NCLAT rejects appeal to recall order finding HUDCO not a related party despite joint venture and nominee director appointment

The NCLAT dismissed an appeal seeking recall of an order determining whether HUDCO was a related party of the Corporate Debtor. The Appellant and HUDCO had entered into a Joint Venture Agreement with 60:40 shareholding in SUIDL, which promoted the Corporate Debtor. HUDCO provided a loan and appointed a nominee director to the Corporate Debtor's board. The Appellant alleged fraud and suppression of HUDCO's Annual Report in obtaining the original order. The NCLAT found no suppression since all relevant documents were filed by both parties, and HUDCO's Annual Report was publicly available with ROC. The tribunal concluded HUDCO was not a related party and the original order was not obtained through fraud.

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ISSUES PRESENTED and CONSIDERED

The core legal issues considered in this judgment include:

• Whether HUDCO should be considered a related party of the Corporate Debtor under Section 5(24) of the Insolvency and Bankruptcy Code (I&B Code), which would affect its inclusion in the Committee of Creditors (CoC).
• Whether the Adjudicating Authority's order dated 30.08.2023, which allowed HUDCO's inclusion in the CoC, was obtained by fraud or suppression of material facts, justifying its recall.
• The scope of the Tribunal's power to recall an order, particularly in the context of alleged procedural errors or fraud.

ISSUE-WISE DETAILED ANALYSIS

1. Related Party Status of HUDCO

• Relevant legal framework and precedents: The determination of related party status is governed by Section 5(24) of the I&B Code. The Tribunal referred to previous judgments to interpret related party definitions and the implications for CoC membership.
• Court's interpretation and reasoning: The Tribunal examined the relationship between HUDCO, the Corporate Debtor, and the Joint Venture Company, Srishti Urban Infrastructure Development Ltd. (SUIDL). It concluded that HUDCO, despite its shareholding and nominee director position, did not exert control over the Corporate Debtor that would qualify it as a related party under the I&B Code.
• Key evidence and findings: The Tribunal considered the shareholding structure and HUDCO's role in SUIDL. It also analyzed the Annual Report of HUDCO, which the Appellant claimed was suppressed, to determine if it indicated a related party relationship.
• Application of law to facts: The Tribunal applied Section 5(24) criteria and found that HUDCO's involvement as a shareholder in SUIDL, which promoted the Corporate Debtor, did not automatically make HUDCO a related party.
• Treatment of competing arguments: The Appellant argued that HUDCO's control through SUIDL and its nominee director status should classify it as a related party. The Tribunal rejected this, emphasizing that the mere presence of a nominee director does not establish control.
• Conclusions: The Tribunal upheld the Adjudicating Authority's decision that HUDCO is not a related party, allowing its inclusion in the CoC.

2. Allegation of Fraud and Suppression of Facts

• Relevant legal framework and precedents: The Tribunal considered the principles of recall and review, distinguishing between them. It cited the Union Bank of India vs. Dinkar T. Venkatasubramanian & Ors. case, which outlines the inherent power to recall orders obtained by fraud.
• Court's interpretation and reasoning: The Tribunal assessed whether HUDCO's failure to present its Annual Report constituted suppression of material facts amounting to fraud. It concluded that the report was a public document filed with the Registrar of Companies, thus not suppressed.
• Key evidence and findings: The Tribunal noted that the Annual Report did not explicitly list the Corporate Debtor as a related party of HUDCO. It also acknowledged that the report was available in the public domain.
• Application of law to facts: The Tribunal applied the test for fraud and found no evidence that HUDCO had misled the court or suppressed crucial information.
• Treatment of competing arguments: The Appellant's claim of fraud was dismissed as baseless, with the Tribunal emphasizing the transparency and availability of the Annual Report.
• Conclusions: The Tribunal found no grounds for recalling the order dated 30.08.2023 based on alleged fraud or suppression.

SIGNIFICANT HOLDINGS

• Preserve verbatim quotes of crucial legal reasoning: The Tribunal reiterated, "Power of recall is not power of the Tribunal to rehear the case to find out any apparent error in the judgment which is the scope of a review of a judgment. Power of recall of a judgment can be exercised by this Tribunal when any procedural error is committed in delivering the earlier judgment... Well known ground on which a judgment can always be recalled by a Court is ground of fraud played on the Court in obtaining judgment from the Court."
• Core principles established: The judgment reinforced the principle that mere shareholding and nominee directorship do not establish related party status without evidence of control. It also clarified the distinction between recall and review, emphasizing the limited grounds for recall.
• Final determinations on each issue: The appeal was dismissed, affirming that HUDCO is not a related party and that the order dated 30.08.2023 was not obtained by fraud or suppression. The Tribunal upheld the Adjudicating Authority's decision to include HUDCO in the CoC.

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