2025 (1) TMI 1044 - AT - IBC

Maintainability of section 7 petition - powers of the Adjudicating Authority of recall under Rule 11 of NCLT Rules - non-compliance with the requirements under 2nd proviso to Section 7(1) of the IBC - It is the contention of the Appellant that the statutory provisions of the IBC do not permit the Adjudicating Authority to revisit its own findings of fact or law in any order delivered by it. HELD THAT - It would be useful at this juncture to examine the findings of the Adjudicating Authority as returned in the order of 04.06.2024. A plain reading of the order clearly indicates that only the Counsel for the present Appellant-Corporate Debtor who was present before the Adjudicating Authority on 04.06.2024. The order also records the submission made by the Counsel for the Corporate Debtor that the Marvel Isola J Building Housing Project had 282 unit holders and that there is no record to show that the applicants had complied with the eligibility laid down in the amended provision of the IBC. Basis these submissions made by the Counsel for the Corporate Debtor the Adjudicating Authority had returned the finding that the Company Petition stands disposed since the Respondents lacked the requisite number/percentage of unit holders to be eligible to continue the Company Petition. After perusing the order of 04.06.2024 there is no ambiguity in mind that the Adjudicating Authority in passing the order on 04.06.2024 had preponderantly relied on the submissions made by the Counsel of the Corporate Debtor on whether the Appellants were compliant with the 2nd proviso to Section 7(1) of the IBC to file the Company Petition No. 4320 of 2019. Per contra looking at the material on record placed it is found that the Respondents in the said Company Petition had categorically informed the Corporate Debtor on affidavit that they were in compliance with the 2nd proviso to Section 7(1) of the IBC. The Adjudicating Authority was misled by the present Appellant-Corporate Debtor for they suppressed the fact that the present Appellants-Homebuyers in their Reply affidavit to the Rejoinder filed by the Corporate Debtor had clearly articulated that they were compliant with the eligibility terms laid down in the 2nd proviso to Section 7(1) of the IBC along with supporting documents including MAHARERA certificate to buttress their claim. Instead the Corporate Debtor wrongfully apprised the Adjudicating Authority during the hearing that the said project consisted of 282 flats and there being only 12 allottees as Respondents they did not meet the requisite percentage of allottees required to file the Company Petition. A misrepresentation was made to the Adjudicating Authority by the Corporate Debtor for inspite of being aware that their submission before the Adjudicating Authority was not based on correct facts which tantamount to feeding of misleading facts to the Adjudicating Authority - In the present circumstances where the Adjudicating Authority has been made to rely on distorted facts which the Adjudicating Authority became aware of belatedly the Adjudicating Authority can always invoke its inherent powers in order to protect itself and to prevent an abuse of its process. Conclusion - Power of recall is not power of the Tribunal to rehear the case to find out any apparent error in the judgment which is the scope of a review of a judgment. Recall of the order dated 04.06.2024 upheld finding it was not on merits and was influenced by misrepresentation and procedural errors. Appeal disposed off.

Summary

1. ISSUES PRESENTED and CONSIDERED

The core legal questions considered in the judgment are:

• Whether the Adjudicating Authority had the power to recall its order dated 04.06.2024 under Rule 11 of the NCLT Rules, 2016.
• Whether the order dated 04.06.2024 was passed on merits or due to procedural errors and misrepresentation by the Corporate Debtor.
• Whether the Respondents met the eligibility criteria under the 2nd proviso to Section 7(1) of the Insolvency and Bankruptcy Code (IBC) to file the Company Petition.
• Whether the absence of the Respondents' counsel during crucial hearings was justified and if it affected the fairness of the proceedings.

2. ISSUE-WISE DETAILED ANALYSIS

Issue 1: Power of Recall under Rule 11 of NCLT Rules

• Legal Framework and Precedents: The power of recall is inherent in the Tribunal as preserved by Rule 11 of the NCLT Rules, 2016. It is distinct from the power of review and is exercised in cases of procedural errors or fraud.
• Court's Interpretation and Reasoning: The Tribunal noted that the power to recall is not intended for rehearing a case to find apparent errors, but to address procedural errors or fraud.
• Key Evidence and Findings: The Tribunal found that the Corporate Debtor misrepresented facts regarding the number of unit holders in the housing project, affecting the maintainability of the Company Petition.
• Application of Law to Facts: The Tribunal concluded that the Adjudicating Authority was misled by the Corporate Debtor's submissions, justifying the recall of the order under Rule 11.
• Treatment of Competing Arguments: The Appellant argued that the recall amounted to a review, which is not permissible. However, the Tribunal distinguished between recall and review, emphasizing the presence of misrepresentation.
• Conclusions: The Tribunal upheld the Adjudicating Authority's decision to recall the order, deeming it necessary to correct the procedural injustice.

Issue 2: Nature of the Order Dated 04.06.2024

• Legal Framework and Precedents: An order passed without hearing one party due to misrepresentation can be recalled to ensure justice.
• Court's Interpretation and Reasoning: The Tribunal found that the order was not on merits, as it was based solely on the Corporate Debtor's submissions without considering the Respondents' compliance with the IBC requirements.
• Key Evidence and Findings: The Respondents had provided evidence of compliance with the IBC's 10% threshold requirement, which was not considered due to their absence.
• Application of Law to Facts: The Tribunal determined that the order was based on incorrect facts presented by the Corporate Debtor, warranting a recall to address the misrepresentation.
• Treatment of Competing Arguments: The Appellant contended that the order was final and on merits, but the Tribunal disagreed, highlighting the procedural error.
• Conclusions: The Tribunal concluded that the order was not on merits and was passed without a fair hearing, justifying its recall.

Issue 3: Eligibility Criteria under Section 7(1) of IBC

• Legal Framework and Precedents: The 2nd proviso to Section 7(1) of the IBC requires a minimum threshold of 100 allottees or 10% of the total allottees for a Section 7 petition.
• Court's Interpretation and Reasoning: The Tribunal found that the Respondents met the 10% threshold, contrary to the Corporate Debtor's misrepresentation.
• Key Evidence and Findings: The Respondents provided MAHARERA documentation showing only 44 units in the project, with 12 applicants meeting the threshold.
• Application of Law to Facts: The Tribunal accepted the Respondents' evidence, confirming their compliance with the IBC requirements.
• Treatment of Competing Arguments: The Appellant's claim of 282 units was deemed misleading, and the Tribunal favored the Respondents' documented evidence.
• Conclusions: The Tribunal concluded that the Respondents were eligible to file the Company Petition, meeting the IBC's threshold criteria.

Issue 4: Justification for Absence of Respondents' Counsel

• Legal Framework and Precedents: A litigant should not suffer due to the absence of their counsel if it is justified by genuine circumstances.
• Court's Interpretation and Reasoning: The Tribunal accepted the medical emergency faced by the Respondents' counsel as a valid reason for their absence.
• Key Evidence and Findings: Medical certificates were provided to substantiate the counsel's absence due to a life-threatening condition of his wife.
• Application of Law to Facts: The Tribunal found the absence non-wilful and justified, impacting the fairness of the original proceedings.
• Treatment of Competing Arguments: The Appellant argued against the prolonged absence, but the Tribunal found the explanation satisfactory.
• Conclusions: The Tribunal concluded that the absence was justified, and the recall of the order was necessary to ensure a fair hearing.

3. SIGNIFICANT HOLDINGS

• Verbatim Quotes of Crucial Legal Reasoning: "Power of recall is not power of the Tribunal to rehear the case to find out any apparent error in the judgment which is the scope of a review of a judgment."
• Core Principles Established: The distinction between recall and review; the necessity of addressing procedural errors and misrepresentations to ensure justice.
• Final Determinations on Each Issue: The Tribunal upheld the recall of the order dated 04.06.2024, finding it was not on merits and was influenced by misrepresentation and procedural errors.