Reagitating The Issue Attained Finality, By NCLT And Supreme Court, Is Abuse of process : NCLAT, Principal Bench

Factual Background-

The appeals were filed by the ex-Director of the Corporate Debtor company, Golden Tobacco Ltd. And Oval Investment Pvt. Ltd., claiming to be a shareholder, against the order of the NCLT admitting the application u/s 7 of the IBC, 2016 filed by the Financial Creditor, Arrow Engineering Limited.

Proceedings Before NCLT

The Financial Creditor, Arrow Engineering Limited filed an application u/s 7 of the Code for initiation of CIRP against the Corporate Debtor. However, this application was dismissed. An appeal was filed against this order of the NCLT dismissing the Section 7 application in the NCLAT.

The Appellate Tribunal allowed the Appeal and set aside the order dismissing the Section 7 application. This order was challenged by the Corporate Debtor in the Apex Court, which dismissed the appeal.

In compliance with the order of the NCLAT, which was merged with the subsequent order of the Apex Court affirming the order of the Appellate Tribunal, the NCLT admitted the application, appointed an IRP and ordered moratorium u/s 14 of the Code.

Contentions of Appellant-

• The Appellant contended that the order of the Adjudicating Authority is silent as to the pleas raised by the Appellants regarding the relationship of the Financial Creditor and the Corporate Debtor, limitation, acknowledgment of debt, etc. In absence of any finding in this regard, the order passed by the NCLT is ex-facie erroneous.
• The Appellant further contended that before the Supreme Court, the challenge was limited the order of remand, and not against the other findings recorded by the Adjudicating Authority. Thus, the question of res judicata does not arise.
• Since the Appellant was not a party to the earlier proceedings in the 1^st round of litigation before the NCLAT and the Apex Court, it is entitled to challenge the findings u/s 61 of IBC.

Issues-

The NCLAT framed the following issues-

• Whether the Appellants in both the appeals are competent to challenge the order passed by the Adjudicating Authority in IA No. 830/NCLT/AHM/2021 in CP(IB) No. 268/NCLT/AHM/09/2020 and Company Appeal (AT)(Insolvency) No. 699 of 2022 and Company Appeal (AT)(Insolvency) No. 812 of 2022 when the findings recorded by this Appellate Tribunal in Company Appeal(AT)(Insolvency) No. 183 of 2021 attained finality in view of the judgment passed in Civil Appeal No. 7715 of 2021 by the Hon'ble Apex Court?
• Whether the order passed by the Adjudicating Authority suffers from any illegality or irregularity warranting interference of this Appellate Tribunal while exercising power under Section 61 of IBC. If so, whether the common order passed by the Adjudicating Authority in IA No. 830/NCLT/AHM/2021 in CP(IB) No. 268/NCLT/AHM/ 09/2020 is liable to be set aside?

Decision Of The NCLAT

Financial Debt

The Appellant contended that the debt due to the Corporate Debtor in the present case was not a Financial Debt, placing reliance on the MoU between the Corporate Debtor and the Arrow Engineering Limited/ Financial Creditor, according to which there was an arrangement between the Corporate Debtor and Financial Creditor to carry on joint venture and development of project, while the Corporate Debtor agreed to provide land to the Financial Creditor, who in turn had to provide financial assistance for development of the project.

The Appellate Tribunal held that the debt due to the Financial Creditor was in fact a Financial Debt within the meaning of Section 5(8), IBC This finding was also affirmed by the Apex Court.

Right In Rem

The Appellant relied on the judgment in Booz-Allen & Hamilton Inc. v. SBI Home Finance Limited and contended that since the finding recorded by the Tribunal is right in rem, the same can be questioned by the Appellant being a shareholder.

The Appellate Tribunal rejected this contention on the ground that the Appellant in the present case is claiming interest through the Corporate Debtor. Placing reliance on the judgement in Ebix Singapore Pvt. Ltd., the NCLAT held that when the judgment has attained finality, the Appellant claiming interest through the Corporate Debtor is debarred from re-agitating the same, applying the doctrine of res judicata.

Res Judicata

The Appellate Tribunal held that the judgment of the NCLAT cannot be held to be erroneous as the same was confirmed by the Supreme Court. If the judgment of this Tribunal is held to be erroneous, it would amount to reviewing the judgment both of itself as well as of the Apex Court. The NCLAT cannot review its own judgment or that of the Apex Court. Thus, the prayer of the Appellant was rejected.

The NCLAT relied on the judgment of Ebix Singapore Pte Ltd. V. Committee of Creditors of Educomp, wherein it was held that the doctrine of res-judiciata is applicable to proceedings under the IBC and challenge to findings in incidental or collateral proceedings amounts to abuse of process of the Court.

It further observed that once the Appellant raised a specific ground before the Adjudicating Authority in the first round of litigation, again raising such grounds in the second round of litigation in incidental proceedings is nothing but an abuse of process of the Court.

The Bench relied on the decision of the Supreme Court in Neelama Srivastava v. State of UP & Ors., Rudra Kumar Sain and Ors. V. Union of India & Ors. And Union of India v. Maj. S.P. Sharma and held that-

"In view of the principle laid down in the above judgements, the principle of resjudicata, though a part of CPC, it would be applicable to the proceeding of this Tribunal and IBC. Only to prevent the abuse of process of law and give a finality to any proceeding, or orders, and to avoid an endless litigation to frustrate the very object of enacting IBC, the claim of appellants is liable to be rejected."

It further held that-

"Indeed, a judgment obtained by playing fraud on the Tribunal or judgment or order passed without inherent jurisdiction is nonest in the eye of law and the same can be challenged in a collateral or incidental proceeding, but it was not the case of the Appellants in these appeals. Hence in any collateral or incidental proceeding, the judgment cannot be agitated which attained finality. If such course is permitted it would amount to exercise of power of review of its own judgment or sitting over the judgment in appeal against its own order or judgment which is impermissible under law."

Vikas Dahiya (Ex-Director of Golden Tobacco Ltd.) Vs. Arrow Engineering Ltd.

Counsel for Appellant: Mr. Abhijeet Sinha, Mr. Rinku Kr. Garg, Mr. Rajan Chaudhary, Mr. Nishant Rao and Ms. Geetika, Advocates

Counsel for Respondents: Mr. Robin Jaisinghani, Mr. Vikas Mehta, Mr. Jacinta D Silva, Mr. Bhaskar Nayak, Advocates for Respondents No. 1
Mr. Anurag Bisaria, Advocate for R-2

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