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TMI Blog2024 (2) TMI 681X X X X Extracts X X X X X X X X Extracts X X X X ..... under Section 62 of the Insolvency and Bankruptcy Code, 2016 IBC are directed against the judgment and order Order dated 24.11.2022 of the National Company Law Appellate Tribunal, Principal Bench, New Delhi NCLAT passed in Company Appeal (AT) (Ins.) No. 867 of 2021 and I.A. No. 2315 of 2021, whereby the appellant's appeal against the order of the National Company Law Tribunal, New Delhi NCLT dated 05.04.2021 has been dismissed. 2. By the order dated 05.04.2021, NCLT had dismissed two applications filed by the appellant under Section 60(5) of the IBC, namely: (a) I.A. No.1380/ 2021, inter alia, to recall the order dated 04.08.2020 passed by NCLT in I.A. No. 2201 (PB)/2020 in Company Petition No. (IB)-272 (ND)/ 2019; and (b) I.A. No.344/ 2021, inter alia, questioning the decision of the Resolution Professional (hereinafter referred to as the RP) in treating the appellant as an operational creditor and not informing the appellant about the meetings of the Committee of Creditors COC. Factual Background 3. The appellant being a statutory authority constituted under Section 3 of the U.P. Industrial Area Development Act, 1976 1976 Act acquired land for setting up an urban an ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ate Persons) Regulations, 2016 CIRP Regulations 2016; (b) the resolution plan erroneously states that appellant did not submit a claim when, in fact, it was submitted; (c) appellant being owner of the land with statutory charge over assets of the CD ought to have been given top priority for its dues as a secured creditor; (d) no opportunity of hearing was given to the appellant by the COC, and the entire process right up to the approval of the plan by the Adjudicating Authority was ex parte. NCLT's Order 10. The NCLT, vide order dated 5.4.2021, rejected the aforesaid applications, inter alia, on the ground that, 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, even though it was aware about initiation of the CIRP, and now it is not permissible to take a decision on the claim application of the appellant as the CIRP is complete consequent to approval of the plan. Appeal before NCLAT 11. Aggrieved with the order of the NCLT, the appellant filed an appeal before the NCLAT, inter alia, on the following gro ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e appears no material irregularity in the approval of the Resolution Plan, particularly, when the commercial wisdom of the COC is not justiciable. 13. We have heard Sri Ravindra Kumar, learned senior counsel, for the appellant; Dr. Abhishek Manu Singhvi, learned senior counsel, for respondent no.2 (Resolution Applicant); and Sri V.M. Kannan for respondent no.1 (Resolution Professional). Submissions on behalf of the appellant 14. The learned counsel for the appellant, inter alia, submitted: (a) There is no dispute that appellant had submitted its claim with proof on 30.01.2020 as a financial creditor having security interest over the assets of the CD. Even if the appellant was not a financial creditor, the resolution plan ought to have noticed its claim as a secured creditor whereas the order of approval dated 4.8.2020 describes the appellant as one who did not submit its claim. (b) The meetings of the COC were not notified to the appellant to enable its participation. In absence thereof, the resolution plan stood vitiated. (c) At the time of approving the resolution plan, the adjudicating authority failed to consider whether the plan had made provisions commensurate to ap ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... laims against the CD by a specified date. The manner in which a public announcement is to be made and claims are to be submitted, is described in the CIRP Regulations 2016. 18. Regulation 719 of CIRP Regulations, 2016 deals with submission of a claim by a person who claims himself to be an operational creditor. Such claim is to be submitted in Form B specified in the Schedule. Whereas Regulation 820 deals with submission of a claim by a person who claims himself to be a financial creditor. Such a claim is to be submitted in Form C. Regulations 8-A, 9 and 9-A deal with other classes of creditors with which we are not concerned here. 19. Regulation 1221 mandates submission of proof of the claim by the date specified. Whereas, Regulation 1322 speaks of verification of claims by the interim resolution professional (IRP) or the RP, as the case may be. Regulation 1423 provides for determination of amount of claim where the amount claimed is not precise. 20. The use of the words "a person claiming to be an operational creditor" in the opening part of Regulation 7, and the words "a person claiming to be a financial creditor" in Regulation 8, indicate that the category in which the claim ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... gs of the COC. 25. The meetings of the COC are to be conducted by the RP. Sub section (3) of Section 2426, inter alia, provides that the RP shall give notice of each meeting of the COC to the operational creditors or their representative(s) if the amount of their aggregate dues is not less than ten percent of the debt. Regulation 19 of the CIRP Regulations, 2016 further mandates the RP to ensure that notice of the meeting is given to every participant. "Participant" is defined in Regulation 2 (l) of the CIRP Regulations 2016 as a person who is entitled to attend a meeting of the COC under Section 24 of the IBC or any other person authorised by the COC to attend the meeting. 26. Based on the information memorandum, when a resolution plan is submitted by a resolution applicant, eligible under Section 29-A of the IBC, the RP is under an obligation to examine whether the resolution plan(s) received by him conform(s) to the conditions referred to in sub-section (2) of Section 30 of the IBC as elaborated in Regulations 3727 and 3827A of the CIRP Regulations 2016. 27. The resolution plan that conforms to the conditions referred to in sub-section (2) of Section 30 is to be presented by ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e dues of financial creditors as well as operational creditors and other stakeholders, the CD is revived and is made an ongoing concern; after COC approves the plan, the adjudicating authority is required to arrive at a subjective satisfaction that the plan conforms to the requirements as are provided in sub-section (2) of Section 30 of IBC; and only thereafter, the adjudicating authority can grant its approval to the plan. 30. What is clear from the provisions of the IBC and the Regulations noticed above is, that the RP is under a statutory obligation to collate the data obtained from (a) the claim(s) made before it and (b) information gathered from the records including those maintained by the CD. The data so collated forms part of the information memorandum. Based on that information, the resolution applicant(s) submit(s) plan. In consequence, even if a claim submitted by a creditor against the CD is in a Form not as specified in the CIRP Regulations, 2016, the same has to be given due consideration by the IRP or the RP, as the case may be, if it is otherwise verifiable, either from the proof submitted by the creditor or from the records maintained by the CD. A fortiori, if a c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... plan approved by the CoC. Within its limited jurisdiction, if the adjudicating authority or the appellate authority, as the case may be, would find any shortcoming in the resolution plan vis-à-vis the specified parameters, it would only send the resolution plan back to the Committee of Creditors, for re-submission after satisfying the parameters delineated by the Code and exposited by this Court. ( Emphasis supplied ) 33. In light of the analysis of the provisions of the IBC and the Regulations framed thereunder, in our view, though commercial wisdom of the COC in approving a resolution plan may not be justiciable in exercise of the power of judicial review, the Adjudicating Authority can always take notice of any shortcoming in the resolution plan in terms of the parameters specified in sub-section (2) of Section 30 of the IBC coupled with Regulations 37 and 38 of the CIRP Regulations 2016. If any such shortcoming appears in the resolution plan, it may send the resolution plan back to the COC for re-submission after satisfying the parameters so laid down. Likewise, the appellate authority can also interfere upon noticing any shortcoming in the resolution plan while exe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... le; (b) NCLT has no power to recall its order of approval, the remedy for the appellant was to file an appeal within the time provided by the statute; and (c) there has been inordinate delay on the part of the appellant in questioning the order of approval. 38. At this stage, we may put on record that the appellant had set up its claim as a financial creditor. However, the appellant was found to be an operational creditor. Though a challenge to this finding has been laid but, during the course of arguments, the learned counsel for the appellant failed to demonstrate as to how could the appellant be considered a financial creditor. In view thereof, taking notice of the decision in Anand Sonbhadra (supra), we do not propose to deal with the submission that the appellant was a financial creditor. 39. Upon consideration of the rival submissions, following issues arise for our consideration in this appeal: (i) 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?. (ii) Whether the application for recall of the order was barred by time? (iii) ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ds of justice or to prevent abuse of the process of the Tribunal." 43. In Manohar Lal Chopra vs. Rai Bahadur Rao Raja Seth Hiralal AIR 1962 SC 527 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." ( Emphasis supplied ) 44. In Grindlays Bank Ltd. vs. Central Govt. Industrial Tribunal 1980 Supp SCC 420 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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." 46. 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 (2021) 14 SCC 683. 47. In Budhia Swain vs. Gopinath Deb (1999) 4 SCC 396, 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 plead ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 no ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he 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. b. 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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. Foot Note 10 Section 13.- Imposition of penalty and mode of recovery of arrears.- Where any transferee makes any default in the payment of any consideration money or instalment thereof or any other amount due on account of the transfer of any site or building by the Authority or any rent due to the Authority in respect of any lease, or where any transfer or occupier makes any default in payment of any amount of fee or tax levied under this Act the Chief Executive Officer may direct that in addition to the amount of arrears, a further sum not exceeding that amount shall be recovered from the transferee or occupier, as the case may be, by way of penalty. 11 Section 13.A- Any amount payable to the Authority under Section 13 shall constitute a charge over the property and ma ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... cified by the Board in priority to the payment of other debts of the corporate debtor; (b) provides for the payment of debts of operational creditors in such manner as may be specified by the Board which shall not be less than- (i) the amount to be paid to search creditors in the event of a liquidation of the corporate debtor under section 53; (ii) the amount that would have been paid to such creditors, if the amount to be distributed under the resolution plan had been distributed in accordance with the order of priority in sub-section (1) of section 53; whichever is higher, and provides for the payment of debts of financial creditors, who do not vote in favour of the resolution plan, in such manner as may be specified by the Board, which shall not be less than the amount to be paid to such creditors in accordance with sub-section (1) of section 53 in the event of a liquidation of the corporate debtor. Explanation 1.-- For the removal of doubts, it is hereby clarified that a distribution in accordance with the provisions of this clause shall be fair and equitable to such creditors. Explanation 2.-- For the purposes of this clause it is hereby declared that on and fro ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n connection with protection against or benefit from fluctuation in any rate or price and for calculating the value of any derivative transaction, only the market value of such transaction shall be taken into account; (h) any counter indemnity obligation in respect of a guarantee, indemnity bond, documentary letter of credit or any other instrument issued by a bank or financial institution; (i) the amount of any liability in respect of any of the guarantee or indemnity for any of the items referred to in sub-clauses (a) to (h) of this clause; 19 7. Claims by operational creditors.-(1) A person claiming to be an operational creditor, other than workman or employee of the corporate debtor, shall submit claim with proof to the interim resolution professional in person, by post or by electronic means in Form B of the Schedule: Provided that such person may submit supplementary documents or clarifications in support of the claim before the constitution of the committee. (2) The existence of debt due to the operational creditor under this regulation may be proved on the basis of- (a) the records available with an information utility, if any; or (b) other relevant doc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e claims, and thereupon maintain a list of creditors containing names of creditors along with the amount claimed by them, the amount of their claims admitted and the security interest, if any, in respect of such claims, and update it. (2) The list of creditors shall be- (a) available for inspection by the persons who submitted proofs of claim; (b) available for inspection by members, partners, directors and guarantors of the corporate debtor or their authorised representatives; (c) displayed on the website, if any, of the corporate debtor; (ca) filed on the electronic platform of the Board for dissemination on its website: Provided that this clause shall apply to every corporate insolvency resolution process ongoing and commencing on or after the date of commencement of the Insolvency and Bankruptcy Board of India (Insolvency Resolution Process for Corporate Persons) (Fifth Amendment) Regulations, 2020; (d) filed with the adjudicating authority; and (e) presented at the first meeting of the committee. 23 14. Determination of amount of claim.-(1) Where the amount claimed by a creditor is not precise due to any contingency or other reason, the interim re ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... oceeding initiated by Government and statutory authorities; (i) the number of workers and employees and liabilities of the corporate debtor towards them; (j) *******omitted (k)*******omitted (l) other information, which the resolution professional deems relevant to the committee. (3) A member of the committee may request the resolution professional for further information of the nature described in this regulation and the resolution professional shall provide such information to all members within reasonable time if such information has a bearing on the resolution plan. (4) The resolution professional shall share the information memorandum after receiving an undertaking from a member of the committee to the effect that such member or resolution applicant shall maintain confidentiality of the information and shall not use such information to cause an undue gain or undue loss to itself or any other person and comply with the requirements under subsection [2] of section 29. 26 "Section 24. Meeting of committee of creditors.--- (1)......... (2).............. (3) The resolution professional shall give notice of each meeting of the committee of creditors to- ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ted in favour of the plan. (1A) A resolution plan shall include a statement as to how it has dealt with the interests of all stakeholders including financial creditors and operational creditors, of the corporate debtor. (1B) A resolution plan shall include a statement giving details if the resolution applicant or any of its related parties has failed to implement or contributed to the failure of implementation of any other resolution plan approved by the adjudicating authority at any time in the past. (2) A resolution plan shall provide: [a] the term of the plan and its implementation schedule; [b] the management and control of the business of the corporate debtor during its term; and [c) adequate means for supervising its implementation. (3) A resolution plan shall demonstrate that---- [a] it addresses the cause of the fault; [b] it is feasible and viable; [c] it has provisions for its effective implementation; (d) it has provisions for approvals required and the timeline for the same; and [e] the resolution applicant has the capability to implement the resolution plan. 28 Section 30 (4). The committee of creditors may approve a resolution pl ..... X X X X Extracts X X X X X X X X Extracts X X X X
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