TMI Blog2024 (2) TMI 681X X X X Extracts X X X X X X X X Extracts X X X X ..... d 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 in UNION BANK OF INDIA (ERSTWHILE CORPORATION BANK) VERSUS DINKAR T. VENKATASUBRAMANIAN ORS. [ 2023 (7) TMI 209 - NATIONAL COMPANY LAW APPELLATE TRIBUNAL , PRINCIPAL BENCH , NEW DELHI] , a fivemember 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. In the case on hand, the recall ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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. 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 int ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he Code - Appeal allowed. - CJI. ( Dr. Dhananjaya Y. Chandrachud ) , Justice ( J. B. Pardiwala ) And Justice ( Manoj Misra ) For the Appellant : Mr. Ravindra Kumar, Sr. Adv. Mr. Binay Kumar Das, AOR Ms. Priyanka Das, Adv. Ms. Neha Das, Adv. Mr. Shivam Saksena, Adv. For the Respondent : Dr. Abhishek Manu Singhvi, Sr. Adv. Mr. Siddharth Bhatnagar, Sr. Adv. Mr. Vardhman Kaushik, AOR Mr. Nishant Gautam, Adv. Mr. Dhruv Joshi, Adv. Mr. Ajay Kanojia, Adv. Mr. Siddharth Seem, Adv. Mr. Mayank Sharma, Adv. Ms. Sanjana Mehrotra, Adv. Mr. Abhinav Singh, Adv. Mr. Ayush Singh, Adv. Mr. Vinay Kaushik, Adv Mr. V M Kannan, AOR Ms. GP Madaan, Adv. Ms. Harimohana N, Adv. Mr. Aditya Madaan, Adv. Mr. Khubaib Shakeel, Adv. Mr. Naresh Kaushik, Sr. Adv. Mr. Manoj Joshi, Adv. Ms. Shikha John, Adv. Mr. Anand Singh, Adv. Mr. Shubham Dwivedi, Adv. Mrs. Lalita Kaushik, AOR JUDGMENT MANOJ MISRA, J. 1. These appeals under Section 62 of the Insolvency and Bankruptcy Code, 2016 IBC are directed against the judgment and order Order dated 24.11.2022 of the National Company Law Appellate Tribunal, Principal Bench, New Delhi NCLAT passed in Company Appeal (AT) (Ins.) No. 867 of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rational creditor. In the meantime, the COC approved a plan which was presented to the Adjudicating Authority (NCLT) for approval. The NCLT vide order dated 04.08.2020 approved the same. 8. 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. 9. In the two applications referred to above, the appellant pleaded, inter alia, that, -- (a) there was gross error on part of the RP in treating the appellant as an operational creditor, particularly, when it had no adjudicatory power under Regulation 13 of The Insolvency and Bankruptcy Board of India (Insolvency Resolution Process for Corporate Persons) Regulations, 2016 CIRP Regulations 2016 ; (b) the resolution plan erroneously states that appellant did not submit a claim when, in fact, it was submitted; (c) appellant being owner of the land with statutory char ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ose 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) 17 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. 13. We have heard Sri Ravindra Kumar ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... , as it stands settled by a decision of this Court in Anand Sonbhadra (supra), wherein it has been held that it is not a financial debt. Therefore, the appellant had no voting right in the COC. And since the appellant pressed its case only on the ground that it is a financial creditor, its challenge to the order of approval had no basis. More so, when the commercial wisdom of the COC is not justiciable. Further, once the resolution plan, which makes a provision for the appellant, is approved by the Adjudicating Authority, it cannot be questioned through a recall application. Analysis 16. Before we proceed to test the correctness of the impugned order against the weight of rival submissions, it would be useful to have a look at the statutory provisions of the IBC and the Regulations framed thereunder with reference to the corporate insolvency resolution process. 17. As per the provisions of the IBC, on admission of a petition, and declaration of a moratorium under Section 13, a public announcement is made inviting claims against the CD by a specified date. The manner in which a public announcement is to be made and claims are to be submitted, is described in the CIRP Reg ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ions 2016 is directory and not mandatory. What is important is, the claim must be supported by proof. 23. On collation of claims received against the CD, the IRP has to constitute a COC. As per Section 21 (2) of the IBC, subject to other provisions of Section 21, the COC must comprise all financial creditors of a CD. Under Section 22 of the IBC, the COC appoints an RP in its first meeting. It may, however, resolve to appoint the IRP as the RP, subject to confirmation by the Board. 24. The RP has many important duties. Some of the duties which an RP has to perform, under Section 25 of the IBC, are to: (a) take immediate custody and control of all the assets of the CD, including the business records of the CD; (b) maintain an updated list of claims; (c) convene and attend all meetings of the COC; (d) prepare information memorandum in accordance with Section 29 read with Regulation 36 of the CIRP Regulations 2016 25 ; (e) invite prospective resolution applicants to submit a resolution plan or plans; and (f) present all resolution plans at the meetings of the COC. 25. The meetings of the COC are to be conducted by the RP. Sub section (3) of Section 2426, inter alia, provides t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... form to the requirements referred to in sub-section (1), it may, in exercise of power under subsection (2) of Section 31, by an order, reject the resolution plan. 29. Explaining the scheme of the CIRP under the IBC, in Ghanashyam Mishra Sons (P) Ltd. vs. Edelweiss Asset Reconstruction Co. Ltd. (2021) 9 SCC 657 (paragraph 93) , a three-Judge Bench of this Court observed that one of the principal objects of the IBC is to provide for revival of the CD and to make it a going concern. The RP on commencement of CIRP is required to issue a publication inviting claims from all the stakeholders; thereafter, on basis of claims received, the RP is required to collate the information and submit necessary details in the information memorandum; the resolution applicant(s) submit their plan(s) on the basis of the details provided in the information memorandum; the resolution plan(s) undergo deep scrutiny by RP as well as COC; in the negotiations that may be held between COC and the resolution applicant, various modifications may be made so as to ensure that while paying part of the dues of financial creditors as well as operational creditors and other stakeholders, the CD is revived and is ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... isable by: (a) the Adjudicating Authority, under Section 31 (1), over a resolution plan approved by the COC; and (b) the Appellate Authority exercising its power under Section 32 read with Section 61 (3) of the IBC. After examining the relevant provisions of the IBC and the Regulations framed thereunder, and upon a survey of various judicial pronouncements on the subject, the scope of judicial review was summarised as follows: 108. To put in a nutshell, the adjudicating authority has limited jurisdiction in the matter of approval of a resolution plan, which is welldefined and circumscribed by Sections 30(2) and 31 of the Code read with the parameters delineated by this Court in the decisions above referred. The jurisdiction of the appellate authority is also circumscribed by the limited grounds of appeal provided in Section 61 of the Code. In the adjudicatory process concerning a resolution plan under IBC, there is no scope for interference with the commercial aspects of the decision of the CoC; and there is no scope for substituting any commercial term of the resolution plan approved by the CoC. Within its limited jurisdiction, if the adjudicating authority or the appellate a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... arge over the assets of the CD; (c) the entire land over which the project has been conceived is owned by the appellant; (d) a notice to cancel the lease for non-payment of dues had already been served on the CD; and (e) without approval of the appellant, the plan was not feasible. Further, according to the appellant, the plan did not conform to the conditions referred to in sub-section (2) of Section 30 of the IBC read with Regulations 37 and 38 of the CIRP Regulations 2016; and that the entire process of preparing the resolution plan and approving the same had been ex parte, thereby seriously prejudicing the interest of the appellant. It is the case of the appellant that neither NCLT nor NCLAT accorded due consideration to the above aspects while rejecting the application/ appeal of the appellant. 37. Per contra, on behalf of the respondents, it was urged that,- (a) the appellant had pressed its case only on the ground that it was a financial creditor, once this plea is found unsustainable, no relief can be granted to the appellant, as commercial wisdom of the COC is not justiciable; (b) NCLT has no power to recall its order of approval, the remedy for the appellant was to fil ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he IBC. 41. 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. 42. 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 34 of Code of Civil Procedure, 1908 CPC , 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. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e 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. 45. 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. Th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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.). 50. 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 16 54. 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 55. 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ole or any part of the money, if any, paid in respect thereof. (2) Where the Chief Executive Officer orders resumption of any site or building under sub-section (1) the Collector may, on his own requisition, cause possession thereof to be delivered to him and may for that purpose use or causes to be used such force as may be necessary 13 Section 3 (30).- secured creditor means a creditor in favour of whom a security interest is created. 14 Section 3(31).- security interest means right, title or interest or a claim to a property, created in favour of, or provided for a secured creditor by a transaction which secures payment or performance of an obligation and includes mortgage, charge, hypothecation, assignment and encumbrance or any other agreement or arrangement securing payment or performance of any obligation of any person: Provided that security interest shall not include a performance guarantee. 15 Section 30. Submission of Resolution Plan. (1) (2) The resolution professional shall examine each resolution plan received by him to confirm that each resolution plan (a) provides for the payment of insolvency resolution ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e value of money and includes (a) money borrowed against the payment of interest; (b) any amount raised by acceptance under any acceptance credit facility or its dematerialised equivalent; (c) any amount raised pursuant to any note, purchase facility or the issue of bonds, notes, debentures, loan stock or any similar instrument; (d) the amount of any liability in respect of any lease or higher purchase contract which is deemed as a financial or capital lease under the Indian Accounting Standards or such other accounting standards as may be prescribed; (e) receivables sold or discounted other than any receivables sold on non-recourse basis; (f) any amount raised under any other transaction, including any forward sale or purchase agreement, having the commercial effect of a borrowing; Explanation.-- For the purposes of this sub clause,-- (i) any amount raised from an allottee under a real estate project shall be deemed to be an amount having the commercial effect of a borrowing; and (ii) the expressions, allottee and real estate project shall have the meanings respectively assigned to them in clauses (d) an ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... supported by financial statements as evidence of the debt; (ii) a record evidencing that the amounts committed by the financial creditor to the corporate debtor under a facility has been drawn by the corporate debtor; (iii) financial statements showing that the debt has not been paid; or (iv) an order of a court or tribunal that has adjudicated upon the non-payment of a debt, if any. 21 12. Submission of proof of claims. (1) Subject to sub-regulation (2), a creditor shall submit claim with proof on or before the last date mentioned in the public announcement. (2) A creditor, who fails to submit claim with proof within the time stipulated in the public announcement, may submit the claim with proof to the interim resolution professional or the resolution professional, as the case may be, on or before the ninetieth day of the insolvency commencement date. (3) Where the creditor in sub-regulation (2) is a financial creditor under Regulation 8, it shall be included in the committee from the date of admission of such claim: Provided that such inclusion shall not affect the validity of any decision taken by the committee prior to such inclus ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... eeks of his appointment, but not later than 54th day from the insolvency commencement date, whichever is earlier. (2) the information memorandum shall contain the following details of the corporate debtor-- [a] assets and liabilities with such description, as on the insolvency commencement date, as are generally necessary for ascertaining their values. Explanation.- Description includes the details such as date of acquisition cost of acquisition, remaining useful life identification number, depreciation charged, book value, and any other relevant details. (b) the latest annual financial statements; (c) financial statements of the corporate debtor for the last 2 financial years and provisional financial statements for the current financial year made up to a date not earlier than 14 days from the date of the application; (d) a list of creditors containing the names of creditors, the amounts claimed by them, the amount of their claims admitted and the security interest, if any, in respect of such claims; (e) particulars of a debt due from or to the corporate debtor with respect to related parties; (f) details of guarantee ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the assets whether subject to any security interest or not; [ba] restructuring of the corporate debtor, by way of merger, amalgamation and demerger; [c] the substantial acquisition of shares of the corporate debtor or the merger or consolidation of the corporate debtor with one or more persons; [ca] cancellation or delisting of any shares of the corporate debtor if applicable; [d] satisfaction or modification of any security interest; [e] curing or waving of any breach of the terms of any debt due from the corporate debtor; [f] reduction in the amount payable to the creditors; [g] extension of a maturity date or change in interest rate or other terms of a debt due from the corporate debtor; [h] amendment of the constitutional documents of the corporate debtor; [i] issuance of securities of the corporate debtor for cash, property, securities, or in exchange for claims or interest, or other appropriate purpose; [j] change in portfolio of goods or services produced or rendered by the corporate debtors; [k] change in technology used by the corporate debtor; and [l] obtaining necessa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... b-section (4) of section 30 meets the requirements as referred to in sub-section (2) of section 30, it shall by order approve the resolution plan which shall be binding on the corporate debtor and its employees, members, creditors, including the Central Government, any State Government or any local authority to whom a debt in respect of the payment of dues under any law for the time being in force, such as authorities to whom statutory dues are owed, guarantors and other stakeholders involved in the resolution plan: . . 32 Section 32. Appeal. - Any appeal from an order approving the resolution plan shall be in the manner and on the grounds laid down in sub-section (3) of Section 61. 33 Section 61. Appeals and Appellate Authority. (1) (2) . (3) An appeal against an order approving resolution plan under Section 31 may be filed on the following grounds, namely:- [i] the approved resolution plan is in contravention of the provisions of any law for the time being in force; (ii) there has been material irregularity in exercise of the powers by the resolution professional during the corporate insolvency resolutio ..... X X X X Extracts X X X X X X X X Extracts X X X X
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