NCLAT upholds rejection of recall prayer, confirms admission order remains intact under Section 12A IBC

The NCLAT upheld the Adjudicating Authority's rejection of the appellant's prayer to recall the admission order dated 08.10.2021, finding no error in the decision. Regarding withdrawal of CIRP under Section 12A of IBC, the tribunal noted that since the Section 7 application was filed by other parties, withdrawal could not be permitted without compliance with Section 12A read with Regulation 30A. The tribunal emphasized that Adjudicating Authorities possess inherent jurisdiction to close CIRP proceedings where Section 65 ingredients are attracted, particularly in cases involving fraudulent or malicious applications. The appeal was disposed of with the admission order remaining intact.

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Issues Involved:
1. Whether the Adjudicating Authority erred in rejecting the recall of the admission order dated 08.10.2021.
2. Whether the Corporate Insolvency Resolution Process (CIRP) can be withdrawn under Section 12A of the Insolvency and Bankruptcy Code (IBC).
3. Whether the Adjudicating Authority should exercise inherent jurisdiction to permit withdrawal of CIRP proceedings due to alleged fraudulent initiation.
4. Consideration of pending applications alleging fraudulent initiation of CIRP.

Detailed Analysis:

1. Recall of the Admission Order:
The appellant sought to recall the admission order dated 08.10.2021, which admitted the Corporate Debtor (CD) into insolvency. The Adjudicating Authority rejected this request, noting that the appellant had already challenged the order through an appeal process, which was dismissed both by the Appellate Tribunal and the Supreme Court. The Tribunal found no error in the Adjudicating Authority's decision, as the appellant had exhausted the appeal process without success. The dismissal of previous appeals reinforced the finality of the admission order, and the Tribunal upheld the Adjudicating Authority's decision to reject the recall request.

2. Withdrawal under Section 12A of the IBC:
The appellant argued for the withdrawal of CIRP under Section 12A, citing a settlement with financial creditors holding 92.17% of the Committee of Creditors (CoC) vote share. However, the Tribunal noted that withdrawal under Section 12A requires an application by the party who initiated the CIRP, which was not done by Respondent Nos.6 to 9. The Tribunal concluded that without compliance with Section 12A and Regulation 30A, withdrawal was not permissible. The procedure for withdrawal, as outlined by the Supreme Court, necessitates the applicant's initiation, which was absent in this case.

3. Exercise of Inherent Jurisdiction:
The appellant contended that the CIRP was initiated fraudulently and malafidely, warranting the Adjudicating Authority's inherent jurisdiction to permit withdrawal. The Tribunal recognized that inherent powers could be invoked in extraordinary circumstances to prevent the frustration of the IBC's objectives. However, it emphasized that such powers should be exercised judiciously and only when statutory procedures are insufficient. The Tribunal referenced the Supreme Court's stance that inherent powers should not bypass established procedures unless exceptional circumstances justify such a deviation.

4. Pending Applications Alleging Fraudulent Initiation:
The appellant had filed IA No.1238 of 2022, alleging that the initiation of CIRP was fraudulent and malicious, which was still pending before the Adjudicating Authority. The Tribunal noted that the Adjudicating Authority had issued a direction to stay voting on the Resolution Plan, indicating ongoing consideration of the allegations. The Tribunal highlighted the need for the Adjudicating Authority to address the pending application, which raised issues under Section 65 of the IBC concerning fraudulent initiation. The Tribunal refrained from expressing any opinion on the merits of the pending application but emphasized its importance in determining the legitimacy of the CIRP process.

Conclusion:
The Tribunal upheld the Adjudicating Authority's decision to reject the recall of the admission order and emphasized the procedural requirements for withdrawal under Section 12A. It acknowledged the potential for inherent jurisdiction in extraordinary cases but stressed the necessity of following statutory procedures. The Tribunal directed the Adjudicating Authority to prioritize the hearing and resolution of the pending application alleging fraudulent initiation before proceeding further in the CIRP process.

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