NCLT Has Inherent Power To Recall Order Approving Resolution Plan Which Is Not Submitted As Per IBC : Supreme Court

The Supreme Court on Monday (February 12) observed that the Adjudicating Authority (“AA”) i.e., NCLT under Insolvency and Bankruptcy Code, 2016 (“IBC”) has the power to recall its order approving the resolution plan if the resolution plan is not submitted as per the mandate of the Code.

The Resolution Applicant (“RA”) had preferred a recall application before the AA seeking recall of its order approving the resolution plan. The RA preferred the recall application on the note that the Resolution Plan approved by AA did not fulfill the conditions laid down in sub-section (2) of Section 30 of the IBC.

The AA rejected the recall application on a note that it is impermissible for it to decide on the recall application of the Resolution Applicant consequent to the approval of the resolution plan.

The NCLAT i.e., National Company Law Appellate Tribunal also affirmed the view taken by the AA while dismissing the appeal against the NCLT's order.

It is against the impugned order of the NCLAT that the instant appeal was preferred by the Resolution Applicant before the Supreme Court.

Thus, the question that appears before the Supreme Court was whether, in the 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?

Answering in affirmative, the Supreme Court while relying on its recent judgment passed in Union Bank of India vs. Financial Creditors of M/s Amtek Auto Ltd. & Ors. observed that there was a gross mistake on the part of the Adjudicating Authority in approving the plan which did not fulfill the conditions laid down in sub-section (2) of Section 30 of the IBC.

Therefore, the recall application filed by the resolution applicant qualifies as valid grounds on which a recall of the order of approval could be sought.

“In our view, the grounds taken qualify as valid grounds on which a recall of the order of approval dated 04.08.2020 could be sought. We thus hold that the recall application was maintainable notwithstanding that an appeal lay before the NCLAT against the order of approval passed by the Adjudicating Authority.”

In the M/S Amtek Auto Ltd. case, the court while affirming the observations of the NCLAT observed that though the power to review is not conferred upon the Tribunal but power to recall its judgment is inherent in the Tribunal and is preserved by Rule 11 of the NCLT Rules, 2016 to secure the ends of justice and/or to prevent abuse of the process of the Court.

“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.”, the court added.

Accordingly, the court while allowing the appeal directed that the resolution plan shall be sent back to the COC for re-submission after satisfying the parameters set out by the Code.

The judgment authored by Justice Manoj Misra stated :

"...what emerges is, 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. Neither the IBC nor the Regulations framed thereunder, in any way, prohibit, exercise of such inherent power. Rather, Section 60(5)(c) of the IBC, which opens with a non-obstante clause, empowers the NCLT (the Adjudicating Authority) to entertain or dispose of any question of priorities or any question of law or facts, arising out of or in relation to the insolvency resolution or liquidation proceedings of the corporate debtor or corporate person under the IBC. Further, Rule 11 of the NCLT Rules, 2016 preserves the inherent power of the Tribunal. Therefore, even in absence of a specific provision empowering the Tribunal to recall its order, the Tribunal has power to recall its order"

Also Read: IBC | Claim Submitted With Proof Cannot Be Overlooked Merely Because It Was Submitted In Wrong Form: Supreme Court

Case Details: GREATER NOIDA INDUSTRIAL DEVELOPMENT AUTHORITY VERSUS PRABHJIT SINGH SONI & ANR.

Citation : 2024 LiveLaw (SC) 111

Click Here To Read/Download The Judgment