Three-Fold Clarity from the Supreme Court under IBC: PUFE Transactions Distinguished, CoC Primacy Upheld, Participation of Superseded Directors Denied

Introduction

The Supreme Court’s recent judgment in Piramal Capital and Housing Finance Ltd.[i] marks a significant development in the jurisprudence of the Insolvency and Bankruptcy Code, 2016 (‘IBC’). Through a detailed ruling, the Court has clarified the distinction between different categories of avoidance applications under ss. 43, 45, 50, and 66 of the IBC reaffirmed the finality of Committee of Creditors (‘CoC’)-approved resolution plans ('plans') and provided important guidance on the limited powers of the Adjudicating Authority (‘NCLT’) and the Appellate Authority (‘NCLAT’) post plan approval. Notably, the judgment draws a fine, and arguably novel, distinction between ‘supersession’ and ‘suspension’ of a company’s Board. This issue assumed importance due to the unique regulatory history of Dewan Housing Finance Corporation Limited, the Corporate Debtor (‘CD’) in the matter.

While legally sound and rooted in statutory interpretation, the ruling reflects a broader tension within the IBC framework: the need for speed and finality versus the institutional role of tribunals in protecting stakeholder interests. This decision is likely to have a lasting impact not just on corporate insolvency resolution processes (‘CIRP’) involving financial service providers, but also on the general approach of Resolution Professionals (‘RP’), CoCs, and adjudicating authorities in the conduct and approval of plans.

Brief Facts

• The CD, a non-banking financial company (NBFC), was facing serious financial distress. Due to systemic concerns, the Reserve Bank of India (‘RBI’) superseded its Board on 20.11.2019 under s. 45-IE of the RBI Act, 1934, and appointed an Administrator.

• Pursuant to the Insolvency and Bankruptcy (Insolvency and Liquidation Proceedings of Financial Service Providers) Rules, 2019, the Administrator filed an application for initiation of CIRP before the NCLT, Mumbai Bench, which was admitted on 03.12.2019. A CoC was constituted, and several resolution applicants submitted plans.

• Eventually, the plan submitted by Piramal Capital and Housing Finance Ltd., the Appellant, was approved by the CoC with 93.65% voting share. On 07.06.2021, the NCLT approved the plan. However, multiple appeals followed before the NCLAT and ultimately reached the Supreme Court, raising diverse but interrelated challenges.

• The appeals were grouped into three broad categories: (i) challenges to the treatment and allocation of proceeds from avoidance transactions and the NCLAT’s interference with the CoC-approved plan; (ii) claims by debenture holders and other investors seeking full payment under special statutes such as the RBI Act and the National Housing Bank Act, 1987 (‘NHB Act’); and (iii) challenges by the erstwhile promoters (Kapil and Dheeraj Wadhawan), who were denied participation during CIRP of the CD.

Held

• The Supreme Court disposed of all the appeals, upholding the validity of the plan approved by the NCLT and declaring the NCLAT’s interference with the CoC-approved plan as erroneous and beyond jurisdiction. It rejected the claims for full payment under the RBI Act and NHB Act, holding that the cited provisions did not mandate such payments. The Court also held that a Board superseded under s. 45-IE of the RBI Act has no participatory rights during CIRP.

• The Court affirmed that avoidance transactions under s. 43 (preferential), s. 45 (undervalued), and s. 50 (extortionate) are categorically distinct from fraudulent transactions under s. 66 of the IBC. It clarified that while the former are governed by objective criteria and look-back periods in ch. III, s. 66, in ch. VI of the IBC is broader and hinges on intent, malfeasance, or wrongful conduct.

• It held that the NCLT has the power to pass orders in applications filed under ss. 43, 45, and 50 to reverse the effects of avoidable transactions, but in cases under s. 66, it can only direct contributions to the CD’s assets from those who were knowingly party to fraudulent transactions, not set aside the transactions themselves.

• The Court clarified that the RP can file a composite application covering multiple types of transactions under ss. 43, 45, 50, and 66, and it is for the NCLT to assess the applicability of each provision and exercise its powers accordingly. It was held that even if the specific legal provisions are wrongly mentioned or not mentioned in such a consolidated application, the same can still be decided as the NCLT retains jurisdiction to adjudicate it. The Court relied on N. Mani v. Sangeetha Theatre to support this principle.

• On the question of recoveries from avoidance transactions, the Court held that such proceeds, once realized, must be treated in accordance with the CoC-approved plan and cannot be distributed outside of it. The NCLAT’s directive to ring-fence and allocate such funds to creditors was found to be without jurisdiction. It was affirmed that once a plan is approved by the CoC under s. 30(4) and by the NCLT under s. 31 of the IBC, it becomes binding on all stakeholders, and any modification can only be made by the CoC or the Successful Resolution Applicant (‘SRA’), not by the appellate directions under s. 61.

• The Court reiterated that once a plan meets the criteria of s. 30(2) and is approved by the CoC with the requisite majority, the NCLT’s role is limited to verifying compliance, as previously held in K. Sashidhar[ii]. The scope of judicial review under s. 31 (for the NCLT) and s. 61 (for the NCLAT) was held to be strictly confined to the grounds specified in those provisions and not beyond.

• Regarding the second category of appeals, the Court held that while the CD was regulated by both the NHB Act and the RBI Act, neither s. 36(A) of the NHB Act nor s. 45(QA) of the RBI Act requires full repayment of deposits. It was noted that these provisions only authorize directions for repayments by designated officers or authorities and do not create a substantive right to full repayment.

• The Court observed that both the fixed deposit holders and the debenture holders were represented in the CoC by their authorised representatives, as permitted under s. 21(6A)(b) of the IBC read with the corresponding regulations. These authorized representatives were entitled to attend CoC meetings and vote on behalf of their respective creditor classes, in accordance with prior instructions received from their constituents. Although these classes had voted against the resolution plan, it was nonetheless approved by 86.95% of the CoC members. When the CoC was subsequently asked to reconsider the plan, it declined to do so, with 89% of its members voting against reconsideration.

• The Court noted that the NCLAT also dismissed this challenge, observing that the Administrator was not under any obligation under either of the special statutes to ensure full repayment of deposits, and that the question of payments to creditors fell squarely within the commercial wisdom of the CoC. The Supreme Court upheld the NCLAT’s reasoning and reiterated that the scope of judicial review under s. 31 by the NCLT and under s. 61 by the NCLAT is limited to the clauses therein.

• On the issue of participation rights of the erstwhile promoters and directors after supersession under the RBI Act, the Court held that they had no right to participate in the CIRP, including in CoC meetings. The Court relied on the RBI’s action of supersession under s. 45-IE of the RBI Act, emphasizing that this was not a mere suspension of the Board but a complete supersession.

• Citing the 11th edition of Black’s Law Dictionary, the Court drew a clear distinction between ‘supersession’ (which permanently annuls and voids the office) and ‘suspension’ (which temporarily restricts powers but retains the office). Thus, it was stated that superseded directors vacate their office entirely, whereas suspended directors retain a notional role with limited rights, and since the directors of the CD had been superseded and arrested, there was no surviving locus or legal right for them to assert participatory claims in the CIRP.

• The Court clarified that while ss. 24(3) and 24(4) of the IBC grant suspended directors the right to attend (but not vote in) CoC meetings, such rights were not applicable in cases of supersession. Once approved under s. 31, plans become public documents under s. 74 of the Indian Evidence Act, 1872. The superseded directors were only entitled to certified copies of such documents, not to any prior notice or right to be involved in the CIRP.

Our Analysis

This judgment offers clarity on several structural ambiguities that persisted under the IBC. In doing so, it marks a significant step in harmonising the jurisprudence, particularly post-Anuj Jain[iii], with the practical requirements of CIRP. Notably, the Court revisits the issue of how avoidance applications under ss. 43, 45, 50, and 66 should be filed and adjudicated, and this time offers express resolution to a previously lingering procedural confusion.

In Anuj Jain (supra), while distinguishing between PUFE transactions (preferential, undervalued, fraudulent, and extortionate), the Court had suggested that these were distinct in nature. However, it did not clearly pronounce on whether these had to be invoked through separate applications. That lacuna had led to a cautious approach by many RPs, who either filed multiple applications or faced objections when filing composite ones. In contrast, the present judgment expressly lays that doubt to rest by affirming that there is no legal bar to filing a consolidated application covering multiple transactions. It places the responsibility on the NCLT to analyze the individual transactions and apply the appropriate statutory provision to each, arguably facilitating a more efficient adjudication process.

Importantly, the Court reinforces that the power of the NCLT is not contingent upon the RP citing the correct provision at the threshold. The principle that substance must prevail over form is emphatically applied here: if a power is otherwise vested in the NCLT under the IBC, an incorrect reference or omission of the specific section by the applicant will not curtail the jurisdiction of the forum. This interpretive move appears to be doctrinally sound and pragmatically necessary, especially in large, complex insolvencies where transactions can span multiple legal categories and years.

However, while the Court seems to have strictly adhered to the textual confines of the IBC and reiterated the settled law on judicial non-interference with the CoC’s commercial wisdom, the judgment also exposes the limited remedial avenues available to dissenting stakeholders once a resolution plan is approved by the CoC. In upholding the NCLT’s limited role under s. 31 and the NCLAT’s hands-off approach restricted to s. 61, the Supreme Court confirmed that judicial review of CoC decisions is extremely narrow and confined to issues of procedural compliance and fairness in broad terms.

This approach may be legally unassailable and consistent with the objective of timely resolution under the IBC, but it does appear to render the NCLT and NCLAT functionally incapable of intervening even in situations where vulnerable creditor groups, such as public depositors or small investors, are left undercompensated. The Supreme Court acknowledges this but ultimately views such hardships as a function of the legislative policy itself and not a failure of the adjudicatory mechanism.

Further, the Court’s interpretation of the effect of supersession under s. 45-IE of the RBI Act introduces clarity on the participatory rights of former directors and promoters. It sharply distinguishes supersession from mere suspension, drawing upon Black’s Law Dictionary to explain that supersession entails the complete vacating of office and, therefore, the extinguishment of any participation rights under the IBC. While this distinction is analytically sound and consistent with the RBI’s regulatory action, it serves to reinforce a broader theme emerging from the judgment: the CIRP is an institutionally gated process, with limited space for voices outside the CoC, even those with a long-standing association with the company. Having said that, this decision is undoubtedly illustrative of a maturing IBC jurisprudence – perhaps one that is increasingly theoretical and bound by the system established under the Code.

End Notes

[i] Piramal Capital and Housing Finance Limited v. 63 Moons Technologies Limited and Others: 025 SCC OnLine SC 690 dated 01.04.2025.

[ii] K. Sashidhar v. Indian Overseas Bank & Ors., (2019) 12 SCC 150.

[iii] Anuj Jain, Interim Resolution Professional for Jaypee Infratech Ltd. v. Axis Bank Ltd. & Ors., (2020) 8 SCC 401, dated 26.02.2020.

Authored by Srishty Jaura, Advocate at Metalegal Advocates. The views expressed are personal and do not constitute legal opinions.