TaxTMI 
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2025 (8) TMI 1301
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.... 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. Brief facts of the case: 4. The brief facts of the ....
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....d. 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 The application stands dismissed as withdrawn.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 Resolution Professional has moved this present application. The settlement agreement between the applicant and Corporate Debtor, copies are also anne....
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.... 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 seeking intervention/impleadment in I.A. 5659/2023. xii. On 21.12.2023, I.A. 6582/2023 was also argued at length, and at the request of the Appellant No. 2, I.A. 6582/2023 was directed to be listed along with I.A. 5659/2023 on the next date ....
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..... 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 Para 28 of the Judgment, which is extracted below: 28. "Thus, we see that the homebuyers/Allottees could not have had access to either the registered office of the corporate debtor or the principal place of business at Faridabad since both were closed. Moreover, without the ....
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.... 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 before this Appellate Tribunal in the pending Appeal. By order dated 28.02.2023, this Tribunal was pleased to grant liberty to Appellant No.1 to file an intervention application. Later, on 31.08.2023, I.A. No. 1143/2023 was allowed and Appellant No.1 was given liberty to pursue appropriate ....
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....aud, 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 Tribunal to interfere with the same. 22. The counsel submits that in 2019, seven Financial Creditors, including Anand Prakash Soni, filed a Section 7 application under the Insolvency and Bankruptcy Code, 2016 against Respondent No.1 before the Hon'ble NCLT, New Delhi Bench. The petition was admitted on 09....
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.... 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 baseless. Except for Appellant No.1, none of the other Appellants were parties to the NCLT proceedings or the previous appeal. They thus have no standing to maintain the present appeal. 31. Appellant No.2, who claims to represent 19 homebuyers, was never part of the original proceedings. These persons were not even implead....
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....tage 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 Corporate Debtor. Each of them had executed Builder Buyer Agreements and made substantial payments towards the allotted units. However, none of them submitted individual claims during the claim submission window opened by the IRP after admission of the CIRP. 41. It is the submission of Appellants that they were never informed about the CIRP, and that they....
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....planation- '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; (bb) offer choice of three insolvency professionals identified under regulation 4A to act as the authorised representative of creditors in each class; and] (c) provide the last date for submission of proofs of claim, which shall be fourteen days from the date of appointment of the interim resolution professional. (3) The applicant shall bear the expenses of the public announcement which may be reimbursed by the committee to the e....
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....ledge. 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 insolvency cases. 52. In Amit Goyal v. Piyush Shelters India Pvt. Ltd., Company Appeal (AT) (Insolvency) No. 700 of 2021, decided by the NCLAT on 15 February 2022 more than half of the homebuyers were left out due to a weak public notice, and this Appellate Tribunal held that this exclusion was unfair. The relevant para 28 of the Judgment is extracted below: 28. "Thus, we see that the homebuyers/Allottees could not have had access to either the registered office of the corporate d....
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....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 Applicant could not have been taken any consideration of the claim of the Appellant(s), hence, Resolution Plan as submitted by Resolution Applicant cannot be faulted. However, we are of the view that the claim of those Homebuyers, who could not file their claims, but whose claims were reflected in the record of the Corporate Debtor, ought to have been included in the Information Memorandum and Resolution Applicant, ought to have been taken note of the said liabilities and should have appropriately deal....
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....onduct 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 failure on the part of IRP, the Appellants were wrongly left out of the settlement. We find that this caused real harm to the Appellants, and allowed CIRP to be withdrawn in an unfair and improper way. 60. We are of the view that 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....
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....-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 Corporate Debtor's own records. This selective constitution of the CoC enabled a limited and convenient decision-making process, which excluded the larger class of financial creditors, including the Appellants. The IRP himself presided over such meetings and prepared the minutes. 67. However, on 05.09.2022, i.e. nearly two years later, the same IRP filed I.A. No. 4281/2022 seeking withdrawal of CIRP, claiming that the matter was at the "pre-CoC" stage and that settlement had been reached with the original financial creditors. Based on this asse....
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....020 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 Builder Buyer Agreements, payment receipts, and a claim summary, all of which support her status as a financial creditor. Expecting a homebuyer to produce the Corporate Debtor's internal books of accounts; documents not within her access, is unreasonable. 72. 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 ha....
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....d 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 follow the due process mandated by the Code. It was held that withdrawal without CoC approval cannot be permitted once CIRP is underway and rights have accrued to multiple stakeholders. 77. The ratio laid down by Swiss Ribbons (Supra) has been reaffirmed by the Hon'ble Supreme Court, in its decision dated 23.10.2024, in Civil Appeal No. 9986 of 2024: GLAS Trust Company LLC v. Byju Raveendran & Ors., wherein the Hon'ble SC has comprehensively settled the law governing the withdrawal of CIRP proceedings. In GLAS Trust (Supra), this Tribunal had allowed withdrawal of CIRP proceedings, post-admission ba....
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....issible-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 that there is a distinction between review and recall. The power to review is not conferred upon this Tribunal but power to recall its judgment is inherent in this Tribunal since inherent power of the Tribunal are preserved, powers which are inherent in the Tribunal as has been declared by Rule 11 of the NCLAT Rules, 2016. 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; for ex....
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....ting 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 jurisdiction to recall its own order which has been obtained by playing fraud upon it, the order passed by the Tribunal on 20.07.2020 & 16.10.2020 are hereby recalled." 85. The Respondents have not provided any explanation for the inconsistency between the formation of the CoC in 2020 and the contrary claim made in 2022. The fact that minutes of CoC meetings exist, and yet the IRP stated under affidavit that no CoC had been formed, reveals a deliberate misrepresentation. The subsequent suppression of allottees' claims only exacerbates the fraudulent nature of the process. Further, the NCLT's impugned order dated 14.05.2024 dismisses the recall application on the g....