IBC – Analysis of SC Ruling on Inherent Powers of NCLT to ‘Recall’ its Order

What are the Inherent Powers of NCLT to ‘Recall’ its Order?
The inherent powers of the National Company Law Tribunal (NCLT) to "recall" its own orders are based on the principle that a court has the inherent jurisdiction to correct its own errors to prevent miscarriage of justice. Here are some key points about the inherent powers of the NCLT to recall its orders:
Legal Basis: The NCLT operates under the Companies Act, 2013, and the Insolvency and Bankruptcy Code (IBC), 2016. These statutes outline specific provisions regarding the tribunal’s authority, but do not expressly mention the power to recall orders. However, Section 424 of the Companies Act empowers the Tribunal to regulate its own procedures.
Section 420 of the Companies Act: This section outlines that the NCLT may rectify any mistakes apparent from the record on its own or on an application made by the parties within two years from the date of the order.
Rule 11 of the NCLT Rules, 2016: Although not explicitly about recalling orders, Rule 11 allows the NCLT to make such orders as may be necessary for meeting the ends of justice or to prevent abuse of its process. This has been interpreted by courts to include recalling orders where there has been an inadvertent error or oversight.
Judicial Interpretations: Various High Courts and the Supreme Court of India have upheld the concept that tribunals like the NCLT have inherent powers similar to those of civil courts under Section 151 of the Code of Civil Procedure, 1908. This allows them to recall their orders in certain circumstances to correct mistakes or to prevent injustice.
Limits to Recall Powers: The power to recall is not meant to be used for re-adjudication or to reconsider the decision on merits. It is typically limited to rectifying clerical or arithmetical errors, or errors arising from any accidental slip or omission.

By Nipun P. Singhvi – Practicing Advocate

Table of Contents

1. Important Dates
2. Allegations of Appellants Great NOIDA
3. Filing of Claims Under CIRP Regulations
4. Financial Creditor or Operational Creditor
5. Secured Creditor or Unsecured Creditor
6. Question of Law
7. Procedure Review and Review of Merits
8. Power to Recall
9. Whether Recall or Appeal?
10. The Recall Application was not Barred by Time
11. NCLT/NCLAT | Consider Feasibility?
12. Relief

1. Important Dates

05.04.2021 – NCLT rejected IA

24.11.2022 – NCLAT rejected appeal

12.02.2024 – SC reversed the Tribunals view

2. Allegations of Appellants Great NOIDA

• Claimant was not treated as Financial Creditors and wrongly classified as Operational Creditors
• Not called to COC for voting
• Only Project was on land of appellant

3. Filing of Claims Under CIRP Regulations

• Regulation 7 and 8
• Claims himself to be a operational creditor
• Para 22 – Regulations are directory and not mandatory
• Collation of claims
• Verification of claims
• Proof and books of account has to be seen

4. Financial Creditor or Operational Creditor

• Appellant claimed to be FC
• Greater NOIDA had leased the land to the CD
• It was not financial lease
• Appellant failed to provide reason for FC
• SC had decided the issued in New Okhla Development Authority vs Anand Sonbhadra [2022] 138 taxmann.com 293 (SC)

5. Secured Creditor or Unsecured Creditor

• Greater NOIDA a statutory undertaking under Section 3 of UP Industrial Area Development Act, 1976.
• Section 13, 13-A and 14 of 1976 Act.

1. 1. Creation of charge
   2. Arrears of land revenue
   3. Forfeiture and breach of transfer

Section 13.A- Any amount payable to the Authority under Section 13 shall constitute a charge over the property and may be recovered as arrears of land revenue or by attachment and sale of property in the manner provided under Sections 503, 504, 505, 506, 507, 508, 509, 510, 512, 513, and 514 of the Uttar Pradesh Municipal Corporations Act, 1959 [Act 2 of 1959] and such provisions of the said Act shall mutatis mutandis apply to the recovery of dues of an authority as they apply to the recovery of a tax due to a Municipal Corporation, so however, that references in the aforesaid Sections of the said Act to “Municipal Commissioner”, “Corporation Officer” and “Corporation” shall be construed as references to “Chief Executive Officer” and “Authority” respectively: provided that more than one modes of recovery shall not be commenced or continued simultaneously.

Section 14.- Forfeiture for breach of conditions of transfer.-

1. in the case of non-payment of consideration money or any installment thereof on account of the transfer by the Authority of any site or building or in case of breach of any condition of such transfer or breach of any rules or regulations made under this Act, the Chief Executive Officer may resume the site or building so transferred and may further forfeit the whole or any part of the money, if any, paid in respect thereof
2. Where the Chief Executive Officer orders resumption 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

6. Question of Law

• Whether in exercise of powers under sub-section (5) of Section 60, the Adjudicating Authority (i.e., NCLT) can recall an order of approval passed under sub-section (1) of Section 31 of the IBC?
• Whether the application for recall of the order was barred by time?
• Whether the resolution plan put forth by the resolution applicant did not meet the requirements of sub-section (2) of Section 30 of the IBC read with Regulations 37 and 38 of the CIRP Regulations, 2016?
• As to what relief, if any, the appellant is entitled to?

42. Rule 11 of NCLT Rules, 2016, under Section 469 CA 2013, = Section 151 CPC

“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.”

43. In Manohar Lal Chopra vs. Rai Bahadur Rao Raja Seth Hiralal a four-judge Bench of this Court in the context of powers vested in the Court, while interpreting Section 151 CPC, observed:

“23… The Section itself says that nothing in the Code shall be deemed to limit or otherwise affect the inherent power of the Court to make orders necessary for the ends of justice. In the face of such a clear statement, it is not possible to hold that the provisions of the Code control the inherent power by limiting it or otherwise affecting it. The inherent power has not been conferred upon the court; it is a power inherent in the Court by virtue of its duty to do justice between the parties before it.”

44. In Grindlays Bank Ltd. vs. Central Govt. Industrial Tribunal a question arose whether Central Government Industrial Tribunal has power to recall/set aside an ex parte award when the party aggrieved had been prevented from appearing by a sufficient cause. Holding that such power inheres in a Tribunal, this Court observed:

“6. We are of the opinion that the Tribunal had the power to pass the impugned order if it thought fit in the interest of justice. It is true that there is no express provision in the Act or the rules framed thereunder giving the Tribunal jurisdiction to do so. But it is a well-known rule of statutory construction that a Tribunal or body should be considered to be endowed with such ancillary or incidental powers as are necessary to discharge its functions effectively for the purpose of doing justice between the parties. In a case of this nature, we are of the view that the Tribunal should be considered as invested with such incidental or ancillary powers unless there is any indication in the statute to the contrary. We do not find any such statutory prohibition. On the other hand, there are indications to the contrary.”

7. Procedure Review and Review of Merits

45. In State of Punjab vs. Davinder Pal Singh Bhullar, 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. The power of recall is different from the power of altering/reviewing the judgment. However, the party seeking recall/alteration has to establish that it was not at fault.”

The above passage was cited and approved by a three-Judge Bench of this Court in New India Assurance Co. Ltd. vs. Krishna Kumar Pandey

47. In Budhia Swain vs. Gopinath Deb, after considering a number of decisions, a two-judge Bench of this Court observed:

“8. In our opinion a tribunal or a court may recall an order earlier made by it if

(i) the proceedings culminating into an order suffer from the inherent lack of jurisdiction and such lack of jurisdiction is patent,

(ii) there exists fraud or collusion in obtaining the judgment,

(iii) there has been a mistake of the court prejudicing a party, or

(iv) 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.

The power to recall a judgment will not be exercised when the ground for reopening the proceedings or vacating the judgment was available to be pleaded in the original action but was not done or where a proper remedy in some other proceeding such as by way of appeal or revision was available but was not availed. The right to seek vacation of a judgment may be lost by waiver, estoppel or acquiescence.”

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

8. Power to Recall

Union Bank of India vs. Dinakar T. Vekatasubramanian & Ors [2023] 152 taxmann.com 106 (NCLAT-New Delhi)

• Necessary party has not been served
• Necessary party was not before the Tribunal when judgment was delivered adverse to a party
• Where fraud is played on the Court in obtaining a judgment

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.

50. Further, Rule 11 of the NCLT Rules, 2016 preserves the inherent power of the Tribunal. Therefore, even in absence of a specific provision empowering the Tribunal to recall its order, the Tribunal has power to recall its order.

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) the 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.

51. In the case on hand, the recall application was filed by claiming that,-

(a) the appellant was not informed of the meetings of the COC;

(b) the proceedings up to the stage of approval of the resolution plan by the Adjudicating Authority were ex parte;

(c) the RP misrepresented that the appellant had submitted no claim when, otherwise, a claim was submitted of an amount higher than what was shown outstanding towards the appellant; and

(d) there was gross mistake on part of the Adjudicating Authority in approving the plan which did not fulfil the conditions laid down in sub-section (2) of Section 30 of the IBC.

9. Whether Recall or Appeal?

52. 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.

10. The Recall Application was not Barred by Time

53. As regards the plea that the recall application was barred by time, suffice it to say that I.A. No.344/2021 was filed on 6.10.2020 upon getting information on 24.09.2020 from the monitoring agency regarding approval of the plan.

Likewise, I.A. No. 1380/2021 was filed on 15.03.2021 immediately when suspension of the period of limitation for any suit, appeal, application or proceeding, between 15.03.2020 and 14.03.2021, was lifted in terms of this Court’s order dated 8.03.2021 in RE: Cognizance For Extension of Limitation (supra). We, therefore, find no substance in the plea that the applications were barred by limitation.

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

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 and for which claim was made was Rs. 43,40,31,951/- This omission or error, as the case may be, in our view, materially affected the resolution plan as it was a vital information on which 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.

Para 54

• This omission or error, as the case may be, in our view, materially affected the resolution plan as it was a vital information on which 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,
• 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.

Further, as per Explanation 1, distribution under clause (b) of sub-section (2) of Section 30 must be fair and equitable to each class of creditors. Nonplacement of the appellant in the class of secured creditors did affect its interest. However, neither NCLT nor NCLAT noticed this anomaly in the plan, which vitiates their order.

Under Regulation 38 (3) of the CIRP Regulations, 2016, a resolution plan must, inter alia, demonstrate that

(a) it is feasible and viable; and

(b) it has provisions for approvals required and the time-line for the same. In the instant case, the plan conceived utilisation of land owned by the appellant. Ordinarily, feasibility and viability of a plan are economic decisions best left to the commercial wisdom of the COC.

However, where the plan envisages use of land not owned by the CD but by a third party, such as the appellant, which is a statutory body, bound by its own rules and regulations having statutory flavour, there has to be a closer examination of the plan’s feasibility.

11. NCLT/NCLAT | Consider 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.

12. Relief

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 that the appeals of the appellant are entitled to be allowed and are accordingly allowed.

The impugned order dated 24.11.2022 is set aside. The order dated 04.08.2020 passed by the NCLT approving the resolution plan is set aside. The resolution plan shall be sent back to the COC for re-submission after satisfying the parameters set out by the Code as exposited above. There shall be no order as to costs.