CIRP Can't Be Extended Beyond 330 Days U/S. 12(3) Of IBC Absence Of “Exceptional Circumstances”: NCLAT

Relying on the Supreme Court's judgment in Greater Noida Industrial Development Authority v. Prabhjit Singh Soni & Anr., the Tribunal observed that an order can only be recalled on limited grounds, “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."

Brief Facts:

Srabani Constructions Pvt. Ltd. (Corporate Debtor) took financial facilities from Indian Overseas Bank in 2011. The Corporate Debtor committed default. Several OTS proposals were submitted but none were finalized. The Financial Creditor filed an application under Section 7 of IBC, which came to be admitted on 29.11.2022.

The CoC decided to replace the Resolution Professional (RP). Application for replacement was filed on 06.07.2023. It was allowed on 09.10.2023.

On 30.11.2023, the RP filed an application for exclusion of CIRP period from 22.03.2023 to 30.11.2023. The application was dismissed. The Adjudicating Authority directed liquidation of the Corporate Debtor. The Liquidator issued an auction sale notice on 24.10.2024. The Appellant's plea to stay the auction notice was dismissed.

An application was filed by Appellant to seek recall of the liquidation order dated 13.12.2023. The application came to be dismissed by the Adjudicating Authority on 17.04.2024. An interim order was passed on 03.05.2024 stating, “In the meantime, Adjudicating Authority shall not approve the Auction already taken place.”

The Suspended Director filed an application seeking a stay on the sale notice. On 21.11.2024, the Adjudicating Authority directed the liquidator to continue the auction process subject to the order in the pending appeal.

The Suspended Director filed the appeal challenging the orders dated 17.04.2024 and 21.11.2024 passed by the Adjudicating Authority (NCLT, Cuttack).

Submissions:

Counsel for the Appellant submitted that the Adjudicating Authority erred in directing liquidation of the corporate debtor whereas the application was filed by the Resolution Professional for exclusion of time from the date when CoC decided to replace the Resolution Professional and the date on which application was filed. It was submitted that when the OTS proposal was under consideration, there was no occasion to direct liquidation. It was further submitted that when the Tribunal passed an interim order on 03.05.2024, liquidator ought not to have proceeded with any auction and auction notice which has been issued by liquidator is on grossly undervalued reserved price and the assets.

Counsel for the Respondent submitted that the bank had never accepted any OTS proposal. It was further submitted that when no resolution has taken place within time of CIRP, no error has been committed by the Adjudicating Authority in passing any order of liquidation. No case has been made out for recall of the liquidation order dated 13.12.2023. Neither there was any fraud nor misrepresentation. This Tribunal in interim order dated 03.05.2023 never stayed the auction and only held that auction shall be subject to the order passed in these appeals.

Observations:

The first issue that the NCLAT considered was whether the NCLT committed an error in rejecting the recall application. The Tribunal noted that the application for exclusion was filed after 1 year. There was also no explanation for the delay of about 100 days in filing the application for removal of RP.

The NCLT had noted the maximum time period prescribed under section 12(3) of IBC i.e. 330 days. There is no scope to exclude the entire period of 252 days in one stroke and allow to commence the CIRP afresh. It observed that the time period under section 12(3) IBC is directory but the extension beyond 330 days could only be allowed in 'exceptional cases' where a short period is left for completion. The NCLT held that the period sought to be excluded was 252 days, which is huge, hence the request for exclusion is liable to be turned down.

The Tribunal referred to the judgment of the Supreme Court in Committee of Creditors of Essar Steel India Limited Through Authorised Signatory vs. Satish Kumar Gupta & Ors, which held that the period of CIRP could have been extended even beyond 330 days. The Tribunal observed that for extension of period beyond 330 days there has to be a valid reason.

It held that the applicant had not made out 'exceptional circumstances' for an extension beyond 330 days. It dismissed the exclusion application and ordered the liquidation of the corporate debtor.

The Tribunal further referred to the judgment of Supreme Court in Greater Noida Industrial Development Authority vs. Prabhjit Singh Soni & Anr., which laid down the limited grounds on which recall can be ordered. In that case, it was held, "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." It was further held:

"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."

The Tribunal held that the grounds which were raised by the Appellant did not fall within any of the grounds on which recall could have been directed.

The Tribunal stated that the Appellant is at liberty to file objection to the auction already undertaken by the liquidator before the Adjudicating Authority, and the Appellant is free to raise all issues regarding the auction including inappropriate valuation of assets.

The Tribunal held that the Adjuciating Authority did not commit any error in rejecting the application filed by the Appellant for recall of the liquidation order and hence, the liquidation order remained unaffected. With this, the tribunal dismissed the appeal.

Case Title: Sibanarayan Chhotray vs. Indian Overseas Bank & Anr.

Case Number: Company Appeal (AT) (Insolvency) No. 887 of 2024 with Company Appeal (AT) (Insolvency) No. 2246 of 2024

Counsel for Appellant: Mr. Arun Kathpalia, Sr. Advocate with Ms. Saman Ahsan, Mr. Aayush Jain and Mr. Arjit Oswal, Advocates

Counsel for Respondent: Ms. Mayuri Raghuvanshi, Mr. Vyom Raghuvanshi, Ms. Akanksha Rathore and Ms. Kinjal Sharma, Advs. for R1;

Mr. Sumit Shukla, Mr. Sanjeev Panda, Mr. Prachi Johri and Ms. Abhipsa Sahu, Advocates for R2/Liquidator;

Mr. Palash S. Singhai and Mr. harshad Sareen, Advocates for Intervenors

Date of Judgment: 17.12.2024