Order Admitting CIRP Cannot Be Recalled In Absence Of Fraud Or Misrepresentation: NCLT Mumbai

The National Company Law Tribunal, Mumbai comprising of Justice V.G. Bisht (Member (Judicial) and Prabhat Kumar (Member (Technical) partly allowed an interim application filed by Canara Bank in relation to the CIRP of Carnival Techno Park Pt. Ltd (CTPPL). The Tribunal rejected Canara Bank's plea to recall CIRP admission but allowed the forensic audit to investigate the legitimacy of RCFL claim and its classification as secured financial debt. Brief Facts The Application arises from the Corporate Insolvency Resolution Process (CIRP) of Carnival Techno Park Pvt. Ltd (CTPPL) under the Insolvency and Bankruptcy Code, 2016. The matter originates from the company petition filed by the Reliance Commercial Finance Ltd. (RCFL) against CTPPL which was admitted into CIRP by the National Company Law Tribunal (NCLT), Mumbai Bench on February 13, 2024. Canara Bank, a secured financial creditor with a claim of Rs. Rs.116,99,83,474.66 (Rupees One Hundred and Ninety-Nine Lakhs Eighty-Three Thousand and Four Hundred and Seventy-Four and Sixty-Six Paise only), to be recovered from the Corporate Debtor. The Bank contested the CIRP proceedings, alleging collusion and fraudulent conduct between RCFL, RP and Prospective Resolution Applicant. The Bank argued that the claim of RCFL was inflated to Rs. 294.30 crores for an original loan of Rs. 75 crores which affected its voting rights in the Committee of Creditors (CoC). It also stated that the debt of RCFL had been assigned to another company (Asian Business Connections Pvt. Ltd) and therefore CTPPL was no longer a debtor to RCFL. The bank also produced financial statement and credit facility report from NeSL to support its claim. Submission of Applicant Canara Bank argued that the claim of RCFL was inflated to Rs. 294.30 crores for an original loan of Rs. 75 crores which affected its voting rights in the Committee of Creditors (CoC). It also stated that the debt of RCFL had been assigned to another company (Asian Business Connections Pvt. Ltd) and therefore CTPPL was no longer a debtor to RCFL. The applicant also alleged that the RP had colluded with RCFL and other parties by admitting its claim without verifying key documents such as the financial statements and ROC records. Submission of Respondent The Resolution Professional (RP) opposed the application filed by Canara Bank stating that the same is barred by the principle of res judicata since NCLT had already dismissed the IA which sought the same documents and details of RCFL's claim. The RP also stated that Canara Bank never challenged the original CIRP before NCLAT and instead participated in the CoC meetings and CIRP proceedings, thereby accepting the order, It was only after realizing that it had a minority voting share in the CoC that Canara Bank attempted to derail the process by filing the present application. RCFL refuted the contentions made by Canara Bank stating that NCLT has no power to recall an order admitting a company into CIRP as any challenge to such an order must be made before NCLAT in appellate jurisdiction and not through a recall application before NCLT. NCLT Judgement Tribunal's Analysis of Canara Bank's Claims The Tribunal examined the central grievance of Canara Bank which was the admission of CTPPL into CIRP and that the same was obtained fraudulently by RCFL through inflated claim of Rs 294.30 crores instead of Rs. 75 crores. The Tribunal acknowledged that Canara Bank had produced financial statements of CTPPL all of which suggested that RCFS's debt had been assigned elsewhere. Jurisdiction to Recall and Admission Order One of the key legal issues dealt by the tribunal was whether NCLT had the power to recall its order admitting corporate debtor into CIRP. The Tribunal relied on the Supreme Court's decision in the case of Greater Noida v. Prabhjit Singh Soni (2024) 6 SCC 767 at para 50 thereof, which reads as under – “……………………………. 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.” Applying this principle the court stated; The order admitting CTPPL into CIRP was not without jurisdiction since NCLT had the authority to pass such order under Section 7 of the code.There was no evidence of fraud or misrepresentation sufficient to justify recalling the order and that the...

Order Admitting CIRP Cannot Be Recalled In Absence Of Fraud Or Misrepresentation: NCLT Mumbai

Pratham Kapoor

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