Recall under Rule 11 cannot enforce compromise or undo final consent orders; misuse of process dismissed

The NCLAT held that an application for recall cannot be used to enforce a compromise order or avoid execution proceedings. Recall is limited to correcting orders passed due to inadvertent errors by the Tribunal or parties, and cannot be invoked against a final consent order, especially one induced and accepted by the applicant. The appellant's attempt to restore the company petition under Rule 11 of the NCLT Rules, citing non-compliance with the compromise dated 25.09.2018 and subsequent compromise on 10.12.2019, was found untenable. The Tribunal concluded that the appeal was a misuse of process and dismissed it.

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1. ISSUES PRESENTED AND CONSIDERED

1.1 Whether a compromise order passed in a company petition under the insolvency framework attains finality equivalent to a decree, requiring enforcement only through execution proceedings under Section 424 of the Companies Act.

1.2 Whether non-compliance with the terms of a compromise/settlement order can be a valid ground to seek recall or restoration of a finally disposed company petition by invoking Rule 11 of the NCLT Rules, 2016 (inherent powers).

1.3 Whether a company petition dismissed as withdrawn on the basis of a joint memo of compromise, with liberty "to approach afresh on the same cause of action", permits revival/recall of the earlier petition, or only permits initiation of fresh proceedings.

1.4 Whether repeated applications for recall/restoration of a company petition, on the ground of successive breaches of compromise terms, constitute an abuse of process and are maintainable in law.

2. ISSUE-WISE DETAILED ANALYSIS

Issue 1: Nature and legal effect of compromise orders disposing of company petitions

Legal framework (as discussed): The Court referred to Section 424 of the Companies Act, 2013, which governs procedure and execution of orders of the Tribunal, and to the general civil law concept that both adjudicatory decrees on merits and compromise decrees attain finality and are executable.

Interpretation and reasoning: The Court held that an order passed in a company petition, even when based on compromise/settlement, determines rights inter se between the parties and attaches finality to the lis. Such an order, prescribing monetary liabilities and terms of payment, "takes the shape of a decree" and falls within the class of orders that are to be executed in accordance with law in case of non-compliance. A compromise order deciding the rights and obligations of the parties is, therefore, a final adjudication for purposes of enforcement.

Conclusions: A compromise order passed in a company petition under the I&B Code is a final order akin to a decree, and any violation of its terms must be addressed through execution proceedings in terms of Section 424 of the Companies Act, not by reopening or recalling the disposed petition.

Issue 2: Maintainability of recall/restoration under Rule 11 of NCLT Rules for enforcement of compromise orders

Legal framework (as discussed): The Court considered Rule 11 of the NCLT Rules, 2016 (inherent powers of the Tribunal) in conjunction with Section 424 of the Companies Act, 2013, which provides the mechanism for execution of Tribunal orders.

Interpretation and reasoning: The Court held that: (a) Substantial and procedural law under corporate legislation must be strictly construed and followed; (b) Section 424 provides the specific procedure and forum for execution of Tribunal orders, including compromise orders; (c) Inherent powers under Rule 11 cannot be used to create an alternative mechanism to bypass the statutorily prescribed execution procedure; (d) The concept of "recall" is confined to situations where an order is passed due to an inadvertent error of the Tribunal, or due to some mistake attributable to the Tribunal or parties (e.g., orders passed ex parte or by oversight). It does not extend to recalling final consent or compromise orders merely because the terms are later breached; (e) A compromise order induced at the behest of a party, accepted by it and having attained finality, cannot be brought within the ambit of recall on the sole ground of non-compliance of its terms.

The Court emphasised that the recall sought by the appellant was, in substance, an attempt to enforce the compromise order of 25.09.2018 (and later of 10.12.2019) without resorting to execution. Using Rule 11 for such enforcement would amount to abuse of inherent powers and an attempt to avoid the "regular procedural law" for execution under Section 424.

Conclusions: Non-compliance with a compromise order disposing of a company petition cannot justify recall or restoration of that petition under Rule 11 of the NCLT Rules. Inherent powers cannot be invoked as an alternative to execution proceedings, and recall in such circumstances is not maintainable.

Issue 3: Scope of liberty granted in the order dismissing the company petition as withdrawn on 10.12.2019

Legal framework (as discussed): The Court referred to the text of the order dated 10.12.2019, which dismissed the petition as withdrawn in view of a joint memo of compromise, having regard to Rule 8 of the I&B (Application to Adjudicating Authority) Rules, 2016.

Interpretation and reasoning: The order dated 10.12.2019 recorded that: (a) the petition was dismissed as withdrawn based on a joint memo of compromise, where post-dated cheques were issued by the corporate debtor; (b) the joint memo of compromise contained a clause contemplating revival of the company petition in case of default; (c) however, the Tribunal, in its operative direction, expressly granted only liberty "to approach this Tribunal on the same cause of action afresh if the claim ... is not adhered [to]".

The Court specifically noted that the Tribunal did not grant liberty to "revive" or "recall" the same company petition in case of default. The allowance was limited to approaching the Tribunal afresh on the same cause of action by filing a fresh claim/petition. Thus, the contractual terms of the compromise (stating that the petition could be revived) could not override or enlarge the scope of the liberty actually granted in the judicial order.

Conclusions: The order dated 10.12.2019 did not confer any right to recall or revive the earlier company petition in case of default. It only permitted the appellant to initiate fresh proceedings on the same cause of action. Consequently, an application seeking recall of the order dated 10.12.2019 and revival of the petition was not maintainable and was rightly rejected.

Issue 4: Repeated recall/restoration applications based on successive compromises and their non-compliance - abuse of process

Interpretation and reasoning: The Court traced the sequence: (a) First compromise order dated 25.09.2018, where the petition was closed on agreed payment terms; (b) Non-compliance led to a first recall application (MA No. 67/2019), improperly invoking Rule 11, which nevertheless resulted in restoration and a second compromise order dated 10.12.2019; (c) Upon alleged breach of the second compromise, a second recall application (IA(IBC) No. 612/CHE/2022) was filed seeking recall of the order dated 10.12.2019 and revival of the company petition.

The Court held that: (a) Filing recurring recall applications every time there is non-compliance with compromise terms converts Rule 11 into a device for continuous revival of finally disposed proceedings, contrary to the finality attached to such orders; (b) Such use of inherent powers is clearly beyond their permissible scope and amounts to abuse of process; (c) The appropriate remedy for non-compliance with compromise terms is execution of the compromise order, not perpetual revival of insolvency proceedings.

Conclusions: Successive recall/restoration applications, founded only on non-compliance with compromise terms in final orders, are not maintainable and constitute abuse of process. The Tribunal correctly rejected the second recall application, and the appellate challenge to that rejection was devoid of merit and liable to be dismissed.

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