A Study on Inherent Power of NCLT to Recall a CIRP

Abstract

In this article, the authors analyse that the National Company Law Tribunal has inherent powers to recall any order when it is apparent that a fault has occurred due to any procedural error to comply with the object of IBC.

Keywords: inherent, powers, recall, procedural errors.

Chapter 1: Introduction

The purpose of Courts is to dispense justice which necessarily means both timely justice and quality justice. The interest of every party has to be taken care of by the court. However, at certain times procedural errors might take place, that need to be rectified, otherwise the whole proceeding will get vitiated.^[1] For so doing, it becomes necessary that every court has the power to rectify the wrongs done in the misbelief of facts. These powers are also needed in such situations where there might arise such circumstances for which no provisions in law might have been laid down. Hence, it becomes essential that the court acts according to the circumstances to be able to grant justice to the parties.^[2] In such regard, the National Company Law Tribunal is provided with inherent powers, to further the ends of justice, and also recall any order that is affected by any deficiency. However, any such exercise of inherent powers has to be within the scheme of the Insolvency and Bankruptcy Code, 2016.

The National Companies Law Tribunal, established under section 408 of the Companies Act, 2013, is a quasi-judicial body, that exercises its jurisdiction over the companies to resolve disputes. The Tribunal gets its jurisdiction from section 280 of the Companies Act, 2013 to deal with suits, proceedings, or claims concerning companies in India. Rule 11 provided in the National Company Law Tribunal Rules, 2016, provides the tribunal with the power to make such orders that will enable it to dispense justice and to avert the abuse of the process of the tribunal. There might be certain errors that might have been committed by the tribunal, which is necessary to rectify, for the reason that the parties should get fair treatment and justice which shall be provided to the victim.

When a corporate entity makes any default with regard to a debt, the interests of various stakeholders get impacted, namely, the financial creditors, the operational creditors, and the corporate debtors themselves. Their interests are required to be taken care of by the adjudicating authority (NCLT) and for such purpose, it becomes necessary that certain safeguards are provided to prevent any imbalances in which case the inherent powers of the tribunal become important to reckon with.

Chapter 2: Recall or Review

The Black’s Law Dictionary mentions that, to recall a judgement means to revoke, cancel, vacate, or reverse a judgement for matters of fact; when it is annulled by reasons of errors of law^[3], whereas Review means a re-examination or re-consideration or, it can also be done to make a correction and is used by the appellate court for the examination of a cause.^[4] Therefore, review means relooking into the judgement for correction.^[5]

While considering the matter as to whether any court or a quasi-judicial authority can recall its earlier award, the case of Kapra Mazdoor Ekta Union vs. Birla Cotton Spinning & Weaving Mills Ltd. & Anr.^[6] provides an important insight. The question that arose before the court was whether the recalling of its order by the Industrial Tribunal was justified or not, since as in the view of the court it virtually amounted to a review of its order. When the case was brought in appeal before the High Court, it rejected it on the ground that in the absence of an express provision of law, it cannot be presumed that to review its judgement is an inherent power conferred in the tribunal.

The court went on to establish a difference between a procedural review and a review on merits. While the latter can be done only when an express provision of law provides the court with such power, the former can be exercised when the whole proceeding gets vitiated due to a procedural mistake, which ultimately makes the order passed by the court or the quasi-judicial authority become invalidated. In that scenario, the order is liable to be recalled.

Chapter 3: Background

In Agarwal Coal Corporation Private Limited v. Sun Paper Mill Limited and Another,^[7] the applicant prayed that the tribunal should exercise its inherent powers and recall a judgement. The basis provided by the applicant for the exercise was fraud on the part of the respondent.

The court, however, provided that it has no inherent power to review its judgement and it cannot be performed unless an express provision of law is provided. It further provided that Rule 11 of National Company Law Tribunal Rule, 2016 is not a substantive rule which provides any power to the tribunal. The appropriate action, in such a case, would be to file an appeal before the appellate forum.

However, consequently, this position seems to have been declared wrong. The fact that the tribunal has no power to recall its order when it is apparent that a fault is present in it cannot be said to be a right practice. The function of the court or tribunal is to provide justice to the affected parties and in the exercise of such functions the court is presumed to have such powers that will enable them to grant justice, even when no express provision of law is provided.^[8]

While dealing in the matter of the Union Bank of India (Erstwhile Corporation Bank) v. Dinkar T. Venkatasubramanian & Ors.^[9], the question before the tribunal arose as to whether the tribunal could take into consideration an application of the recall of the judgement, if sufficient grounds are fulfilled. The Tribunal, to achieve a conclusion, went into deciding the nature and extent of the inherent powers and finally held that to make a consideration that the adjudicating authority has no power to recall its judgement cannot be considered to be a correct law. The power to recall the judgement is something inherent to the tribunal and there can be no debate regarding it and the same has been laid down by Rule 11. For achieving the said conclusion, the Tribunal relied upon the precedent set by the Supreme Court which provided that the Tribunal is provided with inherent powers to recall the judgements when appropriate grounds are fulfilled.

Chapter 4: Commercial Wisdom and Inherent Powers

The legislature has provided the committee of creditors with commercial wisdom to decide upon approval, non-approval, or rejection of the insolvency resolution plan. The committee of creditors is considered as protagonist, who in the exercise of its commercial wisdom has to make key decisions. Whether a business has to be a going concern or should be liquidated is regarded as a business decision, which has been left to the committee.^[10] The adjudicating authority in such a situation cannot inquire into the justness of the approach relied upon by the committee to approve or reject the resolution plan. The only scheme that has been provided by the code is that the tribunal can decide upon the validity of the resolution plan.

In K. Sashidhar v. Indian Overseas Bank^[11], it was noted that whether a resolution plan has to be approved or rejected, has to be taken by the creditors committee, and it comes within the purview of their commercial wisdom. They can approve the resolution plan or they may not, but in any case, justness of the approach cannot be decided by the adjudicating authority. While reaching such a conclusion the court submitted the legislative intent seems to provide the committee of creditors with such wisdom while making any business decision. The tribunal can only, to a certain extent, inquire into limited grounds. The decision reached by the creditors is not open to judicial review. No provision can be found where the legislature has given any indication that the decision of the committee can be reversed by the tribunal or the appellate tribunal.

The court suggested that in that scenario the remedy that is available with the party is to file an appeal against the order approving the resolution plan under section 32 read with sub-section 3 of section 61 of the code. Hence, the court upheld that it gives no power to the tribunal encroach on to the wisdom of the committee of the creditors.

The same stance was taken by the court in Greater Noida Industrial Development Authority v. Prabhjit Singh Soni and Another^[12], where the court had to deal with a situation where a claim for recalling a resolution plan was made, that the authority had already approved. It was provided by the respondents that; such a decision has to be left to be decided by the committee of creditors. The court was satisfied with the argument of the respondents that the commercial wisdom of the committee of creditors is not justiciable and no review can be done in this behalf. However, this time the court laid down that it is also important that every party needs to comply with the schemes of the Code. If it is found that any party has failed to comply with the provisions of the code in such a situation, the adjudicating authority will have the requisite power to send back the resolution plan. The resolution plan after it fulfils all the parameters, can be resubmitted. The same goes for appellate authority, which can exercise its power within the limits of Section 61 of the code. This implies that when an error is detected, then instead of going for an appeal before an appellate authority, the same a

The court further held that the tribunal or the court, for the purpose of discharging its functions, aimed at securing justice for the parties before it, “is invested with ancillary and incidental powers”. In the exercise of such powers, the tribunal or the court has the power to recall its order. The court also provided certain grounds upon which the recall application can be maintained, such as—a). lack of jurisdiction, b). when an aggrieved party has not been served with a notice, c). the existence of fraud or misrepresentation of facts.

Chapter 5: Analysis

It can safely be laid down that NCLT has been provided with the power to recall its orders concerning the corporate insolvency resolution process. These powers are not something that needs to be expressly provided but they are something that are in-built into the tribunal because of the nature of the function that they are required to perform. Rule 11 of the National Company Law Tribunal Rules, 2016 preserves the tribunal’s power. However, there are certain limitations, too, that are provided in the exercise of the function. It has to be seen if there are express provisions that are provided by the law concerning the matter at hand. If they are present then the tribunal can take no contrary position. The power of recall can be exercised when any procedural error has been committed by the tribunal. Certain specific occasions are recognised by courts and tribunals when such powers can be exercised by them. The most prevalent ground upon which an order can be recalled is the exercise of fraud by a party to obtain a judgement. The other ground recognised by authorities is when the other party has not been given any opportunity to be heard.^[13]

In the case of Uttara Foods & Feeds (P) Ltd. v. Mona Pharmachem,^[14] a direction was issued by the Supreme Court that the adjudicating authority should have inherent powers to allow for the withdrawal of the insolvency petition after its admissions. In such a situation where an application is admitted under section 7, section 9, or section 10 can be withdrawn, by the exercise of the inherent powers of the authority, provided there is approval by 90% of the committee of creditors.^[15] However, it is also provided that such an application for withdrawal can be accepted by the authority, provided the committee of creditors has still not been constituted, and if the facts and circumstances of the case allow it.^[16]

In any case, the inherent powers are to be exercised by the tribunal thriftly and not unsparingly. The tribunal is not vested with the power of recall which involves rehearing of case.

Chapter 6: Conclusion

It has repeatedly been laid down that the adjudicating authority lacks the power to review any order passed by it. The power to recall is granted to the adjudicating authority, however, it can be exercised only in cases where any procedural error has been committed. The committee of creditors plays a very crucial role in the insolvency process of an entity. However, their action is required to be within the norms prescribed by the code, otherwise, the whole process will become very detrimental to the aims of the code. It is to be taken into consideration that one of the goals of the code is to balance the interests of the stakeholders. In such a situation, the decision of the courts that the inherent powers can be exercised thriftily to prevent the abuse of the process of the court and to uphold justice goes hand in hand.

^[1] Kapra Mazdoor Ekta Union vs. Birla Cotton Spinning & Weaving Mills Ltd. & Anr., Appeal (civil) 3475 of 2003.

^[2]Justice CIC Thakker, Civil Procedure, 730 (Eastern Book Company 2009).

^[3] Black’s Law Dictionary, Henry Campbell Black, 1433 (West Publishing Co. 1968).

^[4] Id. at 1483

^[5] Agarwal Coal Corporation Pvt. Ltd. v. Sun Paper Mill Ltd., 2021 SCC OnLine NCLAT 367.

^[6]  Kapra Mazdoor Ekta Union vs. Birla Cotton Spinning & Weaving Mills Ltd. & Anr (2005) 13 SCC 777.

^[7] Agarwal Coal Corporation Pvt. Ltd. v. Sun Paper Mill Ltd., 2021 SCC OnLine NCLAT 367.

^[8] Grindlays Bank Ltd. v. Central Govt. Industrial Tribunal, 1980 Supp SCC 420.

^[9] Union Bank of India (Erstwhile Corporation Bank) v. Dinkar T. Venkatasubramanian & Ors, Company Appeal (AT) (Ins.) No. 729 of 2020.

^[10] Jaypee Kensington Boulevard Apartments Welfare Assn. v. NBCC (India) Ltd., (2022) 1 SCC 401.

^[11] K. Sashidhar v. Indian Overseas Bank, (2019) 12 SCC 150.

^[12] Greater Noida Industrial Development Authority v. Prabhjit Singh Soni & Anr. (Civil Appeal Nos. 7590-7591 of 2023)

^[13] Union Bank of India (Erstwhile Corporation Bank) v. Dinkar T. Venkatasubramanian & Ors Company Appeal (AT) (Ins.) No. 729 of 2020.

^[14] Uttara Foods & Feeds (P) Ltd. v. Mona Pharmachem (2018) 15 SCC 587.

^[15] Insolvency and Bankruptcy Code, 2016, § 12A, No. 31, Acts of Parliament, 2016 (India).

^[16] Swiss Ribbons (P) Ltd. v. Union of India, (2019) 4 SCC 17.