2023 (4) TMI 1313 - AT - Insolvency and Bankruptcy

NCLAT rejects recall applications against RBI Section 227 admission order citing procedural limits and timeline violations

NCLAT dismissed appeals challenging rejection of recall applications filed by appellant against order admitting RBI's Section 227 application. Tribunal ... Power to recall judgment - distinction between review and recall - principle of natural justice - jurisdiction of the Adjudicating Authority under Section 227 for financial service providers - inapplicability of bar under Section 10A to proceedings under Section 227/FSP Rules - inherent jurisdiction - finality of appeal up to the Supreme Court - infructuousness of challenge after approval and implementation of a resolution planPower to recall judgment - distinction between review and recall - inherent jurisdiction - Whether the Adjudicating Authority could recall its admission order of 08.10.2021 - HELD THAT: - The Tribunal held that its power to recall is inherent but strictly limited and is not a power to rehear or review the merits of a judgment. Reliance was placed on the Tribunal's five Member Bench exposition that recall may be exercised for limited grounds such as procedural error, absence of a necessary party when judgment was delivered, or fraud on the court. A recall application cannot be used as a vehicle to re open merits already considered (or capable of being considered) in appeal. The recall applications filed 17 months after admission sought substantive re examination of the admission order and were therefore effectively attempts to review that order, which is beyond the Adjudicating Authority's recall jurisdiction. Consequently, the Adjudicating Authority rightly rejected the recall applications as seeking merits review rather than raising grounds of the limited recall jurisdiction. [Paras 18, 19, 20, 21, 22]Recall applications dismissed as impermissible attempts to review the admission order; no ground for recall established.Principle of natural justice - Whether admission on 08.10.2021 violated the principle of natural justice by non service of notice to shareholders - HELD THAT: - The Tribunal found no breach of natural justice. On 01.10.2021 the RBI had superseded the Board and appointed an Administrator who alone represented the corporate debtor. The Administrator attended the hearing on 08.10.2021 and gave unconditional consent to act; therefore there was no requirement to issue notice to shareholders. The alleged denial of audi alteram partem was not established and did not amount to a procedural infirmity warranting recall. [Paras 14, 19]No violation of natural justice; absence of notice to shareholders not a ground for recall.Jurisdiction of the Adjudicating Authority under Section 227 for financial service providers - inapplicability of bar under Section 10A to proceedings under Section 227/FSP Rules - Whether the application under Section 227 was barred by Section 10A and whether the Adjudicating Authority lacked jurisdiction to admit the RBI's applications - HELD THAT: - The Tribunal held the Adjudicating Authority had jurisdiction to entertain the RBI's applications under Section 227 read with the FSP Rules, 2019. Section 10A, which bars certain applications under specified sections, does not apply to applications under Section 227 made by the sectoral regulator in terms of the FSP scheme. The Adjudicating Authority examined the material placed, including continuing defaults identified by RBI and other supervisory findings, and validly exercised its jurisdiction to admit the applications. Thus the admission order cannot be impugned as without jurisdiction on the basis of Section 10A. [Paras 13, 16, 21]Adjudicating Authority had jurisdiction under Section 227/FSP Rules; Section 10A bar not attracted to the RBI's Section 227 proceedings.Finality of appeal up to the Supreme Court - infructuousness of challenge after approval and implementation of a resolution plan - Whether the appeals were maintainable after approval and implementation of the NARCL resolution plan and dismissal of prior appeals up to the Supreme Court - HELD THAT: - The Tribunal noted the Appellant had earlier challenged the admission order but its re filing was dismissed for delay and the resultant dismissal was upheld by the Supreme Court. Further, the CoC approved the NARCL resolution plan, the plan was approved by the Adjudicating Authority and that approval was affirmed by this Tribunal and ultimately by the Supreme Court. Given approval and implementation of the resolution plan and final adjudication up to the Supreme Court, the Tribunal concluded the present appeals were effectively infructuous and did not warrant interference. [Paras 21, 22]Appeals dismissed as infructuous in view of approved and implemented resolution plan and prior final orders.Final Conclusion: The appeals are dismissed. The Adjudicating Authority did not commit any procedural error or lack jurisdiction in admitting the RBI's Section 227 petitions; the recall applications were impermissible attempts to review the admission order on merits, there was no breach of natural justice, Section 10A did not bar the proceedings under Section 227/FSP Rules, and the challenges are rendered infructuous by the approval and implementation of the resolution plan affirmed up to the Supreme Court. Issues Involved:1. Jurisdiction and Natural Justice: Whether the Adjudicating Authority committed an error of jurisdiction and violated the principles of natural justice in admitting the application under Section 227 of IBC.2. Section 10A Bar: Whether the application was barred by Section 10A of IBC due to defaults during the Section 10A period.3. Recall of Order: Whether the recall applications filed by the Appellant were maintainable and justified.4. Resolution Plan: The status and impact of the approved Resolution Plan on the appeals.Summary:Jurisdiction and Natural Justice:The Tribunal held that the Adjudicating Authority had jurisdiction to consider the application filed by RBI under Section 227 of IBC, which was filed in accordance with the FSP Rules, 2019. It was noted that the Board of Directors of the Corporate Debtor was superseded by RBI, and an Administrator was appointed who represented the Corporate Debtor during the hearing. Therefore, the submission that the order was passed in violation of the principles of natural justice was rejected. The Tribunal emphasized that there was no requirement to issue notice to shareholders of the Corporate Debtor before passing the order.Section 10A Bar:The Appellant argued that the application was barred by Section 10A of IBC as the defaults occurred during the Section 10A period. The Tribunal noted that the default was continuing and that Section 10A did not apply to financial service providers under Section 227 of IBC. The Tribunal concluded that the Adjudicating Authority did not commit an error in admitting the application.Recall of Order:The Tribunal reiterated that it does not have the power to review its judgment but can recall a judgment in case of procedural errors or fraud. The recall applications filed by the Appellant were essentially seeking a review of the judgment on merits, which is beyond the scope of recall. The Tribunal found no procedural error or fraud in the order dated 08.10.2021 and dismissed the recall applications. The Tribunal also observed that the Appellant had already exercised the right of appeal, which was unsuccessful up to the Hon'ble Supreme Court.Resolution Plan:The Tribunal noted that the Resolution Plan submitted by NARCL was approved by the CoC and subsequently by the Adjudicating Authority. The approval was also upheld by the Hon'ble Supreme Court. The Tribunal agreed with the Counsel for the SRA that the appeals had become infructuous due to the implementation of the Resolution Plan. Consequently, the Tribunal dismissed the appeals, finding no merit in them.Conclusion:The appeals were dismissed on the grounds that the Adjudicating Authority had jurisdiction, there was no violation of natural justice, the application was not barred by Section 10A, and the recall applications were not maintainable. The approved Resolution Plan rendered the appeals infructuous.