In a pivotal judgment, the Hon’ble Supreme Court of India has set a precedent in the realm of corporate insolvency with its ruling in Greater Noida Industrial Development Authority vs. Prabhjit Singh Soni and Anr. This case, cited as CIVIL APPEAL NOS. 7590-7591 of 2023, revolved around the status of a creditor in the Corporate Insolvency Resolution Process (CIRP). The decision, dated February 12, 2024, addressed the intricacies of creditor classification and the powers of the National Company Law Tribunal (NCLT) under the Insolvency and Bankruptcy Code (IBC), 2016.
Fact- A Company Petition No. (IB) 272 (PB)/ 2019 was filed against the Corporate Debtor (CD) for initiating Corporate Insolvency Resolution Process (CIRP), which was admitted on 30.05.2019. Consequent thereto, claims were invited through a public announcement. Pursuant to the public notice, in the month of January 2020, appellant submitted a claim of Rs. 43,40,31,951, being unpaid instalments payable towards premium for the lease. The claim was set up by the appellant as a financial creditor of the CD. However, the Resolution Professional (RP) treated the appellant as an operational creditor and, vide e-mail dated 04.02.2020, requested the appellant to submit its claim in Form B, as an operational creditor of the CD. The appellant did not submit its claim afresh as an operational creditor.
In the meantime, the Committee of Creditors (COC) approved a plan which was presented to the Adjudicating Authority i.e. National Company Law Tribunal (NCLT) for approval. The NCLT vide order dated 04.08.2020 approved the same. On getting information through letter dated 24.09.2020 that the plan has been finalised and approved, on 06.10.2020 the appellant filed I.A. No.344 of 2021 questioning, inter alia, the resolution plan, the decision of the RP to treat the appellant as an operational creditor, and all actions in pursuance thereof. Another I.A. No.1380/2021 was filed on 15.03.2021 seeking, inter alia, recall of the order dated 04.08.2020.
NCLT’s Order-The NCLT, vide order dated 5.4.2021, rejected the aforesaid applications, inter alia, on the ground that, despite lapse of seven months between the date of filing its claim in January, 2020 and the date of approval of the plan in August 2020, the appellant took no steps against the RP for not taking a decision on its claim, even though it was aware about initiation of the CIRP, and now it is not permissible to take a decision on the claim application of the appellant as the CIRP is complete consequent to approval of the plan.
Appeal before NCLAT- Aggrieved with the order of the NCLT, the appellant filed an appeal before the National Company Law Appellate Tribunal, Principal Bench, New Delhi (NCLAT), inter alia, on the following grounds:
(i) The appellant was a financial creditor and, therefore, ought to have been a member of the COC. On account of absence of the appellant in the COC, the approval of the resolution plan by the COC and, thereafter, by the NCLT is rendered invalid;
(ii) By virtue of Sections 13, 13A and 14 of the 1976 Act, the appellant had a charge over the assets of the CD and was therefore a secured creditor within the meaning of Section 3(30) read with Section 3(31) of the IBC, yet the resolution plan does not treat the appellant as a secured creditor;
(iii) The appellant had submitted its claim with proof, yet the appellant was shown as one who submitted no claim. Additionally, the appellant was neither informed of the meetings of the COC nor adequate amount, commensurate to its status as a secured creditor and owner of the land with statutory rights, was allocated to it in the resolution plan, which is violative of the provisions of Section 30(2) of the IBC; and
(iv) The NCLT failed to address and appreciate the grounds taken in the correct perspective.
Findings of NCLAT-The appeal preferred by the appellant was dismissed by observing, inter alia,
(i) the materials on record reflect that the RP had informed the appellant vide e-mail dated 04.02.2020 about its status as an Operational Creditor and to submit its claim in Form ‘B’, yet the appellant chose not to file its claim;
(ii) in New Okhla Development Authority vs. Anand Sonbhadra (2023) 1 SCC 724, it was held that disbursement is an indispensable requirement to constitute a financial debt within the meaning of Section 5(8) of the IBC and, that too, the disbursement must be from a creditor to a debtor, and as the lease executed by the appellant was not a financial lease or capital lease, the appellant does not qualify as a financial creditor;
(iii) the resolution plan was approved by the Adjudicating Authority on 04.08.2020, and the successful resolution applicant (SRA) seeking implementation of the plan informed the appellant vide letter dated 24.09.2020 about the plan, yet I.A. No.344/ 2021 was not filed before 06.10.2020 and I.A. No. 1380/2021, seeking recall, was filed only on 15.03.2021, which shows that the appellant had not been diligent in pursuing its right, if any, therefore the challenge, post approval of the resolution plan, is liable to be rejected; and
(iv) there appears no material irregularity in the approval of the Resolution Plan, particularly, when the commercial wisdom of the COC is not justiciable.
Appeal before Supreme Court- These appeals under Section 62 of the Insolvency and Bankruptcy Code, 20161 are directed against the judgment and order dated 24.11.2022 of the National Company Law Appellate Tribunal, Principal Bench, New Delhi passed in Company Appeal (AT) (Ins.) No. 867 of 2021 and I.A. No. 2315 of 2021, whereby the appellant’s appeal against the order of the National Company Law Tribunal, New Delhi dated 05.04.2021 has been dismissed.
Upon consideration of the rival submissions, following issues arise for our consideration in this appeal
i) Whether in exercise of powers under sub-section (5) of Section 60, the Adjudicating Authority (i.e., NCLT) can recall an order of approval passed under sub-section (1) of Section 31 of the IBC?
ii) Whether the application for recall of the order was barred by time?
iii) Whether the resolution plan put forth by the resolution applicant did not meet the requirements of sub-section (2) of Section 30 of the IBC read with Regulations 37 and 38 of the CIRP Regulations, 2016?
iv) As to what relief, if any, the appellant is entitled to?
Question- Whether in exercise of powers under Section 60(5), NCLT can recall an order of approval passed under Section 31(1) of the IBC?
Section 60 of the IBC specifies that the Adjudicating Authority in relation to insolvency resolution and liquidation for corporate persons including corporate debtors and personal guarantors thereof shall be the NCLT having territorial jurisdiction over the place where the registered office of the corporate person is located. Subsection (5) of Section 60 provides that notwithstanding anything to the contrary contained in any other law for the time being in force, the NCLT shall have jurisdiction to entertain or dispose of: (a) any application or proceeding by or against the corporate debtor or corporate person; (b) any claim made by or against the corporate debtor or corporate person, including claims by or against any of its subsidiaries situated in India; and (c) any question of priorities or any question of law or facts, arising out of or in relation to the insolvency resolution or liquidation proceedings of the corporate debtor or corporate person under the IBC.
The NCLT has been constituted by the Central Government in exercise of power under Section 408 of the Companies Act, 2013. Section 408 of the Companies Act is in following terms:
“The Central Government shall, by notification, constitute with effect from such date as may be specified therein, a tribunal to be known as the National Company Law Tribunal consisting of a President and such number of judicial and technical members as the Central Government may deem necessary, to be appointed by it by notification to exercise and discharge such powers and functions as are, or may be, conferred on it by or under this Act or any other law for the time being in force.”
Rule 11 of the National Company Law Tribunal Rules, 2016, framed under Section 469 of the Companies Act 2013, which is in pari materia with Section 151 of Code of Civil Procedure, 1908, preserve the inherent powers of the Tribunal in the following terms:
“Nothing in these rules shall be deemed to limit or otherwise affect the inherent powers of the Tribunal to make such orders as may be necessary for meeting the ends of justice or to prevent abuse of the process of the Tribunal.”
In Manohar Lal Chopra vs. Rai Bahadur Rao Raja Seth Hiralal a four-Judge Bench of this Court in the context of powers vested in the Court, while interpreting Section 151 CPC, observed:
“23… The Section itself says that nothing in the Code shall be deemed to limit or otherwise affect the inherent power of the Court to make orders necessary for the ends of justice. In the face of such a clear statement, it is not possible to hold that the provisions of the Code control the inherent power by limiting it or otherwise affecting it. The inherent power has not been conferred upon the court; it is a power inherent in the Court by virtue of its duty to do justice between the parties before it.”
(Emphasis supplied)
In Grindlays Bank Ltd. vs. Central Govt. Industrial Tribunal AIR 1962 SC 527 a question arose whether Central Government Industrial Tribunal has power to recall/ set aside an ex parte award when the party aggrieved had been prevented from appearing by a sufficient cause. Holding that such power inheres in a Tribunal, this Court observed:
“6. We are of the opinion that the Tribunal had the power to pass the impugned order if it thought fit in the interest of justice. It is true that there is no express provision in the Act or the rules framed thereunder giving the Tribunal jurisdiction to do so. But it is a well-known rule of statutory construction that a Tribunal or body should be considered to be endowed with such ancillary or incidental powers as are necessary to discharge its functions effectively for the purpose of doing justice between the parties. In a case of this nature, we are of the view that the Tribunal should be considered as invested with such incidental or ancillary powers unless there is any indication in the statute to the contrary. We do not find any such statutory prohibition. On the other hand, there are indications to the contrary.”
(Emphasis Supplied)
In addition to above, recognising the difference between a procedural review and a review on merits, it was observed:
13…………The expression “review” is used in the two distinct senses, namely (1) a procedural review which is either inherent or implied in a court or Tribunal to set aside a palpably erroneous order passed under a misapprehension by it, and (2) a review on merits when the error sought to be corrected is one of law and is apparent on the face of the record. …………. Obviously when a review is sought due to a procedural defect, the inadvertent error committed by the Tribunal must be corrected ex debito justitiae to prevent the abuse of its process, and such power inheres in every court or Tribunal.”
In State of Punjab vs. Davinder Pal Singh Bhullar (2011) 14 SCC 770, while considering the bar imposed on a Court by Section 362 of the Criminal Procedure Code, 1973 on review of a judgment or final order disposing of a case, it was observed:
“46. If a judgment has been pronounced without jurisdiction or in violation of principles of natural justice or where the order has been pronounced without giving an opportunity of being heard to a party affected by it or where an order was obtained by abuse of the process of court which would really amount to its being without jurisdiction, inherent powers can be exercised to recall such order for the reason that in such an eventuality the order becomes a nullity and the provisions of Section 362 CrPC would not operate. In such an eventuality, the judgment is manifestly contrary to the audi alteram partem rule of natural justice. The power of recall is different from the power of altering/reviewing the judgment. However, the party seeking recall/alteration has to establish that it was not at fault.”
The above passage was cited and approved by a three-Judge Bench of this Court in New India Assurance Co. Ltd. vs. Krishna Kumar Pandey (2021) 14 SCC 683.
In Budhia Swain vs. Gopinath Deb (1999) 4 SCC 396, after considering a number of decisions, a two-Judge Bench of this Court observed:
“8. In our opinion a tribunal or a court may recall an order earlier made by it if
(i) the proceedings culminating into an order suffer from the inherent lack of jurisdiction and such lack of jurisdiction is patent,
(ii) there exists fraud or collusion in obtaining the judgment,
(iii) there has been a mistake of the court prejudicing a party, or
(iv) a judgment was rendered in ignorance of the fact that a necessary party had not been served at all or had died and the estate was not represented.
The power to recall a judgment will not be exercised when the ground for reopening the proceedings or vacating the judgment was available to be pleaded in the original action but was not done or where a proper remedy in some other proceeding such as by way of appeal or revision was available but was not availed. The right to seek vacation of a judgment may be lost by waiver, estoppel or acquiescence.”
The law which emerges from the decisions above is that a Tribunal or a Court is invested with such ancillary or incidental powers as may be necessary to discharge its functions effectively for the purpose of doing justice between the parties and, in absence of a statutory prohibition, in an appropriate case, it can recall its order in exercise of such ancillary or incidental powers.
In a recent decision (i.e., Union Bank of India vs. Dinakar T. Vekatasubramanian & Ors.), a five member Full Bench of NCLAT held that though the power to review is not conferred upon the Tribunal but power to recall its judgment is inherent in the Tribunal and is preserved by Rule 11 of the NCLT Rules, 2016. It was held that power of recall of a judgment can be exercised when any procedural error is committed in delivering the earlier judgment; for example, necessary party has not been served or necessary party was not before the Tribunal when judgment was delivered adverse to a party. It was observed that there may be other grounds for recall of a judgment one of them being where fraud is played on the Court in obtaining a judgment. This decision of NCLAT was upheld by a two-Judge Bench of this Court vide order dated 31.07.2023 in Civil Appeal No.4620 of 2023 (Union Bank of India vs. Financial Creditors of M/s Amtek Auto Ltd. & Ors.).
In light of the discussion above, what emerges is, a Court or a Tribunal, in absence of any provision to the contrary, has inherent power to recall an order to secure the ends of justice and/or to prevent abuse of the process of the Court. Neither the IBC nor the Regulations framed thereunder, in any way, prohibit, exercise of such inherent power. Rather, Section 60(5)(c) of the IBC, which opens
with a non-obstante clause, empowers the NCLT (the Adjudicating Authority) to entertain or dispose of any question of priorities or any question of law or facts, arising out of or in relation to the insolvency resolution or liquidation proceedings of the corporate debtor or corporate person under the IBC. Further, Rule 11 of the NCLT Rules, 2016 preserves the inherent power of the Tribunal. Therefore, even in absence of a specific provision empowering the Tribunal to recall its order, the Tribunal has power to recall its order. However, such power is to be exercised sparingly, and not as a tool to re-hear the matter. Ordinarily, an application for recall of an order is maintainable on limited grounds, inter alia, where (a) the order is without jurisdiction; (b) the party aggrieved with the order is not served with notice of the proceedings in which the order under recall has been passed; and (c) the order has been obtained by misrepresentation of facts or by playing fraud upon the Court /Tribunal resulting in gross failure of justice.
In the case on hand, the recall application was filed by claiming that,- (a) the appellant was not informed of the meetings of the COC; (b) the proceedings up to the stage of approval of the resolution plan by the Adjudicating Authority were ex parte; (c) the RP misrepresented that the appellant had submitted no claim when, otherwise, a claim was submitted of an amount higher than what was shown outstanding towards the appellant; and (d) there was gross mistake on part of the Adjudicating Authority in approving the plan which did not fulfil the conditions laid down in sub-section (2) of Section 30 of the IBC.
In our view, the grounds taken qualify as valid grounds on which a recall of the order of approval dated 04.08.2020 could be sought. We thus hold that the recall application was maintainable notwithstanding that an appeal lay before the NCLAT against the order of approval passed by the Adjudicating Authority.
Question-Whether the application for recall of the order was barred by time?
As regards the plea that the recall application was barred by time, suffice it to say that I.A. No.344/ 2021 was filed on 6.10.2020 upon getting information on 24.09.2020 from the monitoring agency regarding approval of the plan. Likewise, I.A. No.1380/ 2021 was filed on 15.03.2021 immediately when suspension of the period of limitation for any suit, appeal, application or proceeding, between 15.03.2020 and 14.03.2021, was lifted in terms of this Court’s order dated 8.03.2021 in RE: Cognizance For Extension of Limitation (supra). We, therefore, find no substance in the plea that the applications were barred by limitation.
Question- Whether the resolution plan put forth by the resolution applicant did not meet the requirements of sub-section (2) of Section 30 of the IBC read with Regulations 37 and 38 of the CIRP Regulations, 2016?
In our view the resolution plan did not meet the requirements of Section 30(2) of the IBC read with Regulations 37 and 38 of the CIRP Regulations, 2016 for the following reasons:
a) The resolution plan disclosed that the appellant did not submit its claim, when the unrebutted case of the appellant had been that it had submitted its claim with proof on 30.01.2020 for a sum of Rs.43,40,31,951/- No doubt, the record indicates that the appellant was advised to submit its claim in Form B (meant for operational creditor) in place of Form C (meant of financial creditor). But, assuming the appellant did not heed the advice, once the claim was submitted with proof, it could not have been overlooked merely because it was in a different Form. As already discussed above, in our view the Form in which a claim is to be submitted is directory. What is necessary is that the claim must have support from proof. Here, the resolution plan fails not only in acknowledging the claim made but also in mentioning the correct figure of the amount due and payable. According to the resolution plan, the amount outstanding was Rs. 13,47,40,819/- whereas, according to the appellant, the amount due and for which claim was made was Rs. 43,40,31,951/- This omission or error, as the case may be, in our view, materially affected the resolution plan as it was a vital information on which there ought to have been application of mind. Withholding the information adversely affected the interest of the appellant because, firstly, it affected its right of being served notice of the meeting of the COC, available under Section 24 (3) (c) of the IBC to an operational creditor with aggregate dues of not less than ten percent of the debt and, secondly, in the proposed plan, outlay for the appellant got reduced, being a percentage of the dues payable. In our view, for the reasons above, the resolution plan stood vitiated. However, neither NCLT nor NCLAT addressed itself on the aforesaid aspects which render their orders vulnerable and amenable to judicial review.
b) The resolution plan did not specifically place the appellant in the category of a secured creditor even though, by virtue of Section 13-A of the 1976 Act, in respect of the amount payable to it, a charge was created on the assets of the CD. As per Regulation 37 of the CIRP Regulations 2016, a resolution plan must provide for the measures, as may be necessary, for insolvency resolution of the CD for maximization of value of its assets, including, but not limited to, satisfaction or modification of any security interest. Further, as per Explanation 1, distribution under clause (b) of sub-section (2) of Section 30 must be fair and equitable to each class of creditors. Non-placement of the appellant in the class of secured creditors did affect its interest. However, neither NCLT nor NCLAT noticed this anomaly in the plan, which vitiates their order.
c) Under Regulation 38 (3) of the CIRP Regulations, 2016, a resolution plan must, inter alia, demonstrate that (a) it is feasible and viable; and (b) it has provisions for approvals required and the time-line for the same. In the instant case, the plan conceived utilisation of land owned by the appellant. Ordinarily, feasibility and viability of a plan are economic decisions best left to the commercial wisdom of the COC. However, where the plan envisages use of land not owned by the CD but by a third party, such as the appellant, which is a statutory body, bound by its own rules and regulations having statutory flavour, there has to be a closer examination of the plan’s feasibility. Here, on the part of the CD there were defaults in payment of instalments which, allegedly, resulted in raising of demand and issuance of pre-cancellation notice. In these circumstances, whether the resolution plan envisages necessary approvals of the statutory authority is an important aspect on which feasibility of the plan depends. Unfortunately, the order of approval does not envisage such approvals. But neither NCLT nor NCLAT dealt with those aspects.
Relief- As we have found that neither NCLT nor NCLAT while deciding the application /appeal of the appellant took note of the fact that,- (a) the appellant had not been served notice of the meeting of the COC; (b) the entire proceedings up to the stage of approval of the resolution plan were ex parte to the appellant; (c) the appellant had submitted its claim, and was a secured creditor by operation of law, yet the resolution plan projected the appellant as one who did not submit its claim; and (d) the resolution plan did not meet all the parameters laid down in sub-section (2) of Section 30 of the IBC read with Regulations 37 and 38 of the CIRP Regulations, 2016, we are of the considered view that the appeals of the appellant are entitled to be allowed and are accordingly allowed. The impugned order dated 24.11.2022 is set aside. The order dated 04.08.2020 passed by the NCLT approving the resolution plan is set aside. The resolution plan shall be sent back to the COC for re-submission after satisfying the parameters set out by the Code as exposited above. There shall be no order as to costs.
Conclusion: The Supreme Court’s decision underscores the necessity for meticulous adherence to procedural and substantive requirements in CIRP. By setting aside the NCLT’s approval of the resolution plan and directing a reassessment by the COC, the Court has reinforced the principle that creditor rights and fair treatment are paramount in insolvency proceedings. This landmark ruling not only rectifies the grievances of GNIDA but also sets a clear precedent for future cases involving creditor classification and the powers of insolvency tribunals.
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