The Supreme Court has overturned a previous decision by the National Company Law Appellate Tribunal (NCLAT) concerning the insolvency resolution of Dewan Housing Finance Limited (DHFL). The NCLAT had earlier directed lenders to reconsider aspects of the resolution plan proposed by Piramal Capital and Housing Finance (PCHF), which controversially valued DHFL’s ₹45,000 crore of bad loans, categorized as avoidance transactions, at just ₹1.
The bench led by Justices Bela M. Trivedi and Satish Chandra Sharma, in a significant ruling on Tuesday, reinstated the original resolution plan approved by the Union Bank of India-led Committee of Creditors (CoC) and the National Company Law Tribunal (NCLT)’s Mumbai bench in 2021. Under this plan, PCHF acquired DHFL for a total consideration of ₹34,250 crore, assuming control of the embattled housing finance company.
The resolution plan had been contested on grounds that it undervalued potential recoveries from what are known in the insolvency parlance as ‘avoidance transactions’. These transactions, identified under the Insolvency and Bankruptcy Code (IBC) as undervalued, fraudulent, or extortionate, were carried out by DHFL’s former management.
The contention primarily revolved around how these transactions were handled in the insolvency process. Former promoter Kapil Wadhawan and 63 Moons Technologies, a non-convertible debenture holder with substantial exposure in DHFL, challenged the resolution plan, arguing that the assets worth ₹45,000 crore were being acquired for a fraction of their potential recovery value, while smaller creditors were left to accept minimal recoveries.
In January 2022, the NCLAT intervened by asking the CoC to reassess the resolution plan’s approach to these avoidance recoveries. This led the lenders, along with Piramal Capital, to escalate the matter to the Supreme Court, contending that the appellate tribunal had exceeded its jurisdiction and misapplied the legal provisions of the IBC.
The Supreme Court’s ruling not only underscores the sanctity of the CoC’s commercial decisions in insolvency resolutions but also clarifies the appellate authority’s scope of intervention in such matters. The court has now directed the NCLAT to reevaluate the applications concerning the allocation of proceeds from avoidance transactions afresh, under the appropriate provisions of the IBC.
This judgment is pivotal as it reaffirms the principle that proceeds from fraudulent or undervalued transactions should revert to the corporate debtor, thereby protecting the interests of all creditors. It also emphasizes that any revision of an already-approved resolution plan must align with the fundamental principles of the IBC, avoiding setting precedents that could disrupt the insolvency resolution framework.
