2025 (8) TMI 1301 - AT - IBC

Appeal sets aside CIRP withdrawal for fraud and misrepresentation, defective notices, exclusion of homebuyers, breaching Section 12A

Bharti Goyal, Swati Srivastava Versus Hector Realty Venture Pvt. Ltd., Piyush Garg, Insolvency and Bankruptcy Board of India

NCLAT, PB, New Delhi allowed the appeal, set aside the Adjudicating Authority's order dated 14.05.2024 and held the CIRP withdrawal order vitiated by ... Rejection of application seeking recall of the order, which had allowed withdrawal of the Corporate Insolvency Resolution Process (CIRP) of Corporate Debtor - failure to appreciate the existence of substantial evidence on recall of orders obtained by fraud - violation of principles of natural justice - locus of Appellants’ (homebuyers) to agitate their claim at this belated stage due to non-filing of claim within stipulated period. Whether the Appellants’ (homebuyers) have the locus to agitate their claim at this belated stage due to non-filing of claim within stipulated period and whether their application is maintainable at this stage when the CIRP Process has been completed? - HELD THAT:- The public announcement made by the earlier IRP was not done properly and failed to reach many genuine homebuyers. Although the IRP had access to Builder Buyer Agreements and payment records, he did not make the necessary efforts to inform or include all the homebuyers who had financial claims. As a result, the Committee of Creditors (CoC) was formed using claims from only a few homebuyers who happened to file them in time. More than 20 similarly placed homebuyers, including the Appellants, were completely left out. This means the CoC was incomplete and did not truly represent the full class of financial creditors - This led to a situation where the ex-management of the Corporate Debtor settled dues only with those few homebuyers whose claims were filed— while leaving out others from the same class of creditors. Such selective treatment of creditors within the same class is against the basic principles of the IBC and cannot be accepted. The present case is squarely covered by Puneet Kaur [2022 (6) TMI 108 - NATIONAL COMPANY LAW APPELLATE TRIBUNAL, PRINCIPAL BENCH, NEW DELH] where the IRP-despite being in possession of Builder Buyer Agreements and payment receipts - failed to recognise the claims of Appellants and other similarly placed homebuyers as financial creditors, and proceeded to file a withdrawal application without disclosing their exclusion - This omission runs directly counter to the obligations outlined in Puneet Kaur and reinforces the contention that the CIRP was conducted in breach of statutory duties and in disregard of the rights of an entire class of creditors. The public notice of the CIRP was not circulated properly due to which the Homebuyers (Financial Creditors in class) could not submit their claims to the IRP. IRP did not make any effort to ensure that Homebuyers whose names feature on the Financial Records of the CD were contacted and duly informed about initiation of CIRP process. It is due to such laxity on the part of IRP that all homebuyers could not filed their claim in time - the Appellants have the locus and the appeal is maintainable. Whether the withdrawal of CIRP of Hector Realty Venture Private Limited by order dated 07.09.2022 was vitiated by fraud and suppression of material facts? - HELD THAT:- A CoC was constituted by the Respondent No.2/ IRP during the CIRP. The minutes of the 2nd CoC meeting dated 07.09.2020 have been placed on record by the Appellants as Annexure-5, confirm that not only was a CoC in place, but meetings were being held and decisions were being taken on financial matters. This fact has not been rebutted by the Appellant. It is undisputed that a public announcement was made by the IRP in January 2020. The CIRP remained in force for more than two years before the withdrawal application was filed in 2022. What is materially relevant is the fact that in the withdrawal application filed by the IRP, it was asserted that the CoC had not been constituted, and therefore, the CIRP could be withdrawn without following Section 12A. This assertion was the foundational basis of the withdrawal order dated 07.09.2022. A withdrawal application under Section 12A, once CoC is constituted, is permissible only with the approval of 90% voting share of the CoC. The misrepresentation by the IRP that no CoC was constituted effectively nullified this statutory protection, allowing withdrawal without creditor participation. This amounted to suppression of facts and also distorted the judicial process by misleading the court on a crucial jurisdictional fact. Such suppression, when deliberate and material, constitutes fraud on the court. In the present case, it is clear that the CoC of corporate Debtor was constituted prior to 07.09.2020 i.e. before the date of 2nd CoC meeting, minutes for which were placed on record by the appellants. However, the IRP, in the withdrawal application filed vide I.A. No. 4281on 05.09.2022, falsely represented that no CoC had been formed. As a result, the withdrawal was processed and granted without the required 90% approval of the CoC under Section 12A. Due to this misrepresentation the Adjudicating authority allowed the withdrawal of CIRP on 07.09.2022 without creditor consultation or consent. It is this violation that goes to the very root of the subsequent recall plea filed in NCLT. The law on the power of recall by NCLT and NCLAT is also well settled. There are precedents which make it abundantly clear that where fraud is alleged and prima facie demonstrated, recall is not only permissible—it becomes necessary to prevent abuse of the process. The withdrawal order dated 07.09.2022 was vitiated by fraud. The Appellants have substantiated the allegation through documentary evidence, and the Respondents have not been able to rebut or explain the contradictions. The Adjudicating Authority’s refusal to recall the order, in the face of such evidence, constitutes a serious error of law and a failure of judicial duty. This issue is also answered in affirmative. The order dated 14.05.2024 passed by the Adjudicating Authority is set aside - appeal allowed. 1. ISSUES PRESENTED AND CONSIDERED 1. Whether homebuyers/allottees who did not file claims within the IRP's claim window have locus standi to challenge and seek recall of an order withdrawing the CIRP at a belated stage. 2. Whether the withdrawal of the CIRP was vitiated by fraud and suppression of material facts-specifically, false representation regarding constitution/non-constitution of the Committee of Creditors (CoC)-and whether such alleged fraud justifies recall of the withdrawal order. 2. ISSUE-WISE DETAILED ANALYSIS Issue 1 - Maintainability and Locus: Legal framework Regulatory scheme: Insolvency proceedings under the Code convert an admission into an in rem process where creditors' collective rights crystallise; IRP's duties to make public announcement and to communicate to creditors are governed by Regulations 6 and 6A of the CIRP Regulations. Homebuyers/allottees qualify as financial creditors under the statutory definition and are entitled to participate in CIRP. Issue 1 - Precedent Treatment Prior decisions of this Tribunal have held that ineffective public announcement or failure by the RP to identify and include homebuyers reflected in corporate records leads to unfair exclusion and may require remedial directions (including re-initiation or further steps to include omitted creditors). Those precedents distinguish between technical non-compliance that prejudices creditor participation and mere laches by individual creditors. Issue 1 - Interpretation and reasoning The Court examined facts: claim window coincided with COVID-19 disruptions; public announcement alone was insufficient to reach dispersed lay homebuyers; the IRP had access to builder-buyer agreements and payment records but did not proactively communicate to creditors as mandated by Regulation 6A (inserted to address such failures). Given these statutory duties, the Tribunal held that exclusion caused by RP's omission cannot be attributed to the homebuyers' inaction. Delay in instituting challenge was not fatal where applicants acted upon acquiring knowledge and where equity demands that fraud or suppression not be allowed to stand. Issue 1 - Ratio vs. Obiter Ratio: Homebuyers whose claims are revealed in corporate records and who were not contacted by the IRP owing to deficient public announcement or failure to use available records have locus to challenge withdrawal and the appeal is maintainable. Obiter: General admonition that courts will not aid those who sleep over rights absent exceptional circumstances. Issue 1 - Conclusion The Tribunal concluded that the appellants are financial creditors with locus; the appeal is maintainable because the RP breached duties to identify and notify creditors and because the delay did not bar relief where an order is alleged to have been procured by fraud or material suppression. Issue 2 - Fraud in withdrawal: Legal framework Statutory regime: Withdrawal of an admitted application post-admission is governed exclusively by Section 12A of the Code and Regulation 30A; withdrawal after constitution of the CoC requires approval of ninety per cent voting share of the CoC. Inherent/presidential powers and Rule 11 permit recall of orders obtained by fraud; judicially recognised distinction between review and recall. Issue 2 - Precedent Treatment (followed/distinguished) Followed: Authorities holding that withdrawal cannot bypass CoC approval once collective creditor rights have accrued, and that orders obtained by fraud may be recalled. The Tribunal relied on earlier decisions of this Court which confirm power to recall orders obtained by playing fraud on the Adjudicating Authority, and on Supreme Court dicta reinforcing Section 12A's primacy. Issue 2 - Interpretation and reasoning Factual matrix: Minutes of a CoC meeting were placed on record by the appellants, indicating that CoC had been constituted and meetings held. The withdrawal application later asserted that no CoC was formed, and the Adjudicating Authority allowed withdrawal on that premise without obtaining requisite CoC approval. The Tribunal found the minutes and builder-buyer records sufficient to establish that the assertion of pre-CoC status in the withdrawal application was factually incorrect. Legal effect: Misrepresentation about a jurisdictional fact (existence of CoC) which enabled bypassing the statutory 90% approval requirement subverted the protection built into Section 12A. Deliberate suppression and misleading statements to the Adjudicating Authority amounted to fraud on the court and vitiated the withdrawal order. The Tribunal held that refusal by the Adjudicating Authority to recall the order despite record evidence was an error. Issue 2 - Ratio vs. Obiter Ratio: A withdrawal of CIRP procured by misrepresentation or suppression of material fact concerning constitution of CoC (and thus bypassing Section 12A's mandatory 90% approval requirement) is vitiated by fraud and is amenable to recall; courts/tribunals possess inherent power to recall such orders. Obiter: Emphasis on equitable protection of retail homebuyers and the legislative intent behind Regulation 6A to ensure proactive communication. Issue 2 - Conclusion The Tribunal concluded that the withdrawal order was obtained by fraud and suppression of material facts, that the NCLT's dismissal of the recall application overlooked documentary evidence (CoC minutes and builder records), and that the withdrawal order must be set aside. The CIRP was restored and parties directed to appear for further proceedings. Cross-references and Interaction of Issues The maintainability/locus issue (Issue 1) and the fraud question (Issue 2) are interdependent: the appellants' standing derives from their status as financial creditors whose exclusion was caused by RP's statutory lapses; proof of exclusion and documentary evidence underpin both the right to seek recall and the finding of fraud. The Tribunal's determination that RP failed under Regulations 6/6A supports both conclusions-maintainability and vitiation of withdrawal. Remedial outcome and legal principle Where a withdrawal of CIRP post-admission is shown to have been procured by misrepresentation about CoC constitution or by suppressing identifiable creditors (whose claims appear in corporate records), the appropriate remedy is recall of the withdrawal order, restoration of CIRP, and directions to proceed in accordance with statutory safeguards so as to protect collective creditor democracy under the Code.