Can adjudicating authority recall its order of initiation of CIRP/ Liquidation?- Knowledge Series by Sumedha Management Solutions Pvt. Ltd

Judgement on IBC
Can adjudicating authority recall its order of initiation of CIRP/ Liquidation?- Knowledge Series by Sumedha Management Solutions Pvt. Ltd

Introduction:

In Vineet Khosla vs. Edelweiss Asset Reconstruction Company Ltd., the Hon’ble NCLAT has held that every Court/Tribunal has power to recall the order obtained by practicing fraud. Accordingly, the order of liquidation can be set aside when there is any material irregularity.

Facts of the case:

  1. Adjudicating Authority, vide order dated 15.03.2019, admitted the application filed by Edelweiss Asset Reconstruction Company Ltd. (“Respondent”) for initiation of corporate insolvency resolution process against Margra Industries Ltd. (“Corporate Debtor”).

  2. The said order was challenged by the suspended-director of the Corporate Debtor before NCLAT, however, the appeal was dismissed.

  3. Since there were no resolution plans compliant to the requirements of the request for resolution plan and provisions of IBC, CoC in its 9th meeting held on 21.12.2019 resolved to liquidate the Corporate Debtor.

  4. Thereafter, RP filed an application under Section 33(1) of IBC for liquidation of Corporate Debtor.

  5. The suspended director of Corporate Debtor (“Appellant”) filed an application seeking recall of admission order dated 15.03.2019 on the ground that the claim is barred by limitation.

  6. Adjudicating Authority held that limitation issue is a question of fact and law. This issue should have been raised at the time of admission or at least in the appeal. Moreover, since the matter was now pending for completion of liquidation, the admission order cannot be recalled.

  7. Being aggrieved with the order of liquidation and dismissal of application for recall of admission order, the Appellant filed an appeal before NCLAT.

Precedents relied upon:

In AV Papayya Sastry vs. Government of A.P.1, the Hon’ble Supreme Court observed as follows: “It is thus settled proposition of law that a judgment, decree or order obtained by playing fraud on the Court, Tribunal or Authority is a nullity and non est in the eye of law. Such a judgment, decree or order - by the first Court or by the final Court has to be treated as nullity by every Court, superior or inferior. It can be challenged in any Court, at any time, in appeal, revision, writ or even in collateral proceedings”.

In United India Insurance Co. Ltd. vs. Rajendra Singh2 also, it was held that every court/tribunal has power to recall its order which is obtained by practicing fraud.

Judgment:

In the instant case, the Hon’ble NCLAT, vide its judgment dated 07.01.2022, observed that the respondent did not file any false document in support of the petition. Further, the respondent did not commit any act of deliberate deception with the design of securing some unfair/ undeserved benefit. Accordingly, it was held that the respondent has not obtained order dated 15.03.2019 by practicing fraud, and therefore, the Adjudicating Authority has no jurisdiction to recall the admission order.

1 AIR 2007 SC 1546

2 AIR 2000 SC 1165

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