wisdom of the CoC, which plays a central role in the insolvency resolution process under the IBC.

Piramal Capital, while presenting its case before the Supreme Court, stated that altering or modifying an approved resolution plan at the appellate stage was legally untenable and contrary to the provisions of the IBC.

The company argued that the resolution plan had been constructed based on a comprehensive evaluation of recoverable assets, and any tampering with the terms would be inconsistent with both statute and legal precedent.

Piramal emphasized that the commercial judgment of the CoC—except in the rarest and most exceptional cases—should not be interfered with.

Piramal also highlighted that its resolution plan had received overwhelming approval from the CoC, with a 93.65% majority vote.

Notably, 63 Moons Technologies, which later challenged the resolution, had itself voted in favour of the plan.

Piramal further noted that assigning a nominal or symbolic value of ₹1 to future or uncertain recoveries, especially where actual amounts are difficult to estimate or may not materialize, is a legitimate and well-established commercial practice.

This approach, the company argued, had already been upheld by the Supreme Court in the landmark case of Committee of Creditors of Essar Steel India Ltd vs Satish Kumar Gupta, where the court reiterated the primacy of CoC’s business decisions.