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Mitul Bindra is a student of Government Law College, Mumbai
A recent ruling by the Supreme Court (“SC”) in Greater Noida Industrial Development Authority v Prabhjit Singh Soni has significantly broadened the powers of Adjudicating Authority (“NCLT”) in recalling its order. The Court also lays down the directory nature of claim submission in prescribed form, however this post confines itself to the interpretation of the Tribunal’s power to recall its order.
In interpreting the recall power granted in the NCLT ruling, the author points to the potential gaps between the newly established recall powers and established legal principles. While acknowledging the potential benefits of broader review authority and ensuring justice in some exceptional cases, concerns are raised about its compatibility with existing precedents and the legislative intent. Additionally, the potential for misuse by unscrupulous parties with questionable motives is highlighted.
Factual Matrix
The case dealt with appeals filed by Greater Noida Industrial Development Authority (“GNIDA”) against the orders of Appellate Tribunal (“NCLAT”) and NCLT, approving the Resolution Plan for M/s. JNC Construction Pvt. Ltd. (“Corporate Debtor”). Pursuant to commencement of CIRP, GNIDA submitted its claim as a secured financial creditor. The Resolution Professional however categorised the claim as an Operational Creditor while admitting part amount. The RP further sought claim in Form – B i.e. as an operational creditor. There being no further response from GNIDA, part of the claim was admitted and given treatment under the resolution plan. The key contention of GNIDA arose from the incorrect treatment under the resolution plan and on the principles of natural justice.
Recall vs Review
The recall of an order entails reversal or revocation of the order due to procedural defects. An illustrious situation for such recall would be when principles of natural justice were not followed. The SC in Budhia Swain & Ors. v Gopinath Deb & Ors had laid down certain grounds on which an order could be recalled as follows:
- The proceedings culminating into an order suffer from the inherent lack of jurisdiction and such lack of jurisdiction is patent.
- There exists fraud or collusion in obtaining the judgment,
- There has been a mistake of the court prejudicing a party, or
- 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.
It was further held that such power should not be exercised if an alternative remedy by way of appeal exists but was not pursued by the party.
Per contra, a review of an order means to judicially reconsider the order passed when there exists an error on the face of record. The SC in SERI Infrastructure Finance Ltd. vs. Tuff Drilling Pvt. Ltd. after considering the existing jurisprudence, affirmed that the power to review must be expressly conferred by the statute.
Inherent Powers of the Tribunal
Rule 11 of the National Company Law Tribunal Rules, 2016 deals with the inherent powers of the Tribunal. A corresponding provision also exists in National Company Law Appellate Tribunal Rules, 2016. The provision reads as:
11. Inherent Powers.- 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.
This rule gives wide powers to the NCLT & NCLAT to pass any order they deem fit in the interest of justice. However, such an order should not contravene any express provision of the statute.
Relying upon the distinction between a review and recall and the inherent powers of the tribunal, The five-member bench of NCLAT in UBI v. Dinkar T. Venkatasubramanian & Ors. held that the power to recall an order is inherent under Rule 11. Such a recall must not deal with the merits of the case but only cure any procedural infirmities. Any adjudication on merits would ipso facto be a review of the order which is not permissible except by an explicit enabling provision.
The Complications with IBC
The Insolvency & Bankruptcy Code (“IBC”) was enacted to resolve debt-ridden companies in the time bound manner. The Courts have repeatedly emphasised the importance of timelines during the resolution process. When the parties failed to exercise their rights throughout the resolution process only to pose hurdles at its culmination, the courts have prevented such disruption at the plan approval stage.
In the present case, the recall order was against an order approving the resolution plan after more than 3 years of commencement of the resolution process. Such an order is a substantive one which effectively grants a second life to an insolvent company. However, under the guise of recalling an order approving the resolution plan, the SC has effectively reviewed the same on merits and has expressly bestowed the same power upon NCLT. This can be inferred from the analysis of compliance requirements and shortfalls under Section 30(2) of IBC by the SC.
The Court’s reasoning for allowing the recall application was for non-compliance to Section 30(2). None of the grounds laid down in Budhia Swain (Supra) can be read into the facts of the case. Through this order, the SC has essentially introduced a ground of non-compliance as a valid one for a recall application. This will empower any unscrupulous promoters/creditors with vested interests to further delay the resolution process.
Interestingly, the power to review such order on merits can easily be availed by approaching the NCLAT under Section 61 of IBC. Another layer of appeal to the Supreme Court also exists under Section 62. The NCLAT, as the appellate authority can set aside orders of NCLT, including orders approving resolution plans. The presence of a proper alternate remedy by way of appeal vitiates an application for recall, as held in Budhia Swain (Supra). This principle was referred in the present case yet the application was allowed, notwithstanding the appellate remedy. Citing the present case as precedent, the parties would argue the same grounds in a recall application before NCLT as they would in an appeal to NCLAT. This serves no purpose beyond introducing another round of litigation, further undermining the time-bound nature of the resolution process
Conclusion
The Supreme Court’s ruling, while seemingly aimed at ensuring procedural fairness, risks opening a Pandora’s box of litigation within the IBC framework. The broadened interpretation of recall powers blurs the lines between review and recall, creating ambiguities that can be exploited by disgruntled parties. This can lead to another hurdle in successful resolution of a corporate debtor. In the author’s opinion, the ruling must be referred to a larger bench for reconsideration and be confined to the facts of the case. Moreover, the SC must lay down the scope of the inherent powers under Rule 11 and the extent of their restrictions when dealing with review applications beneath the veil of recall applications.
