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2024 (2) TMI 681 - SC - Insolvency and BankruptcyApproval of the Resolution Plan - Financial Creditor or Operational Creditor - Status of Greater Noida - commercial wisdom of the COC is not justiciable - despite lapse of seven months between the date of filing its claim in January, 2020 and the date of approval of the plan in August 2020, the appellant took no steps against the RP for not taking a decision on its claim - Recall Application is maintainable or not - barred by time limitation or not - resolution plan put forth by the resolution applicant met the requirements of sub-section (2) of Section 30 of the IBC read with Regulations 37 and 38 of the CIRP Regulations, 2016 or not. 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? - HELD 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. 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 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. The grounds taken qualify as valid grounds on which a recall of the order of approval dated 04.08.2020 could be sought - the recall application was maintainable notwithstanding that an appeal lay before the NCLAT against the order of approval passed by the Adjudicating Authority. Whether the application for recall of the order was barred by time? - HELD THAT - 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 in IN RE COGNIZANCE FOR EXTENSION OF LIMITATION 2021 (3) TMI 497 - SC ORDER - there are no substance in the plea that the applications were barred by limitation. 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? - HELD THAT - 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. 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, 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. 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 interest. 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 - 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. As to what relief, if any, the appellant is entitled to? - HELD 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 - Appeal allowed.
Issues Involved:
1. Whether the Adjudicating Authority (NCLT) can recall an order of approval passed under Section 31(1) of the IBC. 2. Whether the application for recall of the order was barred by time. 3. Whether the resolution plan met the requirements of Section 30(2) of the IBC read with Regulations 37 and 38 of the CIRP Regulations, 2016. 4. Relief to which the appellant is entitled. Issue-wise Summary: 1. Recall Application is Maintainable: The Supreme Court held that the NCLT has inherent power to recall its order to secure the ends of justice and/or to prevent abuse of the process of the Court. This power is preserved by Rule 11 of the NCLT Rules, 2016. The grounds for recall include lack of jurisdiction, non-service of notice to the aggrieved party, and orders obtained by misrepresentation or fraud. The appellant's grounds for recall, including non-notification of meetings of the Committee of Creditors (COC) and misrepresentation by the Resolution Professional (RP), were considered valid. 2. The Recall Application was not Barred by Time: The Court found that the recall application was filed promptly upon the appellant receiving information about the approval of the resolution plan. The suspension of the period of limitation due to the COVID-19 pandemic was also considered, making the applications timely. 3. 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: The resolution plan was found deficient for several reasons: - The plan incorrectly stated that the appellant did not submit its claim, whereas the appellant had submitted a claim with proof. - The plan did not recognize the appellant as a secured creditor despite having a statutory charge over the assets of the Corporate Debtor (CD). - The plan failed to demonstrate feasibility and viability, particularly concerning the use of land owned by the appellant without necessary approvals. 4. Relief: The Supreme Court set aside the orders of the NCLT and NCLAT, which had approved the resolution plan. The case was remanded to the COC for re-submission of the resolution plan after satisfying the parameters set out by the IBC. The appellant's appeals were allowed, and no order as to costs was made.
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