Supreme Court: NCLT Possesses Inherent Power to Revoke Approval of Resolution Plan Not In Accordance With IBC
Supreme Court: NCLT Possesses Inherent Power to Revoke Approval of Resolution Plan Not In Accordance With IBC
The Supreme Court has observed that the Adjudicating Authority (AA), referring to the National Company Law Tribunal (NCLT) under the Insolvency and Bankruptcy Code, 2016 (IBC), possesses the authority to revoke its order endorsing the resolution plan if the plan is not submitted in accordance with the requirements stipulated by the Code.
The Resolution Applicant (RA) filed a recall application before the AA to request the revocation of its order endorsing the resolution plan. The RA submitted the recall application on the basis that the resolution plan approved by the AA did not meet the conditions specified in subsection (2) of Section 30 of the IBC.
The AA dismissed the recall application, stating that it is not permissible for it to adjudicate on the recall application filed by the Resolution Applicant after the approval of the resolution plan.
The NCLAT upheld the stance adopted by the NCLT in dismissing the appeal against its order, thereby affirming the decision of the AA.
The current appeal before the Supreme Court was initiated by the Resolution Applicant against the challenged order of the NCLAT.
The question before the Supreme Court pertains to whether the adjudicating authority (i.e., NCLT) can, in the exercise of powers under subsection (5) of Section 60, revoke an order of approval issued under subsection (1) of Section 31 of the IBC.
The Supreme Court noted that there was a substantial error on the part of the adjudicating authority in endorsing the plan that failed to satisfy the conditions specified in subsection (2) of Section 30 of the IBC.
Hence, the recall application submitted by the resolution applicant stands as valid grounds upon which a revocation of the approval order could be sought. The court observed that the reasons presented in the recall application constituted valid grounds for seeking the revocation of the approval order dated August 4, 2020.
Therefore, the court held that the recall application was permissible, even though an appeal was pending before the NCLAT against the approval order issued by the adjudicating authority. In the M/S Amtek Auto Ltd. case, the court, while upholding the observations of the NCLAT, noted that although the Tribunal is not explicitly granted the power to review, the authority to recall its judgment is inherently vested in the Tribunal. This power is safeguarded by Rule 11 of the NCLT Rules, 2016, to ensure the attainment of justice and to prevent the misuse of the court's processes.
The court observed that while the Tribunal possesses the authority to recall its judgment, this power should be utilized judiciously and not as a means to re-examine the entire matter. Typically, an application for the recall of an order is deemed admissible only under limited circumstances, including instances where: (a) the order lacks jurisdiction; (b) the aggrieved party was not served with notice of the proceedings leading to the order under recall; and (c) the order was obtained through misrepresentation of facts or by perpetrating fraud upon the Court or Tribunal, resulting in a significant miscarriage of justice.
Justice Manoj Misra emphasized that a court or tribunal possesses inherent power to recall an order in the absence of any contrary provision, with the aim of upholding justice and preventing abuse of the court's process. The court highlighted that neither the Insolvency and Bankruptcy Code (IBC) nor the regulations framed under it prohibit the exercise of such inherent power. Instead, Section 60(5)(c) of the IBC, which is empowered by a non-obstante clause, grants authority to the NCLT (the adjudicating authority) to address questions of priorities, questions of law, or facts arising from insolvency resolution or liquidation proceedings. Additionally, Rule 11 of the NCLT Rules of 2016 preserves the Tribunal's inherent power. Thus, even in the absence of a specific provision empowering the Tribunal to recall its order, the Tribunal posess the authority to do so.
Accordingly, the court allowed the appeal, directing the resolution plan to be returned to the COC for resubmission after ensuring compliance with the parameters outlined in the Code.
