[Aditya Vaid is a third-year law student at Jindal Global Law School, Sonipat and Hrishikesh Goswami is a third-year law student at the Gujarat National Law University, Gandhinagar]
The corporate insolvency resolution process (‘CIRP’) is a recovery mechanism through which the creditors of a corporate debtor may seek to rehabilitate the company with a view to recovering their debt. The CIRP aims to provide a quick and speedy resolution of insolvency proceedings either by reviving the company or through the process of liquidation. In the recent case of Greater Noida Industrial Development Authority v. Prabhjit Singh Soni, the Supreme Court tackled the question of whether the adjudicating authority has the power, in the absence of any statutory provision to the contrary, to recall an order affirming CIRP under section 31(1) of the Insolvency and Bankruptcy Code, 2016 (‘IBC’).
The Greater Noida Industrial Development Authority (‘GNIDA’) leased land to the corporate debtor in exchange for charging a premium which was due to be paid in instalments. A failure of these payments would result in the termination of the lease. Upon default in payment of instalments, CIRP was initiated against the corporate debtor. The GNIDA asserted its status as a financial creditor, but the resolution professional regarded it as an operational creditor and directed the GNIDA to submit its claim as the same. Although the GNIDA had not submitted its claims as an operating creditor, the committee of creditors (‘COC’) approved a resolution plan and sent it to the National Company Law Tribunal (‘NCLT’) for approval. Aggrieved by the plan, the GNIDA preferred an appeal under section 60 (5) of the IBC. The NCLT declined to intervene in the application filed by the GNIDA, a decision that was upheld by the National Company Law Appellate Tribunal (‘NCLAT’). Consequently, the GNIDA sought relief from the Supreme Court. The Court opined that the adjudicating authority has the inherent power to recall an order confirming CIRP; however, the same can only be done under special circumstances. Therefore, an order confirming CIRP is not always immutable.
The authors suggest that while the stance of the Supreme Court to offer a safety valve for parties whose interests have been adversely affected in the CIRP is reasonable, it may also be used as a tool by disgruntled creditors or vexatious litigants to pursue the reversal of unfavourable outcomes and complicate and thereby derail the CIRP. The incessant delays caused by such acts would subsequently defeat the main objective of the IBC, i.e., to provide for timely resolution of the corporate debtor.
Decoding the Tribunal’s Power to Recall
After analyzing past jurisprudence, the Supreme Court observed that while processes of different hierarchies of courts may vary, their primary role remains similar, and the tribunal’s inherent powers are not explicitly granted but are derived from its inherent duty to administer justice for the parties involved. In Agarwal Coal Corporation Private Limited v. Sun Paper Mill Limited and Rajendra Mulchand Varma v. K.L.J Resources Ltd., the NCLAT held that without a specific statutory provision for review, the adjudicating authority (NCLT) and the appellate authority (NCLAT) lack the authority to recall or review their judgments. The aforementioned orders were examined by the NCLAT in Union Bank of India v. Dinakar T. Vekatasubramanian, wherein a five-member bench of the NCLAT determined that while the NCLAT does not have explicit authority to review, the tribunal under rule 11 of the NCLT Rules, 2016 possesses the inherent power to recall its judgment. It was further held that the power to recall cases can be utilized in cases where a procedural error has been found to have occurred during the delivery of the earlier judgment.
Consequently, the Court held that section 60(5)(c) of the IBC grants the NCLT and the NCLAT the authority to address or resolve any issues concerning insolvency resolution or liquidation proceedings of the corporate debtor or any corporate entity under the IBC. Pertinently, the Supreme Court opined that the power to recall should be used judiciously and not as a means to rehear the case. Based on the facts and circumstances delineated, the Court observed that the present case suffered from deficiencies which, if not overturned, would result in gross failure of justice.
Implications of the Ruling
As a matter of general jurisprudence, courts and tribunals have inherent jurisdiction to recall an order or a judgment on limited grounds. First, because the order in question was passed without jurisdiction. Second, where the party aggrieved with the order was not notified of the proceedings in which the order under reconsideration was issued. Third, the order was secured through misrepresentation of facts in court or tribunal, resulting in a gross miscarriage of justice. In light of the facts and circumstances of the present case, the Supreme Court has further expanded the grounds on which an order may be recalled. The Court permitted the recall of the resolution plan primarily on the ground that the NCLT made a substantial error in approving the plan as it did not meet the requirements outlined in section 30(2) of the IBC.
While the reason outlined by the Supreme Court is rational, it fails to consider the effect the ruling might have on the time-bound resolution process defined in the IBC. First, section 31 of the IBC requires that the NCLT, when approving a plan, verifies that the requirements of section 30(2) are met. Once the NCLT has rendered a decision and approved the plan, any petition for recall based on non-compliance essentially constitutes a review of the original order. The extent to which the NCLT can reassess the order or plan remains uncertain, posing an unanswered question. Second, similar grounds for appeal are available under section 61 (3) of the IBC. One of the grounds for appeal demarcated under section 61(3)(c) is when “there has been material irregularity in exercise of the powers by the resolution professional during the corporate insolvency resolution period”. Hence, an aggrieved party can approach the adjudicating authority to impugn the approved plan. The present decision of the Supreme Court permitting the same issues to be raised before the NCLT after the approval of the resolution plan will contribute to further delays in the competition of the CIRP by introducing another layer of judicial proceedings. The authors argue that this could encourage parties (promoters or creditors) with vested interests to exploit the opportunity to disrupt and delay the CIRP and complicate proceedings with further applications that serve their interests, thereby undermining the ultimate goal of achieving a timely resolution under the IBC.
Conclusion
The present case underscores the court’s or tribunal’s recall power particularly considering the statutory intent evident in the language of section 60(5) of the IBC. However, it remains unclear whether, on recall of the order or judgment, the CoC would have the freedom to introduce or consider new aspects that do not constitute grounds for recall. Furthermore, the judgment of the Supreme Court also leaves the door open to parties who may use the grounds outlined by the court to question the approval of any plan, not because of any procedural deformities such as violation of law, but due to an inaccurate categorization or acceptance of a claim. The authors suggest that the current ruling may require reconsideration of a larger bench of the Supreme Court and the utilization of the current approach adopted by the Court should be limited to specific circumstances of that particular case.
– Aditya Vaid & Hrishikesh Goswami