Inherent Powers of the NCLT to Recall an Insolvency Resolution Plan

The Insolvency and Bankruptcy Code, 2016 (IBC) lays emphasis on an elaborate process by which a corporate insolvency resolution plan (CIRP) can be proposed, considered, decided, and approved. The principal actors involved in the process include the resolution professional, the committee of creditors (CoC) and the adjudicating authority (being the National Company Law Tribunal (NCLT) and, on appeal, the National Company Law Appellate Tribunal (NCLAT)). Once a CIRP goes through the entire corporate resolution machinery stipulated in the IBC, it acquires a great deal of sanctity, as it then puts to rest matters of controversy surrounding the insolvency and subsequent resolution of the corporate debtor.

In such a context, one significant question relates to whether any of the creditors of the corporate debtor, or other interested persons, can seek to reopen a CIRP on the ground that the various actors involved failed to appropriately consider the interests of any individual party involved in the process. Accordingly, can either the NCLT or NCLAT recall an order confirming a CIRP on the ground that one of the aggrieved parties is subsequently able to establish that either they were unfairly prevented from presenting their case during the CIRP (a matter of process) or that they rights were inappropriately ignored (a matter of substance)?

These very questions came up for consider before a three-judge bench of the Supreme Court in Greater Noida Industrial Development Authority v. Prabhjit Singh Soni (2024 INSC 102, decided 12 February 2024). The Court ruled that the adjudicating authority has inherent powers to recall an order confirming a CIRP, but that it can do so only under limited circumstances. In that sense, the CIRP, once approved, is not always cast in stone

Context and the Legal Position

The factual background in Greater Noida is quite straightforward. The Greater Noida Industrial Development Authority (GNIDA) is a statutory corporation that had leased land to the corporate debtor in return for a premium payable by the lessee. While there were certain defaults in the payment of the premium to the GNIDA, the corporate debtor was taken into insolvency under the IBC. Although the GNIDA asserted its position as a financial creditor, the resolution professional instead treated it as an operational creditor, thereby preventing it from landing a seat on the CoC (which is available only to financial creditors). There was some dispute on the facts as to whether the GNIDA had submitted its claim on time. In any event, only a portion of its claim was admitted during the CIRP. The GNIDA then preferred an appeal to the NCLT under section 60(5) of the IBC. This provision is of rather wide import and states:

“(5) Notwithstanding anything to the contrary contained in any other law for the time being in force, the National Company Law Tribunal 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 this Code.”

Relying on this provision, the GNIDA sought to assuage its concerns before the NCLT on various grounds. First, it suggested that it was wrongfully treated as an operational creditor; instead, it should have been recognised as a financial creditor, thereby conferring upon it more rights. Second, its claim was wrongfully denied by the resolution professional and CoC. Third, since it was the owner of the land leased to the corporate debtor, it should have been given higher priority in the waterfall mechanism for its dues. Finally, and as an essential matter of process, the GNIDA argued that it was not offered adequate opportunity during the CIRP to put forward its claims effectively.

On the facts of the case, though, the NCLT refused to intervene in the appeal by the GNIDA, as did the NCLAT. As a result, the GNIDA knocked on the doors of the Supreme Court. Despite its lack of success before the two adjudicating authorities below, the outcome before the Supreme Court was different.

Ruling and Analysis

After engaging in a detailed analysis of the provisions of the IBC and the Insolvency and Bankruptcy Board of India (Insolvency Resolution Process for Corporate Persons) Regulations, 2016, the Supreme Court found that the decisions arrived at by the CoC are not sacrosanct or unalterable. In case there are any “shortcomings” in the resolution plan, the adjudicating authority is entitled to examine those and resend the plan to the CoC for reconsideration. The Court attributed the source of such review jurisdiction to the inherent powers of the adjudicating authority under the IBC. It noted:

“The law which emerges … is that a Tribunal or 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 the absence of a statutory prohibition, in an appropriate case, it can recall its order in exercise of such ancillary or incidental powers.”

Rather than the need for specific powers of recall conferred upon the adjudicating authority, the Court accepted the inherent jurisdiction for the exercise of such recall. The Court also attributes its finding to the non obstante clause in section 60(5) of the IBC extracted above.

At the same time, the Court appears cognisant of the possible unintended consequences of arriving at such a broad-based conclusion:

“… 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) 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.”

Based on the circumstances outlined above, the Court found that the resolution plan in Greater Noida suffered from inadequacies that merited a recall, which both the NCLT and the NCLAT failed to exercise. Hence, the Supreme Court overturned those decisions and ordered that the resolution plan of the corporate debtor be sent back to the CoC for a reconsideration on this basis.

Conclusion

The fact that the adjudicating authority has a recall power is undeniable, especially in light of the statutory intention that is evident from the language of section 60(5) of the IBC. The ruling in Greater Noida, therefore, suggests that the approval of the resolution plan by the adjudicating authority is not the end of the matter. Apart from the usual appellate mechanism provided in the IBC, the adjudicating authority can itself recall its own order if facts justifying such an action are subsequently brought to its attention.

However, the Court has cautioned against a carte blanche exercise of that power, which is limited to very specific circumstances. While the grounds essentially relate to a matter of process, there is at least one substantive ground for recall, which is there has been a misrepresentation on the facts or a fraud played on the adjudicatory authority. The stance of the Court to provide a safety valve to parties whose interests have been adversely affected in the CIRP is understandable; but it also has the potential to create opportunities for misuse by disgruntled creditors who may hold the CIRP to ransom, and thereby cause uncertainties to the process that has been carefully calibrated under the IBC.