2018 (9) TMI 1908 - HC - Insolvency and Bankruptcy

Power to recall an order - Maintainability of application - initiation of CIRP - Section 9 of the Insolvency and Bankruptcy Code, 2010 - HELD THAT - It is admitted that there is no provision in IBC for review of the order admitting a petition filed under Section 9 of the IBC. It is also not disputed in law that the power to review can not be exercised unless there is specific provision for the same. As far as power to recall an order is concerned, it is nothing but a procedural review which can be availed only if there is any procedural defect in passing the order or the order has been obtained by playing fraud in any manner. There is hardly any procedural defect pointed out in admitting the petition filed under Section 9 of IBC. The said order of admission is self explanatory and conforms to all the requirements necessary for admitting a petition filed under Section 9 of the IBC - Merely for the reason that it was not contested by respondent no. 3, it can not be said that it was a collusive petition or that the order of admission was obtained by collusion between respondents no. 2 and 3. Prima-facie the order of admission of the petition filed under Section 9 IBC does not appear to be collusive which may warrant recall of the order in exercise of procedural review - Section 65 of IBC deals with the fraudulent and malicious initiation of proceedings and provide that if any person initiates the Insolvency Resolution Process or liquidation proceeding fraudulently or with malicious intent, the adjudicating authority ie. NCLT may impose upon such person a penalty which shall not be less than 1 lakh and may extend to one crore rupees. If the petitioner feels that the petition under Section 9 of IBC for Corporate Insolvency Resolution Process has been initiated by respondent no. 2 fraudulently in collusion with respondent no. 3, it may take recourse to proceedings under Section 65 of IBC - Petition dismissed.

Summary

Issues:
1. Writ jurisdiction under Article 226 for quashing orders passed by National Company Law Tribunal (NCLT).
2. Challenge against the rejection of application for recall of order.
3. Power of courts to recall orders obtained fraudulently.
4. Provisions of Insolvency and Bankruptcy Code, 2010 (IBC) regarding initiation of proceedings.
5. Consideration of assets acquired through e-auction in Corporate Insolvency Resolution Process.
6. Judicial interference in proceedings under IBC.

Analysis:
1. The petitioner, a Firm through its proprietor, invoked the writ jurisdiction of the High Court under Article 226 to challenge the orders dated 29.8.2018 and 10.5.2018 passed by the NCLT initiating Corporate Insolvency Resolution Process against respondent no. 3. The petition was admitted, and a moratorium was declared against respondent no. 3. An Interim Resolution Professional (IRP) was appointed to proceed in accordance with Section 15 of IBC.

2. The petitioner applied for the recall of the order on the grounds of collusion between respondents no. 2 and 3. However, the NCLT rejected the application for recall citing lack of power to do so based on a previous decision of the National Company Law Appellate Tribunal (NCLAT). The petitioner challenged these orders, arguing that every court has the inherent power to recall orders obtained fraudulently or collusively.

3. The High Court noted that while there is no provision in IBC for reviewing the order admitting a petition under Section 9, the power to recall an order is akin to procedural review and can only be exercised in case of procedural defects or fraudulent means. The court found no procedural defect in the admission order and stated that the order was not collusive merely because it was uncontested by respondent no. 3.

4. Section 65 of IBC deals with fraudulent initiation of proceedings and imposes penalties for such actions. The court advised the petitioner to pursue proceedings under this section if it believes the initiation of the Corporate Insolvency Resolution Process was fraudulent. The court also suggested that the petitioner may apply to exclude assets acquired through e-auction from the insolvency process.

5. The High Court emphasized the minimal interference on the judicial side in IBC proceedings and declined to interfere with the NCLT's decisions. The court dismissed the writ petition but granted the petitioner the liberty to seek appropriate legal remedies as advised.

6. In conclusion, the judgment upholds the principles of IBC, highlights the importance of following legal procedures, and encourages parties to utilize the available legal remedies within the framework of the law.