TaxTMI 
TaxTMI 
2025 (8) TMI 1301
X X X X Extracts X X X X
X X X X Extracts X X X X
....ivate Limited (Corporate Debtor) before the Adjudicating Authority. 2. This appeal has been preferred under Section 61(1) of the Insolvency and Bankruptcy Code, 2016, by Bharti Goyal (Appellant No.1) and Swati Srivastava (Appellant No.2), who is representing 19 other homebuyers. The appellants are the allottees of the Marvela City project of the Corporate Debtor. The appellants are challenging the rejection of their application seeking recall of the order dated 07.09.2022 by Adjudicating Authority, which had allowed withdrawal of the Corporate Insolvency Resolution Process (CIRP) of Corporate Debtor (Hector Realty Venture Private Limited). 3. It is the case of the Appellants that the withdrawal of CIRP was secured through gross fraud and suppression of material facts, without accounting for their legitimate claims and those of similarly situated homebuyers. They contend that the Adjudicating Authority failed to appreciate the existence of substantial evidence on recall of orders obtained by fraud, thereby gravely violating principles of natural justice. The appeal is thus a plea for recall of the withdrawal of CIRP order to protect the interests of innocent homebuyers. Bri....
X X X X Extracts X X X X
X X X X Extracts X X X X
....iven their consent for withdrawal of the CIRP proceedings. The said application was allowed by the Ld. Tribunal on 07.09.2022 by passing the following order: - "ORDER New IA/4206/2022:- This is an application filed under Section 60(5) of IBC read with Sections 12 and 33 (1) (a) of IBC, 2016 read with Rule 11 of NCLT Rules, 2016 for initiation of CIRP period. We have heard the submissions made by Counsel for applicant. At the pre notice stage itself, the applicant has prayed for grant of leave of the Tribunal to withdraw the present application. Leave prayed for is granted. The application stands dismissed as withdrawn. New IA/4281/2022:- This is an application filed on behalf of Interim Resolution Professional under Section 12A of IBC, 2016 read with relevant rules and regulations framed thereunder seeking the withdrawal of Section 7 application bearing IB No. 1051/ND/2019. Counsel for Interim Resolution Professional has submitted that in this matter the CoC has not yet been formed. Counsel has further submitted that all the 7 Financial Creditors have given their consent for withdrawal of the matter, therefore, Interim ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....l. An I.A. No. 1143 of 2022 has been filed by one Bharti Goyal, another Financial Creditor praying for impleadment. 3. In I.A. No. 1143 of 2022, we have heard learned counsel for the Applicant and permit the Applicant to intervene. 4. The Appellant himself having filed I.A. No. 3040 of 2023 praying for withdrawal of the Appeal, we permit the Appellant to withdraw the Appeal. I.A. No. 3040 of 2023 is allowed. 5. Insofar as, Applicant in I.A. No. 1143 of 2022, we observe that it shall be open for the Applicant to take such remedy as available in law. 6. With observations aforesaid, we permit the Appeal to be withdrawn. Appeal is dismissed as withdrawn." xi. Acting on that liberty, Bharti Goyal filed I.A. No. 5659/ND/2023 on 29.09.2023 before the Ld. NCLT, seeking to recall the earlier order of Adjudicating Authority dated 07.09.2022, which had allowed CIRP withdrawal. She pointed out that the said order was passed, ignoring her claim and claims of many other homebuyers. On 06.11.2023, Appellant No. 2, Swati Srivastava, representing herself and 19 other homebuyers, filed I.A. No. 6582/2023 to support Bharti Goyal's recall application by see....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ard together. (Appeal Book Annexure-10, Page 390). 8. The counsel submits that all Appellants are homebuyers/allottees in the same project of the Corporate Debtor, Marvella City at Haridwar, Uttarakhand. The CIRP of the Corporate Debtor had commenced on 09.12.2019. 9. It is the submission of the Appellants that they could not submit their claim before IRP within the time period as they were unaware of initiation of CIRP against the Corporate Debtor. The Appellants are residents of Jaipur and various cities across India, Whereas the registered office of the Corporate Debtor and the project site are situated at New Delhi and Haridwar respectively. It is their submission that there was no circulation of public announcement in the areas where the applicants have been residing. 10. The Ld. Counsel invited attention to the Judgment of this Tribunal in the matter of Amit Goyal V/s Piyush shelters India Pvt. Ltd. Company Appeal (AT) (Ins) No. 700 of 2021, while taking note on the ineffective Public Announcement made by the said Resolution professional, as well as considering the drastic consequences of such failure on the rights of Home Buyers has held on the following lines in Pa....
X X X X Extracts X X X X
X X X X Extracts X X X X
....he purpose of giving similar treatment under the Resolution Plan in respect of the all the allotees of Corporate Debtor, irrespective of the timeline in which they may have filed their claims. 13. The Appellants are seriously aggrieved by the actions of Respondent Nos. 1 and 2, who by abusing the process of law, managed to withdraw the CIRP after 943 days by filing I.A. No. 4281/2022 on 05.09.2022, claiming falsely that the CoC was never constituted. The withdrawal order was passed on 07.09.2022, based on this false statement, even though the CoC had been properly formed. 14. The Ld. Counsel submits that the same allottees, whose liabilities were wrongly shown as settled to secure the withdrawal order dated 07.09.2022, had filed Company Appeal (AT) (Insolvency) No. 1380 of 2022, before this Hon'ble Tribunal. In the aforesaid Appeal, they alleged that the Management and the IRP had committed fraud in securing the withdrawal order from the Ld. NCLT. This Appeal was filed on 07.10.2022, and notice was issued on 21.11.2022. 15. The counsel further submits that in January 2023, when Appellant No.1 came to know about the fraud in CIRP withdrawal, she appeared through her counsel....
X X X X Extracts X X X X
X X X X Extracts X X X X
....hs 20 and 27, have been relied upon. 19. Ld. Counsel also places reliance on the judgment passed by this Hon'ble Tribunal in Rakesh Kumar Gupta v. Straight Edge Contracts Pvt. Ltd. & Ors., Company Appeal (AT) (Insolvency) No. 444 of 2022, where it was held that if an order has been obtained by fraud, the Ld. NCLT can recall it. The Tribunal, in that case, not only acknowledged the power of recall, but also exercised it and set aside the fraudulent orders dated 20.07.2020 and 16.10.2020. The Appellants submit that the present case is on a similar footing. 20. The counsel for the Appellants prays that this Hon'ble Tribunal may set aside the impugned order dated 14.05.2024, recall the order dated 07.09.2022, and direct re-initiation of CIRP. The Appellants also seek liberty to file their claims before the new Resolution Professional and request that the conduct of Respondent No.2 be referred to Respondent No.3 for appropriate action. Submissions of Respondent No.1 21. Per-Contra, Ld. Counsel for Respondent No.1 submits that the impugned order is well-reasoned, legally correct, and passed after considering all relevant facts. Therefore, there is no reason for this Hon'ble T....
X X X X Extracts X X X X
X X X X Extracts X X X X
....eal (AT) (Insolvency) No. 1380 of 2023 against the 07.09.2022 order before this Hon'ble Tribunal, but soon withdrew it. The Hon'ble Tribunal disposed of the matter on 31.08.2023. Appellant No.1 had also filed an impleadment application, but the Tribunal, while disposing of the appeal, simply allowed her to seek other remedies in law. 28. The counsel submits that since Appellant No.1 was not allowed impleadment in the earlier appeal, she filed I.A. No. 5659/2023 before the NCLT seeking recall of the CIRP withdrawal order. Later, Appellant No.2, representing 19 homebuyers, filed I.A. No. 6582/2023 to get impleaded in Appellant No.1's application. 29. The Counsel submitted that none of the Appellants filed claims before the IRP, nor were they part of the original Section 7 proceedings or CoC. Therefore, they have no locus standi to challenge the withdrawal order passed by the NCLT. The mere fact that some homebuyers have claims does not bar the CIRP withdrawal, if the original applicants have settled. Since the Appellants failed to file their claims during the CIRP, they cannot challenge its withdrawal now. 30. The counsel further submits that this Appeal is speculative and b....
X X X X Extracts X X X X
X X X X Extracts X X X X
....e proceeded as ex-parte. 38. Based on the submissions of both the parties, we have identified two issues for determination: Issue 1 : 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? Issue 2 : 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? 39. The first issue is critical to examining the maintainability of this appeal as the Respondent claims that due to failure on the part of appellants in filing within the stipulated period debars them from seeking further relief and this appeal therefore is liable to be dismissed as non-maintainable at the threshold. We also have to examine the role of IRP in this regard i.e. whether the IRP was under an obligation to include them as financial creditors on the basis of the records already available with the Corporate Debtor. 40. The Appellants are allottees in the housing project "Marvella City" being developed by the Corporat....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ation 6 of the CIRP Regulations and was required to act with added diligence in identifying and contacting such stakeholders. The relevant Regulations 6 & 6A are extracted below: "Regulation 6: Public announcement. 6. (1) An insolvency professional shall make a public announcement immediately on his appointment as an interim resolution professional. Explanation- 'Immediately' means not later than three days from the date of his appointment. (2) The public announcement referred to in sub-regulation (1) shall: (a) be in Form A of the [Schedule-I]; (b) be published- (i) in one English and one regional language newspaper with wide circulation at the location of the registered office and principal office, if any, of the corporate debtor and any other location where in the opinion of the interim resolution professional, the corporate debtor conducts material business operations; (ii) on the website, if any, of the corporate debtor; and (iii) on the website, if any, designated by the Board for the purpose, [(ba) state where claim forms can be downloaded or obtained from, as the case may be; ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....no effort to contact or include them. 48. By limiting the CoC to a small group, the IRP allowed the process to move forward in a closed and convenient manner, which made it easier to settle and withdraw the CIRP-while keeping out most of the financial creditors. This goes against the basic principles of fairness and transparency under the Code. 49. As to delay in filing the appeal, the same may not be fatal as the Appellant No.1 acted in January 2023 upon acquiring knowledge. The intervention in the prior appeal, the liberty granted by the Tribunal on 31.08.2023, and the filing of I.A. 5659/2023 in October 2023, show that the Appellants acted diligently. We must not allow the passage of time to shield an order obtained by fraud. 50. On the question of locus, the Appellants are financial creditors as allottees under Section 5(8)(f) of the Code. They are entitled to participate in the CIRP. Their exclusion by misrepresentation cannot be used to deny them the right to seek recall of the very order that led to such exclusion. 51. The Appellants, have relied on two Judgments of this Tribunal regarding the duties and obligations of Resolution Professionals in real estate inso....
X X X X Extracts X X X X
X X X X Extracts X X X X
....to the Judgment in 'Puneet Kaur v. K.V. Developers Pvt. Ltd., Company Appeal (AT) (Insolvency) No. 390 of 2022', decided on 10 August 2022, wherein this Tribunal held that homebuyers, being financial creditors in a class under Section 5(8)(f) of the Code, cannot be excluded from the CIRP on account of procedural lapses or inaction by the Resolution Professional. It was emphasized that where the names and payment records of such allottees are available in the Corporate Debtor's own records, the IRP is under a duty to proactively identify them, collate their claims, and ensure they are represented through an Authorized Representative as per Regulation 6A of the CIRP Regulations. The Tribunal made it clear that failure to include even one eligible homebuyer undermines the participatory nature of the insolvency process and violates the principle of creditor democracy. The relevant para 27 of the judgement is extracted below: "27. In the present case there is no denial that details of the Appellant(s) and other Homebuyers, who could not file their claims has not been reflected in the Information Memorandum. There being no detail of claims of the Appellant(s), the Resolution App....
X X X X Extracts X X X X
X X X X Extracts X X X X
....dinary citizens, including retirees, salaried professionals, and first-time buyers, who part with their hard-earned money over years to fulfill a basic housing need. To exclude such stakeholders from the CIRP merely on technicalities-particularly when their names and payments are already reflected in the builder's records-is not only unjust but also contrary to the intent of the IBC. The Code, while commercial in nature, is not blind to equity and fairness. Homebuyers must not be left remediless due to the inaction or selective conduct of a Resolution Professional, especially when they have acted in good faith and their claims are traceable to the records of the Corporate Debtor. The law must protect substance over form, and ensure that the legitimate financial interests of homebuyers are not erased through procedural oversights. 59. Applying the ratio of the judgments referred above to the present case, it is clear that the IRP did not perform his duty of collating and including the Appellants' even though their payment details were available in the company's records. He also failed to bring this fact to the notice of Ld. NCLT before seeking withdrawal of CIRP. Because of this ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ions of fraud. It is submitted that the CIRP was withdrawn after a valid settlement with the original financial creditors, and that the Appellants never filed any claim during the CIRP despite public notice. It is further submitted that the Adjudicating Authority rightly dismissed the recall application due to absence of prima facie evidence of fraud. 65. We note 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. 66. In the second CoC meeting, the members did not confirm Mr. Piyush Garg as the Resolution Professional. During this meeting, the IRP said that because of the COVID-19 pandemic, his office could only start functioning in September 2020. The Committee of Creditors (CoC) was constituted by the IRP solely on the basis of claims received from 7 homebuyers, even though there were 20 other similarly placed allottees whose names and payment details were available in the ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....d in the books of accounts of the Corporate Debtor, however, the Applicant has not filed the books of Accounts of the Corporate Debtor before this Adjudicating Authority. It is observed that the Applicant has made all the contentions without any supporting evidence. Further, mere averment, in the absence of substantiating document, cannot be acted upon." 70. We note that the observation made in paragraph 12 of the impugned order that no document was filed to show constitution of the CoC is not borne on facts. The minutes of the 2nd CoC meeting dated 07.09.2020 were filed as Annexure-5 to the recall application. The minutes clearly record the formation of the CoC, list the members present, and bear the signature of the IRP. This document was sufficient to establish that the CIRP had progressed beyond the pre-CoC stage. 71. We also note that the existence of these minutes has not been specifically denied by the Respondent. The absence of a separate certification by the IRP, does not dilute the evidentiary value of duly recorded and signed CoC minutes. In insolvency proceedings, such minutes are official records and cannot be disregarded. We also note that the Appellant filed Bu....
X X X X Extracts X X X X
X X X X Extracts X X X X
....awal-either before or after the constitution of the Committee of Creditors (CoC). Importantly, once the CoC is constituted, the approval of 90% voting share is a statutory prerequisite, reflecting the principle that CIRP, after admission, is no longer a matter between the applicant and the Corporate Debtor alone-it becomes a collective process involving all creditors. 75. Thus, 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. 76. This requirement of approval by 90% of voting share in CoC has also been judicially affirmed in Swiss Ribbons Pvt. Ltd. v. Union of India, (2019) 4 SCC 17, wherein the Hon'ble Supreme Court held that post-admission, insolvency proceedings assume the character of in rem proceedings and must f....
X X X X Extracts X X X X
X X X X Extracts X X X X
....Section 12A is not a mere procedural formality, rather, it embodies a substantive protection against unilateral withdrawal of CIRP once collective rights have crystallized. The mandatory requirement of CoC approval is the only legally sanctioned exit after CIRP commences. Any deviation from this scheme, especially one procured through misrepresentation, is per se fraudulent and liable to be set aside. 81. 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. 82. In Union Bank of India (Erstwhile Corporation Bank) v. Dinkar T. Venkatasubramanian & Ors., in the Reference made by three Member Bench in I.A. No. 3961 of 2022 in Company Appeal (AT) (Ins.) No. 729 of 2020 it was clearly held by a five-member bench of this Tribunal that NCLAT has the power to recall the order which has been obtained by playing fraud upon it. That the relevant Paragraphs No. 20,26,27 are extracted herein below- "20. The above judgments of the Hon'ble Supreme Court clearly lays down th....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ion of material facts, or absence of necessary parties constitute valid grounds for recall. 84. Similarly, in Rakesh Kumar Gupta v. Straight Edge Contracts Pvt. Ltd. & Ors., Company Appeal (AT) (Insolvency) No. 444 of 2022, this Tribunal held that Ld. NCLT has the power to recall its order if the same has been obtained by playing a fraud upon it and consequentially has also recalled the respective orders. Relevant paragraphs no. 22,23,24 of the judgement are extracted below: "22. In view of the aforesaid facts and circumstances of the case, we are totally satisfied that there is complete misappreciation of law on the part of the Adjudicating Authority in rejecting the application filed both by the present Appellant as well as M/s. Oriss Infrastructure Pvt Ltd. wherein they have also submitted that the Adjudicating Authority has the jurisdiction to recall its own order if it is obtained by playing fraud upon it. 23. In view of the aforesaid discussions, the present appeal has the merit, therefore, the same is allowed and the impugned order is set aside. 24. Since, we have allowed the present appeal on the issue that the Adjudicating Authority had the ju....