In a decisive ruling, the Supreme Court has declared that recoveries from fraudulent transactions linked to Dewan Housing Finance Corporation Ltd (DHFL) must go to Piramal Capital & Housing Finance Ltd, the successful resolution applicant, rather than DHFL’s creditors. This verdict overturns a previous decision by the National Company Law Appellate Tribunal (NCLAT), which had directed such recoveries to be distributed among creditors.
A Bench comprising Justices Bela Trivedi and Satish Chandra Sharma reaffirmed the validity of DHFL’s resolution plan, emphasizing that recoveries from fraudulent transactions should benefit the entity taking over the distressed company. The ruling upholds an earlier order by the National Company Law Tribunal (NCLT) and clarifies that the adjudicating authority has a limited role when a resolution plan has already been approved by the Committee of Creditors (CoC).
The legal dispute originated from DHFL’s insolvency proceedings, initiated in 2019 after the Reserve Bank of India flagged its default on an external commercial loan from the State Bank of India. Piramal Capital’s resolution plan was ultimately approved, with a key provision assigning a nominal ₹1 value to potential recoveries from fraudulent transactions. This meant that any future funds reclaimed from fraud-related dealings would belong to Piramal.
However, this arrangement was challenged by 63 Moons Technologies Ltd and other creditors, who argued that such recoveries—potentially amounting to ₹40,000 crore—should be distributed to those owed money rather than the resolution applicant. The NCLAT sided with creditors, ruling that avoidance recoveries exist to restore value to the insolvency estate and should not be diverted for the benefit of the entity acquiring the distressed company. The appellate tribunal also criticized the CoC for assigning an arbitrary ₹1 valuation, stating that statutory provisions could not be overridden by commercial decisions.
Piramal appealed the NCLAT verdict, leading to the Supreme Court’s latest decision, which now settles the contentious issue in its favor. The full order is expected soon.
