NCLT does not have the authority to cancel the resolution plan of a secured creditor: Supreme Court
Title: GREATER NOIDA INDUSTRIAL DEVELOPMENT AUTHORITY VERSUS PRABHJIT SINGH SONI & ANR.
CIVIL APPEAL NOS.7590-7591 OF 2023
Date of Judgment- February 12, 2024
CORAM: Justice Dr. Dhananjaya Y. Chandrachud, Justice J. B. Pardiwala, Justice Manoj Misra
Facts of the Case-
The case originated with the appellant, a statutory authority under the U.P. Industrial Area Development Act, 1976, acquiring land for an urban and industrial township. One plot of land, Plot No. 01-C, Sector 16C, Greater Noida, was allotted to M/s. JNC Construction (P) Ltd. (the Corporate Debtor) for a residential project. The Corporate Debtor defaulted on payment, leading to a Company Petition for initiating Corporate Insolvency Resolution Process (CIRP), which was admitted on 30.05.2019. Claims were invited, and the appellant submitted a claim of Rs. 43,40,31,951, as unpaid instalments for the lease premium.
However, the Resolution Professional (RP) treated the appellant as an operational creditor, requesting submission of claim in Form B. The appellant did not comply. Meanwhile, a resolution plan was approved by the Committee of Creditors (COC) and the National Company Law Tribunal (NCLT) on 04.08.2020.
Aggrieved, the appellant filed applications questioning the resolution plan, RP’s decision, and actions thereof. The NCLT rejected the applications on the grounds of delay and failure to act against RP’s decision despite awareness.
Challenging NCLT’s order, the appellant appealed before the National Company Law Appellate Tribunal (NCLAT), contending:
- Inclusion as a financial creditor, not operational.
- Status as a secured creditor with a statutory charge over assets.
- Inaccurate portrayal of its claim submission.
- Lack of participation in COC meetings.
- Failure to consider appellant’s rights and feasibility of the resolution plan.
- Alleged misconception regarding delay in pursuing remedies.
The NCLAT dismissed the appeal, citing RP’s communication regarding operational creditor status, absence of disbursement qualifying appellant as a financial creditor, delay in challenging the resolution plan, and lack of material irregularity in plan approval, which they are contesting in the present appeal.
Laws Involved:
- Section 30 and 60 of the IBC,2016.
- Regulations 37 and 38 of the CIRP Regulations, 2016.
Issues framed by the court:
- Whether in 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?.
- (ii) Whether the application for recall of the order was barred by time?
- (iii) Whether the resolution plan put forth by the resolution applicant did not meet the requirements of sub-section (2) of Section 30 of the IBC read with Regulations 37 and 38 of the CIRP Regulations, 2016?
- (iv) As to what relief, if any, the appellant is entitled to?
Courts Judgment and Analysis:
Firstly, regarding the exercise of powers under sub-section (5) of Section 60 of the IBC, the court examined the scope of the Adjudicating Authority, which is the NCLT, to recall an order of approval passed under sub-section (1) of Section 31 of the IBC. It referenced Rule 11 of the NCLT Rules, 2016, which preserves the inherent powers of the Tribunal. The court emphasized that the Tribunal possesses inherent powers necessary to discharge its functions effectively for the purpose of doing justice between the parties. It observed that neither the IBC nor the Regulations framed thereunder prohibit the exercise of such inherent power. The court concluded that the NCLT indeed has the power to recall an order in the absence of a statutory prohibition, emphasizing that such power should be exercised sparingly and not as a tool to re-hear the matter.
Secondly, the court addressed whether the application for recall of the order was barred by time. It examined the timeline of filing the recall application and concluded that it was filed within a reasonable timeframe upon getting relevant information and immediately after the suspension of the period of limitation was lifted. Therefore, the court found no merit in the argument that the applications were barred by limitation.
Thirdly, the court analyzed whether the resolution plan submitted by the resolution applicant met the requirements of sub-section (2) of Section 30 of the IBC read with Regulations 37 and 38 of the CIRP Regulations, 2016. It identified several deficiencies in the resolution plan, including the failure to acknowledge the appellant’s claim, the incorrect mention of the amount outstanding, the failure to categorize the appellant as a secured creditor, and the lack of provisions for necessary approvals. The court found that these shortcomings materially affected the resolution plan and rendered it invalid. It criticized the lower courts for not addressing these crucial aspects.
Lastly, the court deliberated on the relief to be granted to the appellant. It concluded that since the lower courts failed to consider the appellant’s valid grounds for seeking recall of the order and the deficiencies in the resolution plan, the appellant’s appeals were entitled to be allowed. The court set aside the impugned order, revoked the approval of the resolution plan, and directed the resolution plan to be sent back to the COC for re-submission after fulfilling the parameters set out by the Code. The court did not order any costs.
“PRIME LEGAL is a full-service law firm that has won a National Award and has more than 20 years of experience in an array of sectors and practice areas. Prime legal fall into a category of best law firm, best lawyer, best family lawyer, best divorce lawyer, best divorce law firm, best criminal lawyer, best criminal law firm, best consumer lawyer, best civil lawyer.”
Written by- Aditi
