IBC Clarified: Supreme Court Upholds Commercial Wisdom in Section 66 Recoveries and Treatment of FD Claims

1. Introduction

On April 1, 2025, the Supreme Court of India pronounced a landmark judgment in Piramal Capital and Housing Finance Limited (formerly known as Dewan Housing Finance Corporation Limited) v. 63 Moons Technologies Limited & Others (2025 INSC 421). This large set of appeals – arising out of the Insolvency Resolution Process of Dewan Housing Finance Corporation Limited (“DHFL”) – addressed critical questions on:

• The scope of “commercial wisdom” of the Committee of Creditors (“CoC”);
• Whether future recoveries from fraudulent/wrongful trading applications (under Section 66 of the Insolvency and Bankruptcy Code, 2016 (“IBC”)) can be assigned to a successful resolution applicant (“SRA”);
• The extent of judicial review by National Company Law Appellate Tribunal (“NCLAT”) under Section 61 of the IBC;
• The position of fixed-deposit holders (“FD Holders”) under the IBC vis-à-vis the Reserve Bank of India Act, 1934 (“RBI Act”), and the National Housing Bank Act, 1987 (“NHB Act”);
• The rights of promoters/directors whose board was superseded under Section 45-IE of the RBI Act, including whether such individuals have a right to copies of the resolution plan or to participate in CoC meetings.

The Supreme Court, speaking through Justice Bela M. Trivedi and Justice Satish Chandra Sharma, settled an array of complex IBC-related issues and upheld the primacy of the CoC’s commercial decision-making. This commentary examines the background, the Court’s core findings, and the potential impact on India’s insolvency framework.

2. Summary of the Judgment

The Supreme Court was presented with multiple appeals broadly falling into three categories:

1. Avoidance Applications Under Section 66: Whether the CoC-approved resolution plan, which permitted the successful resolution applicant to keep any proceeds from future avoidance/fraudulent trading actions under Section 66 of the IBC, was legally sustainable.
2. Appeals by FD/NCD Holders: Whether the resolution plan should have provided for full repayment to fixed deposit and non-convertible debenture holders in light of Section 45(QA) of the RBI Act and Section 36(A) of the NHB Act.
3. Appeals by Ex-Promoters: Contesting the resolution plan on grounds of alleged undervaluation, denial of procedural rights (such as not receiving copies of the resolution plan), and denial of participation in the CoC process due to board supersession under the RBI Act.

In essence, the Supreme Court upheld the resolution plan approved by the National Company Law Tribunal (“NCLT”), while clarifying that:

• The CoC could validly assign Section 66 recoveries to the successful resolution applicant; and
• The FD holders, though a recognized class of creditors, were not entitled to a full 100% repayment merely on the basis of the special provisions of the RBI Act and NHB Act.

The Court found that the commercial wisdom of the CoC is central and that any distribution of prospective recoveries under Section 66 remains part of the CoC’s negotiation with the resolution applicant. The Court also clarified that ex-promoters whose board was superseded under Section 45-IE of the RBI Act do not enjoy the same rights as suspended directors under the IBC.

3. Analysis

A. Precedents Cited

Throughout the judgment, the Supreme Court leaned upon major precedents that have solidified the primacy of CoC decisions in India’s insolvency regime:

• K. Sashidhar v. Indian Overseas Bank and Others (2019) 12 SCC 150: Emphasized that the CoC’s commercial decisions are non-justiciable, save for violations of Section 30(2) of the IBC.
• Committee of Creditors of Essar Steel India Ltd. v. Satish Kumar Gupta (2020) 8 SCC 531: Upheld limited judicial review of approved resolution plans, affirming the need to respect CoC’s negotiations.
• Ghanashyam Mishra & Sons Pvt. Ltd. v. Edelweiss Asset Reconstruction Co. Ltd. (2021) 9 SCC 657: Reiterated that resolution plans once approved by the adjudicating authority become binding on all stakeholders, subject only to limited Appellate scrutiny in Section 61 IBC appeals.
• Vijay Kumar Jain v. Standard Chartered Bank and Others (2019) 20 SCC 455: Addressed the rights of directors (in normal scenarios of “suspension” under the IBC) to receive resolution plans and attend CoC meetings, but did not deal with situations of “supersession” under the RBI Act.

B. Legal Reasoning and Key Findings

1. Commercial Wisdom of the CoC:

   The Court underscored that the CoC’s commercial wisdom should generally remain sacrosanct. The legislature has granted the CoC both the responsibility and the freedom to negotiate the best possible resolution plan for the corporate debtor. Judicial review under Sections 31 and 61 of the IBC is confined largely to verifying compliance with mandatory requirements (e.g., Section 30(2)) and limited to grounds enumerated in Section 61(3).

2. Treatment of Section 66 Recoveries:

   One of the pivotal controversies was whether the resolution applicant (Piramal Capital) could appropriate future recoveries from “fraudulent or wrongful trading” (Section 66 IBC) actions. The NCLAT had invalidated the relevant clause and directed reconsideration. The Supreme Court reversed this NCLAT ruling, clarifying:

   • Applications under Section 66 for fraudulent trading differ from “avoidance applications” under Sections 43, 45, or 50 (which deal with preferential, undervalued, or extortionate credit transactions).
   • While proceeds from avoidance applications typically enure to the benefit of the creditors, fraudulent/wrongful trading recoveries under Section 66 may be subject to negotiation in the resolution plan, particularly when factored into the upfront proposal by the successful resolution applicant.
   • The notional assignment of INR 1 (or zero) does not necessarily mean the CoC has failed to account for uncertain future recoveries. The CoC has the right to “swap” potential upside for certainty in the resolution amount.

3. FD Holders’ Claims vs. RBI/NHB Act:

   The FD/NCD holders argued that the plan’s distribution mechanism violated Section 45(QA) of the RBI Act and Section 36(A) of NHB Act, asserting a right to full repayment. The Court disagreed, noting:

   • Neither the RBI Act nor the NHB Act grants depositors an absolute right to 100% repayment, nor do those Acts override the IBC’s waterfall/distribution scheme.
   • Section 238 of the IBC has an overriding effect in the event of conflict. Once FD Holders are part of the financial creditors’ class, the collective insolvency mechanism supersedes any individual statutory claim to complete repayment.
   • Judicial intervention in the distribution ratio, especially once it has been overwhelmingly approved by the CoC, is impermissible so long as the resolution plan meets the requirements of Section 30(2).

4. Ex-Promoters Superseded Under the RBI Act:

   The Court distinguished supersession under Section 45-IE(4)(a) of the RBI Act from suspension under Section 17(1)(b) of the IBC:

   • “Supersession” of the board is deemed to be permanent, making the erstwhile directors vacate office entirely.
   • “Suspension” under the IBC is typically temporary, so suspended directors may still attend CoC meetings and access relevant documents (though without voting rights).
   • Because DHFL’s board was first superseded by the RBI (before commencement of CIRP), the ex-promoters saw their offices effectively terminated. Consequently, they had no legal right to participate in CoC meetings or demand copies of the resolution plan.

5. Approval of the Plan and Limited Judicial Review:

   Having established that the resolution plan complied with Section 30(2) and contained no contravention of law, the Court restored the NCLT’s approval of the plan. The NCLAT ruling that meddled with the Section 66 recovery distribution was overruled.

C. Impact on Future Cases and the Legal Framework

The judgment has crucial implications for India’s insolvency landscape:

• Re-confirmation of CoC’s Autonomy: It strongly reinforces that CoC decisions on valuation, distribution mechanisms, and assignment of uncertain recoveries will not be lightly disturbed unless they infringe mandatory IBC provisions.
• FD Holders’ Position: Fixed deposit holders in NBFC/FSP insolvencies cannot claim a higher priority or 100% repayment purely based on specialized legislation (e.g., RBI/NHB Act). The IBC distribution framework will prevail.
• Ex-Promoters’ Rights: Where the RBI has superseded a board, ex-promoters may lose basic rights of notice and attendance at CoC meetings that would otherwise exist under the IBC’s suspension regime. This clarifies a contentious question regarding supersession’s broader effect.
• Section 66 Recoveries: Future resolution plans now have judicial backing for factoring uncertain or contingent recoveries within the plan, including assigning them to resolution applicants if that is part of the commercial bargain.
• Greater Certainty for Investors: Prospective bidders can assume that negotiated clauses regarding future fraudulent-trading recoveries will be upheld if approved by the CoC and if they do not contravene express provisions of Section 30(2).

4. Complex Concepts Simplified

Below are a few key concepts of the IBC simplified for better understanding:

• Avoidance vs. Fraudulent Trading:
  Avoidance applications (Sections 43, 45, 50) target specific transactions deemed preferential, undervalued, or extortionate. Their proceeds, if any, typically go back to creditors. Section 66 focuses on “fraudulent or wrongful trading,” aiming contribution orders against persons who carried on the business with a fraudulent intent.
• Commercial Wisdom:
  Refers to the CoC’s business judgment in deciding what best serves the interests of stakeholders. Courts generally do not second-guess or “improve upon” these decisions if the plan meets mandatory statutory requirements.
• Supersession vs. Suspension:
  Under Section 45-IE of the RBI Act, “supersession” makes directors permanently vacate their offices. “Suspension” under the IBC temporarily curtails the directors’ authority but keeps them in the loop for CoC meetings (albeit with no voting rights).
• Overriding Clause (Section 238 IBC):
  Grants the IBC primacy over conflicting statutes for insolvency-related matters, ensuring uniformity and finality in resolution processes.

5. Conclusion

Through its detailed adjudication, the Supreme Court has clarified multiple, previously unsettled aspects of the IBC. First, it cements that courts must defer to the CoC’s commercial wisdom so long as the essential safeguards under Section 30(2) are met. Second, it demarcates how Fraudulent Trading (Section 66) can legitimately yield future value to the successful resolution applicant, provided that arrangement is thoroughly embedded into the negotiation and the CoC’s resolution plan.

Third, it indicates that FD Holders cannot claim absolute protection under RBI/NHB enactments once the insolvency resolution process is activated. Lastly, it clarifies that ex-promoters whose boards were superseded under the RBI Act have no standing to insist on attendance or detailed disclosure of the resolution plan in the CIRP.

Overall, the Court’s decision provides a decisive endorsement of the CoC-driven resolution framework, while granting crucial guidance on how to handle overlapping legislative regimes. This judgment will likely influence future insolvency proceedings involving large Non-Banking Financial Companies (“NBFCs”) and facilitate more assured bidding, increased investor appetite, and timely resolution of distressed entities.