63 Moons Rs 231 crore suit against DHFL auditor rejected: remedy for prospectus fraud lies in IBC Section 66
Justice K. Kumaresh Babu held that once DHFL went into insolvency, a Section 35 Companies Act claim against its statutory auditor Chaturvedi and Shah became an action in rem whose fruits belong to the whole committee of creditors, and struck the firm out of the Chennai commercial suit.
63 Moons Technologies sued eleven defendants on the original side of the Madras High Court for Rs 231.6 crore, claiming it was induced by fraud to invest in Dewan Housing Finance Corporation Limited. One of those defendants was DHFL's statutory auditor, the Mumbai chartered accountancy firm Chaturvedi and Shah LLP. On 16 October 2026 Justice K. Kumaresh Babu rejected the plaint as against the firm alone, holding that because DHFL has been through insolvency, any recovery from the auditor for a fraudulent prospectus cannot go to one investor but must be shared with the entire committee of creditors, and that the only route to it is Section 66 of the Insolvency and Bankruptcy Code before the NCLT.
A second attempt at Order VII Rule 11
The suit, C.S.(Comm.Div.) No. 154 of 2020, names 63 Moons, formerly Financial Technologies (India) Ltd, as plaintiff. The defendants include Wadhwan Global Capital Limited, DHFL's former chairman and managing director Kapil Wadhwan, former director Dheeraj Wadhwan, former chief executive Harshil Mehta, Santosh Sharma, the rating agencies Care Ratings and Brickwork Ratings, the audit firms T.R. Chadha and Co LLP and Rajendra Neeti and Associates, and Catalyst Trusteeship Limited. Chaturvedi and Shah is the eighth defendant.
The firm took out a judge's summons under Order XIV Rule 8 of the Original Side Rules, read with Order VII Rule 11 and Section 151 of the Code of Civil Procedure, asking the court to reject the plaint. Mr Arvind Datar, Senior Counsel, instructed by Mr Anirudh Krishnan, appeared for the firm; Mr Nithyaesh Nataraj appeared for 63 Moons. The application was heard and reserved on 3 August 2026.
It was not the firm's first such attempt. Mr Nataraj told the court that the same applicant had earlier filed Application No. 2786 of 2020 to reject the plaint, that it had been dismissed, that the court had then held prima facie that a statutory auditor owes a duty of care for whose breach it can be proceeded against, and that intra-court appeals against that dismissal were pending before a division bench. A second application on a new set of facts, he argued, was barred by constructive res judicata and was an abuse of process designed to protract the suit.
The auditor's argument: the fruits belong to the creditors
Mr Datar described the firm's role narrowly: it was appointed statutory auditor of DHFL, and the company issued its tranche prospectus on the basis of financial information it supplied and the report the firm gave on it. The rest of his case rested on what had happened to DHFL afterwards. The company had been taken into insolvency under the Code, an interim resolution professional was appointed, and 63 Moons itself lodged a claim and sat on the committee of creditors that approved the resolution plan. It had already received roughly Rs 96.83 crore under that plan and remained entitled to a share of any further recoveries made in the insolvency.
Against that background, he argued, a suit claiming compensation for having been induced to invest in DHFL was not maintainable. 63 Moons had admitted that any amount it recovered in its commercial suit or in the insolvency would be credited against the other; the quantification of Rs 231.6 crore was imaginary; and the real object was to harass the firm and damage the goodwill it had built. Even a decree in the plaintiff's favour could not be enjoyed by it alone, because the cause of action arose from its investment in DHFL and the benefit would have to go to the committee of creditors. The claim was therefore not a relief in personam. The proper course was an application in the insolvency, and the suit was, in the words recorded in the order, an attempt to “hoodwink the process of IBC proceedings”.
He relied on Sections 63, 231 and 238 of the Code, and on Section 66(1), under which the NCLT, on an application by the resolution professional, may direct any person who knowingly participated in carrying on the corporate debtor's business with intent to defraud creditors to contribute to its assets. An independent suit outside the insolvency, he said, would deny those assets to the committee as a whole.
63 Moons: an investor cannot invoke Section 66, so Section 35 must remain open
Mr Nataraj answered that 63 Moons had an independent cause of action against each defendant, and against the auditor in particular, under Section 35 of the Companies Act, 2013, which gives a person who subscribed to securities on the faith of a misleading prospectus a right to compensation from those responsible. Section 66 of the Code, he pointed out, can be invoked only by the resolution professional or the liquidator. An individual investor has no standing to move the NCLT under it, so the Section 35 suit was the only remedy and had to be maintainable.
He also relied on an earlier ruling of a division bench of the court in the same litigation. When a single judge had revoked the leave granted to sue, the division bench set that order aside and, analysing Section 14 of the Code, held the suit maintainable within the court's jurisdiction. With that finding already on record, he argued, the present application was misconceived and rejecting the plaint would amount to judicial impropriety.
A further strand of his argument drew on the Supreme Court's decision in Piramal Capital and Housing Finance Limited v. 63 Moons Technologies Limited, 2025 INSC 421, which arose from DHFL's own resolution. That judgment, he said, directed that recoveries under Sections 43, 45 and 50 of the Code go to the committee of creditors while recoveries under Section 66 go to the successful resolution applicant. If Section 66 money goes to the resolution applicant and not to the creditors, the auditor's premise that a suit recovery would deprive the creditors fell away.
Why the Section 66 point did not help the plaintiff
Justice Kumaresh Babu summarised the application as resting primordially on one ground: with DHFL in insolvency and a scheme approved, Section 66 of the Code required the court to decline jurisdiction and send the plaintiff to the NCLT, since any relief granted would enure only to the committee of creditors. He then read Piramal differently from the plaintiff. He extracted paragraph 74 of that judgment, which records that when the administrator sought approval of the resolution plan, 63 Moons filed an application challenging the plan's provision that Section 66 recoveries would go to the successful resolution applicant, and that the NCLT dismissed it, holding that the committee of 77 financial creditors had, in its commercial wisdom, given away those recoveries after a hard bargain in exchange for a lump-sum resolution amount of Rs 37,250 crore.
Section 66 itself, the judge held, directs recoveries to the benefit of the committee of creditors. The Supreme Court routed them to the resolution applicant in DHFL's case only because the creditors had decided to trade them for the lump sum. The plaintiff's contention that Section 66 recoveries benefit only the resolution applicant was therefore “wholly misconceived”.
The judge added a point about what 63 Moons had not done. DHFL was proceeded against under Section 66, and recoveries were in fact made from persons found responsible for fraudulent conduct. The plaintiff, which sat on the committee of creditors, offered no reason why the auditor had not been pursued in those proceedings. It could have brought the firm's conduct to the notice of the resolution professional and sought compensation through that route.
In personam on paper, in rem in substance
The judge accepted the plaintiff's starting point. If a fraudulent prospectus caused loss to subscribers, Section 35 of the Companies Act entitles each person who suffered loss to compensation from those liable, and a suit on that footing is, in the ordinary case, a right in personam available to 63 Moons against the auditor.
But the company whose prospectus was in question had gone into insolvency, and in that insolvency the business was examined for whether it had been carried on with intent to defraud creditors. Where that is found, the adjudicating authority can order those who knowingly took part to contribute to the corporate debtor's assets, and those assets are distributed among the committee of creditors. In that situation, the judge held, a Section 35 civil claim becomes an action in rem. The suit against the auditor was instituted on a Section 35 cause of action at a time when insolvency proceedings had been initiated against the company it served, and Section 66 proceedings had been initiated by the insolvency professional, who represents the creditors, against the persons responsible. Even though the claim against the firm was framed in personam, it “can only be termed to be an action in rem” because the alleged fraud related to the creation of assets in a company now under insolvency.
From that it followed that the court could not adjudicate the suit as against the auditor. Any recovery from the firm for fraudulent conduct could not go to the sole benefit of the plaintiff; it could only go to the benefit of the whole committee of creditors in the insolvency. The plaintiff's remedy against the firm, the judge held, lay only under Section 66 of the Code.
The order sets out the plaintiff's objections based on the earlier dismissed application, the pending intra-court appeals and the division bench's ruling on leave, but the reasoning that follows turns entirely on the insolvency question.
Order
The plaint in C.S.(Comm.Div.) No. 154 of 2020 was rejected as against the applicant, the eighth defendant Chaturvedi and Shah LLP, alone. 63 Moons was given liberty to seek appropriate relief under Section 66 of the Insolvency and Bankruptcy Code if it so desires. The suit against the remaining defendants is untouched by the order. Application No. 1409 of 2024 was disposed of with no order as to costs. The order was reserved on 3 August 2026 and pronounced on 16 October 2026.