2025 (3) TMI 631 - AT - IBC

Shareholder cannot substitute resigned director in corporate debtor proceedings under Section 7 IBC

NCLAT Chennai dismissed a recall application filed by a shareholder seeking to substitute a resigned director in corporate debtor proceedings. The ... Seeking recall of the order - resignation of a director affects the maintainability of an appeal filed by that director on behalf of the corporate debtor or not - HELD THAT:- There are a few facts which emerges for consideration by us are that the power of recall is not the power which is specifically vested with the Appellate Tribunals. Except for owing to the exceptional circumstance, as carved out in Union Bank of India Vs Mr. Dinkar T. Venkatasubramaniam & Ors. [2023 (7) TMI 209 - NATIONAL COMPANY LAW APPELLATE TRIBUNAL , PRINCIPAL BENCH , NEW DELHI], wherein the powers to recall has been confined to be applied, subject to certain embargos as contained in it, that Judgment on recall does not have universal applicability and more particularly when the recall in itself, though it may not be significant, since the same has been preferred under Section 151 of Code of Civil Procedure, 1908, it will not be maintainable. Exclusively, owing to the fact that on the date of passing of the order i.e., 14.10.2024, it is an admitted case that Mr. S. Baaskaran, who had then filed the Company Petition in the capacity of being the Suspended Director, since has admittedly resigned as a director from the Company of the Corporate Debtor, could not have been permitted to be continued and furthermore, the recall which has been preferred by the shareholder, he cannot be permitted to be substituted in place of the Suspended Director of the Corporate Debtor as his status is statutorily distinct, to the director. Hence the recall application is misconceived and the same is accordingly dismissed and the order passed by us on 14.10.2024 is confirmed. Conclusion - i) The resignation of a director nullifies their capacity to maintain an appeal on behalf of the corporate debtor, leading to the dismissal of the appeal. ii) Shareholders cannot substitute directors in legal proceedings due to their distinct statutory roles and rights. iii) The power to recall orders is limited and not universally applicable, requiring specific conditions to be met. The recall application is misconceived and the same is accordingly dismissed. ISSUES PRESENTED and CONSIDEREDThe core legal questions considered in this judgment include:Whether the resignation of a director affects the maintainability of an appeal filed by that director on behalf of the corporate debtor.Whether a shareholder can substitute a suspended director to continue an appeal in the context of insolvency proceedings.The applicability and scope of recall powers of the Appellate Tribunal in the context of interim orders.The impact of concurrent judicial proceedings, including writ petitions and special leave petitions, on the Tribunal's decision.ISSUE-WISE DETAILED ANALYSIS1. Maintainability of Appeal Post-Resignation of DirectorThe Tribunal considered whether the appeal filed by Mr. S. Baaskaran, the suspended director who resigned on 12.08.2024, could be maintained. The relevant legal framework includes the provisions of the Insolvency and Bankruptcy Code, 2016, and the procedural norms governing appeals. The Tribunal reasoned that since the appellant had resigned, he no longer had the legal standing to pursue the appeal, rendering it unsustainable. The court concluded that the appeal could not continue as the appellant was no longer a director, confirming the dismissal of the appeal.2. Substitution of Shareholder in Place of DirectorThe Tribunal analyzed whether a shareholder, specifically M/s. Mantri Developers Private Limited, could substitute the resigned director to continue the appeal. The legal reasoning emphasized the distinct roles and rights of shareholders versus directors. The Tribunal highlighted that shareholders are limited to their investment rights and cannot assume the statutory role of directors. The application of law to facts led to the conclusion that the recall application by the shareholder was misconceived, as shareholders could not replace directors in legal proceedings of this nature.3. Powers of Recall by the Appellate TribunalThe Tribunal examined its power to recall orders, specifically the order dated 14.10.2024, under the precedent set by the Principal Bench in CA (AT) (Ins) No.729/2020. The legal framework, including Section 151 of the Code of Civil Procedure, 1908, was considered. The Tribunal determined that recall powers are not universally applicable and are subject to specific conditions. The Tribunal concluded that the recall application was not maintainable as it did not meet the exceptional circumstances required for such action.4. Impact of Concurrent Judicial ProceedingsThe Tribunal addressed the implications of ongoing writ petitions and special leave petitions, specifically the orders from the Karnataka High Court and the Apex Court. The Tribunal noted that while these proceedings provided interim directives, they did not affect the maintainability of the recall application by a shareholder. The Tribunal clarified that its decision was independent of these concurrent proceedings, focusing solely on the legal standing and procedural aspects within its jurisdiction.SIGNIFICANT HOLDINGSThe Tribunal made several significant holdings:The resignation of a director nullifies their capacity to maintain an appeal on behalf of the corporate debtor, leading to the dismissal of the appeal.Shareholders cannot substitute directors in legal proceedings due to their distinct statutory roles and rights.The power to recall orders is limited and not universally applicable, requiring specific conditions to be met.Concurrent judicial proceedings, while relevant, do not alter the Tribunal's jurisdictional decisions regarding recall applications.The Tribunal confirmed its previous order dated 14.10.2024, dismissing the recall application and maintaining the dismissal of the appeal. It emphasized the statutory distinction between shareholders and directors and the procedural limitations on recall powers. The decision underscores the importance of maintaining clear legal standing and procedural compliance in insolvency proceedings.