NCLT Hyderabad Recalls Order Initiating CIRP In View Of Concealment of Facts By Financial Creditor

Background Facts

The Canara Bank ("Financial Creditor") had filed a petition under Section 7 of the Insolvency and Bankruptcy Code, 2016 ("IBC"), seeking initiation of Corporate Insolvency Resolution Process ("CIRP") against Feno Plast Limited ("Corporate Debtor"), over a default of Rs. 55,61,32,955.75/- inclusive of interest. The Adjudicating Authority vide its Order dated 19.10.2022 had admitted the petition and initiated CIRP against the Corporate Debtor.

The Suspended Director of the Corporate Debtor filed an application before the Adjudicating Authority, seeking recall of the Order dated 19.10.2022 whereby CIRP was initiated against the Corporate Debtor.

Contentions Of The Applicant

The Suspended Director ("Applicant") argued that certain material facts pertaining to the One Time Settlement (OTS) dated 12.07.2022 entered between the Parties was not placed on record. The Financial Creditor had sanctioned OTS on 12.07.2022 in favour of the Corporate Debtor. The OTS was cancelled on 03.08.2022 and thereafter revived on 24.08.2022. The Financial Creditor did not disclose to the Adjudicating Authority that the OTS had been revived on 24.08.2022. Therefore, the Adjudicating Authority had passed the Order initiating CIRP on 19.10.2022, under the impression that the OTS was cancelled and therefore the Corporate Debtor had defaulted in payment of debt.

The Financial Creditor argued that the Adjudicating Authority does not have any jurisdiction to recall the order initiating CIRP.

Issue

Whether the Adjudicating Authority has jurisdiction to recall its order directing initiation of CIRP against the Corporate Debtor?

Decision Of NCLT

The Bench observed that the OTS sanctioned on 12.07.2022 was cancelled on 03.08.2022. Thereafter, vide a letter dated 24.08.2022 the OTS was revived. The Adjudicating Authority was not informed by either of the Parties regarding revival of OTS. The Adjudicating Authority under the impression that the OTS had been cancelled, initiated CIRP against the Corporate Debtor on 19.10.2022, upon the premise that that there was a default in repayment of debt.

It was observed that suppression of material facts tremendously influenced the Adjudicating Authority's finding regarding existence of default.

"There can be no doubt that the plea of the Corporate Debtor that the debt was not due and payable by the date of admission of the Petition under Section 7 of IB Code, is a good ground against admission and therefore, if the same is established the petition under Section 7 of IB Code has to be rejected."

It was held that the Order dated 19.10.2022 was an outcome of misrepresentation of facts by the Financial Creditor before the Adjudicating Authority. Reliance was placed on the Supreme Court judgment in United India Insurance Co. Ltd. v Rajendra Singh, wherein it was held that, "No Court or Tribunal can be regarded as powerless, to recall its own order, if it is convinced that the order was wangled through fraud or misrepresentation of such a dimension as would affect the very basis of the claim". The Bench held that the Adjudicating Authority has the jurisdiction to recall its order dated 19.10.2022.

The Order dated 19.10.2022 was recalled and the matter was re-opened for considering the Communication taken place between Parties post 24.08.2022 (after revival of OTS) and then arriving at a fresh finding on whether or not the Corporate Debtor has committed default in payment of the debt, which is admittedly not in dispute.

Case Title: Canara Bank v Feno Plast Limited

Case No.: CP (IB) No. 10/07/HDB/2022

Counsel For Applicant: Mrs. Madhavi Latha, Mr. S Ramakrishna, Advocates.

Counsel for Respondent: Mr. Manav Gecil Thomas, Advocate.

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