In a recent verdict, the Supreme Court reinforced the authority of the National Company Law Tribunal (NCLT) to retract its approval of resolution plans under the Insolvency and Bankruptcy Code (IBC) if they fail to adhere to the Code’s stipulations.
The case involved a Resolution Applicant (RA) who petitioned the AA (Adjudicating Authority), namely NCLT, to recall its order greenlighting a resolution plan. The grounds for recall were that the approved plan did not meet the prerequisites outlined in Section 30(2) of the IBC.
Initially, both the AA and the NCLAT rejected the recall application, contending that it was beyond their jurisdiction post the plan’s approval.
However, the Supreme Court, drawing on its precedent set in Union Bank of India vs. Financial Creditors of M/s Amtek Auto Ltd. & Ors., ruled in favor of the RA. It highlighted a significant oversight by the AA in endorsing a plan that failed to comply with the IBC’s conditions.
The court affirmed that the grounds raised by the RA were legitimate for seeking a recall of the approval order. It emphasized that while the power to review isn’t explicitly granted to the Tribunal, the authority to recall judgments is inherent and essential to ensure justice and prevent procedural abuse.
This power, the court underscored, must be exercised judiciously and not as a means to re-litigate matters. It outlined specific circumstances where recall is permissible, including instances of jurisdictional error, lack of notice to affected parties, or fraudulent procurement of orders.
Consequently, the Supreme Court allowed the appeal and directed the reconsideration of the resolution plan by the Committee of Creditors (COC), emphasizing compliance with the Code’s parameters.
In a detailed judgment authored by Justice Manoj Misra, the court clarified that neither the IBC nor its regulations inhibit the Tribunal’s inherent power to recall orders. It cited Section 60(5)(c) of the IBC and Rule 11 of the NCLT Rules, 2016, as provisions that uphold the Tribunal’s inherent authority.
This ruling affirms the NCLT’s crucial role in maintaining the integrity of insolvency proceedings and ensuring compliance with the statutory framework, underscoring the paramount importance of adherence to the law in resolving corporate insolvency matters.
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