Supreme Court upholds Piramal’s resolution plan for DHFL, grants it proceeds of funds recovered

The Supreme Court on Tuesday ruled that funds recovered from the fraudulent transactions at Dewan Housing Finance Corporation Ltd (DHFL) will go to Piramal Capital & Housing Finance Ltd, the successful resolution applicant for the bankrupt company.

The apex court upheld Piramal’s resolution plan and also overturned a January 2022 order by the National Company Law Appellate Tribunal (NCLAT) that directed lenders to reconsider the valuation of the recoveries and the distribution of the recovery proceeds.

A bench of Justice Bela Trivedi and Justice Satish Chandra Sharma dismissed appeals filed by fixed deposit holders and non-convertible debenture holders, including 63 Moons Technologies Ltd, who challenged the resolution plan and the mechanism of distributing the recoveries.

The court ruled that ₹45,000 crore in recoveries from “avoidable” and “fraudulent” transactions at DHFL should go to Piramal, not to DHFL’s creditors. This decision upheld the resolution plan, which assigned a nominal value of ₹1 to these recoveries.

In addition, the court clarified that the resolution plan complied with regulations under the Reserve Bank of India Act, 1934, and the National Housing Bank (NHB) Act, 1987. It stated that neither of these acts mandates full payment of deposits or gives depositors the right to full repayment.

There was no evidence suggesting that any authorised officer under the RBI Act or the Company Law Board had ordered full repayment of deposits to such creditors. Consequently, the court found that the distribution mechanism of the resolution plan did not violate any provisions of the RBI or NHB acts.

Resolution plan challenged

The case stemmed from insolvency proceedings initiated against DHFL by the RBI in 2019, after the housing finance company defaulted on repayment of an overseas loan to the State Bank of India and other creditors. DHFL’s creditors claimed a total of ₹87,905.6 crore in dues.

The committee of creditors approved Piramal’s resolution plan, which assigned a nominal value of ₹1 to potential recoveries from fraudulent transactions under Section 66 of the Insolvency and Bankruptcy Code. This plan allowed Piramal to retain any future proceeds from these recoveries, a provision that was approved by the National Company Law Tribunal.

In September 2021, Piramal completed the acquisition of DHFL for ₹34,250 crore, including cash and non-convertible debentures, after getting approvals from all regulators.

However, 63 Moons Technologies Ltd, holding non-convertible debentures worth over ₹200 crore issued by DHFL, and other creditors challenged the plan, arguing that the proceeds from fraudulent transactions should be distributed to creditors.

In January 2022, the NCLAT ruled in favour of 63 Moons Technologies, stating that the recovery proceeds should benefit creditors. The NCLAT noted that the NCLT had failed to properly scrutinise the ₹1 valuation of recoveries.

Piramal appealed in the Supreme Court, which stayed the NCLAT’s order in April 2022.