Introduction
This viewpoint was initially reinforced in cases like Agarwal Coal Corporation Private Ltd vs Sun Paper Mill1 and Rajendra Mulchand Varma Director of Omkar relators & Development Pvt. Ltd vs. K.L.J Resources Ltd2, where the NCLAT maintained that without specific legislative power, it could not recall a judgment.
However, a five-member bench of the NCLAT in Union Bank of India v. Dinkar T. Subramanian3 introduced a turning point. It drew a vital distinction between the power to “review” and the power to “recall.” While a review involves re-examining the merits of a case, a recall is a more limited exercise of authority to correct an order that has a fundamental flaw, such as being obtained through fraud or a lack of due process. The tribunal asserted that the power to recall is inherent and is derived from Rule 11 of the NCLAT Rules, 2016, which allows it to make orders necessary for “meeting the ends of justice or to prevent abuse of the process.” This interpretation was a crucial shift, affirming the tribunals’ ability to intervene in exceptional circumstances.
This judicial position was further solidified by the Supreme Court in Greater Noida Industrial Development Authority v. Prabhjit Singh Soni4. The Court, while acknowledging the sanctity of a resolution plan once approved, held that the adjudicating authority’s power to recall its own order is undeniable. It linked this power directly to the broad jurisdiction of the NCLT under Section 60(5) of the IBC. This section, with its non-obstante clause, gives the NCLT the authority to entertain any question of law or fact “arising out of or in relation to the insolvency resolution.” The Supreme Court concluded that this inherent power is a necessary safety valve, to be used sparingly and only in limited circumstances.
The core principle that justifies this recall is that fraud vitiates everything. As the NCLAT is held in, the stage of the CIRP is “inconsequential” when considering an application under Section 65 of the IBC for fraudulent or malicious proceedings. This is because a fraudulent act taints the entire process, including the final order approving the resolution plan. A resolution plan is meant to resolve genuine insolvency, not to serve as a tool for collusive transactions or to shield a company from its legitimate obligations to allottees or authorities. When evidence of fraud and collusion is brought to light, such as through unstamped documents, undisclosed relationships between parties, or manipulated financial records, the tribunals are not only entitled but obligated to “pierce the corporate veil” and recall the admission order. This action is not a review but a valid exercise of jurisdiction to prevent the abuse of the IBC.
The rationale behind this judicial position is clear. The IBC is a powerful statute designed to promote economic stability and creditor rights. However, without the inherent power to recall a fraudulent resolution plan, it could be exploited by corporate debtors and their associates to the detriment of genuine creditors. The tribunals’ ability to recall a resolution plan ensures that the integrity of the insolvency process is maintained and that justice is not just a procedural outcome but a substantive one. It’s a testament to the idea that even in a time-bound system, an order obtained through deceit can never be considered final.
Conclusion
The NCLAT’s decision to affirm the NCLT’s power to recall a resolution plan is a landmark judgment that significantly strengthens the integrity of the IBC. By holding that “fraud vitiates everything”, the tribunals have established a robust mechanism to prevent the misuse of the insolvency framework for fraudulent or collusive purposes. This ruling provides a critical safeguard for genuine creditors, such as homebuyers and authorities, ensuring they are not left at the mercy of mala fide actors. The judgment underscores that the primary goal of the IBC is not just speedy resolution, but a just and equitable resolution, and that procedural finality cannot be a shield for deceit. This legal position, now firmly supported by the Supreme Court, reinforces the judiciary’s role in upholding the spirit of the law over its mere letter.
While the judgment provides clarity on the power to recall in cases of fraud and malicious intent, it also opens up new avenues for legal interpretation and potential challenges. A key question that may arise in the future is how to define the “limited circumstances” under which this power can be exercised. Will disgruntled creditors, whose claims were legitimately rejected, now attempt to frame their appeals as cases of fraud to get a second chance? The tribunals will need to be meticulous in distinguishing between genuine allegations of fraud and a mere attempt to relitigate a settled matter. The balance between maintaining the finality of the resolution process and ensuring justice will continue to be a delicate one.Ultimately, this ruling is a powerful reminder that the IBC, while a rigid and time-bound code, is not immune to the principles of equity and justice. It places a greater burden on the adjudicating authorities to exercise their inherent powers judiciously, and on parties to the insolvency proceedings to act with utmost honesty and transparency. The legal community will be watching closely as future cases test the boundaries of this power, but for now, it is clear that the finality of a resolution plan is contingent upon the integrity of the process that led to its approval. The era of using the IBC as a quick and easy escape from legitimate obligations is, hopefully, coming to an end.
- Agarwal Coal Corporation Private Ltd vs Sun Paper Mill Misc. Appeal No. 1116 of 2022
- Rajendra Mulchand Varma Director of Omkar relators & Development Pvt. Ltd vs. K.L.J Resources Ltd. Company Appeal (AT) (Insolvency) No. 359 of 2020
- Union Bank of India v. Dinkar T. Subramanian Company Appeal (AT) (Insolvency) No. 729 of 2020
- Greater Noida Industrial Development Authority v. Prabhjit Singh Soni Civil Appeal Nos.7590-7591 of 2023
Expositor(s): Adv. Anuja Pandit
