LI Network
Published on: February 14, 2024 at 13:00 IST
The Supreme Court, observed that the National Company Law Tribunal (NCLT), as the Adjudicating Authority (AA) under the Insolvency and Bankruptcy Code, 2016 (IBC), has the authority to recall its order approving a resolution plan if the plan is not submitted in accordance with the Code.
A recall application was filed by the Resolution Applicant (RA) before the Adjudicating Authority (AA), seeking to recall the order approving the resolution plan. The RA argued that the approved plan did not meet the conditions specified in sub-section (2) of Section 30 of the IBC.
The AA rejected the recall application, stating that it cannot decide on the recall application after approving the resolution plan.
The National Company Law Appellate Tribunal (NCLAT) affirmed the AA’s view while dismissing the appeal against the NCLT’s order.
The Resolution Applicant appealed the NCLAT’s order to the Supreme Court.
The key question before the Supreme Court was whether, in the exercise of powers under sub-section (5) of Section 60, the Adjudicating Authority (NCLT) could recall an order of approval passed under sub-section (1) of Section 31 of the IBC.
Answering in the affirmative, the Supreme Court, relying on its recent judgment in Union Bank of India vs. Financial Creditors of M/s Amtek Auto Ltd. & Ors., noted a gross mistake by the Adjudicating Authority in approving a plan that did not fulfill the conditions laid down in sub-section (2) of Section 30 of the IBC.
The Court held that the grounds taken by the RA in the recall application were valid for seeking a recall of the approval order.
“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.”
In the M/S Amtek Auto Ltd. case, the court affirmed the observations of the NCLAT, stating that although the power to review is not expressly conferred upon the Tribunal, the power to recall its judgment is inherent and preserved by Rule 11 of the NCLT Rules, 2016, to secure justice and prevent abuse of the court’s process.
The court emphasized that this power should be exercised sparingly, primarily on limited grounds, such as when the order is without jurisdiction, the aggrieved party was not served notice, or the order was obtained by misrepresentation or fraud leading to a gross failure of justice.
The Court allowed the appeal and directed that the resolution plan be sent back to the Committee of Creditors (COC) for resubmission, ensuring it satisfies the parameters set out by the Code.
The judgment, authored by Justice Manoj Misra, stated:
“…what emerges is a Court or a Tribunal, in the 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 the 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 the absence of a specific provision empowering the Tribunal to recall its order, the Tribunal has the power to recall its order.”
Case Details: GREATER NOIDA INDUSTRIAL DEVELOPMENT AUTHORITY VERSUS PRABHJIT SINGH SONI & ANR.