TaxTMI 
TaxTMI 
2026 (10) TMI 134
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.... Adv., Mr. Nikilesh Ramachandran, AOR, Ms. Mansi Tripathi, Adv., For the Respondent(s) : Mr. Krishnan Venugopal, Sr. Adv., Ms. Pooja Mahajan, Adv., Mr. Savar Mahajan, Adv., Ms. Urvashi Girdhar, Adv., Mr. Srivatsava Reddy, Adv., Mr. Umang Motiyani, Adv., Mr. Avinash B. Amarnath, AOR, Mr. Nalin Kohli, Sr. Adv., Ms. Kanika Singhal, AOR, Mr. Ayushman Arora, Adv., Vijeta Singh, Adv., Mr. Shivam Singh Rana, Adv., Ms. Deepshika, Adv., Mr. Niranjan Sahu, AOR, Mr. Abhishek Anand, Adv., Mr. Karan Kohli, Adv., Ms. Palak Kalra, Adv., Ms. Pallavi Pratap, AOR, Mr. Anupam Lal Das, Sr. Adv., Mr. Raj Kamal, AOR, Mr. Aseem Atwal, Adv., Mr. Anurag Chandra, Adv., Mr. Somil Jain, Adv., Ms. Nupur Kaushik, Adv., Mr. Shashwat Bali, Adv., Ms. Dakshita Nagpal, Adv., Mr. Raj Kamal, Adv., Mr. Siddhant Sharma, AOR, Mr. Aseem Atwal, Adv., Mr. Nimish Chandra, Adv., Mr. Ratul Sharma, Adv., Mr. Shakti Bhati, Adv., Mr. Nivesh Kumar, AOR, Mr. Aviral Kapoor, Adv., Mrs. Sonal Alagh, Adv., Mr. Sanjivan Chakraborty, Adv., Mr. Rahul Raj, Adv., Mr. Shivam Singh Tomar, Adv., Miss Kanika Singhal, AOR, Mr. Anurag Ojha, AOR, Mr. Mukul Rohatgi, Sr. Adv., Mr. Saurabh Kripal, Sr. Adv., Ms. Jyoti Taneja, Adv., Mr. Prabhas Baja....
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....n to recall CIRP by dismissing the Section 9 petition that was admitted at the instance of a collusive operational creditor? 2. While the AA held that there is no power of recall after an application is admitted and CIRP commences, the NCLAT held that such power certainly exists. Having held that the power exists, the NCLAT considered it to be a logical consequence to simply reject the application and recall the entire CIRP process. The approach adopted by the AA, the NCLAT, followed by the submissions of the learned counsel at the bar, necessitates formulating yet another question, and it is: II. Assuming such a power exists, does dismissal of the petition under Section 9 on the grounds of fraud and collusion, inevitably entail recall of the CIRP process, or can the process be preserved by substituting the original applicant with another? 3. Having considered the matter in detail, we have answered each of the questions that have arisen for consideration and disposed of these appeals with specific directions. Before we set out the reasons followed by our conclusions, the facts, to the extent that they are relevant for our consideration, are as follows. II. Facts ....
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.... complete the project and hand over possession expeditiously. 4.4 Insofar as consumer complaints by allottees of the CD and Orris are concerned, the National Consumer Disputes Redressal Commission ("NCDRC"), vide its common judgment dated 20.07.2020, held that the CD and Orris shall be responsible towards their respective allottees/consumers. 4.5 As the project was getting further delayed, the HRERA initiated suo motu proceedings. Having examined the matter, by its order dated 07.10.2020, the HRERA directed that the CD has no development rights and that Orris, being the landowner, licensee and collaborator of the project, has the primary responsibility for development, construction and completion of the project. The relevant portion of the direction is as follows; "(i) M/s Orris being one of the landowners, the license holder and collaborator of the project as per the provisions of the Act has the primary responsibility for development, construction and completion of the project. (iii) M/s Three C Shelters Pvt. Ltd. is directed that since the funds available in the account No.[omitted] of the KMBL Mahindra Bank, Noida are the assets of the homebuyers, theref....
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....ed in Clauses (d) and (e) of sub-section (3) of Section 9 of the Code. 11. Therefore, on fulfilment of requirements of Section 9 (5) (i) (a) to (d) of the Code, the present application is admitted. 12. In terms of sub-section (6) of Section 9 of the Code the Corporate Insolvency Resolution Process in respect of respondent corporate debtor shall commence from the date of this admission order." 7. The homebuyers who had formed an association and were pursuing remedies before HRERA and NCDRC were naturally aggrieved with the admission of the CD into CIRP and therefore appealed to the NCLAT, also alleging fraud and collusion between M/s Straight Edge, portraying itself to be the operational creditor and the CD. The NCLAT vide order dated 06.01.2021 dismissed the appeal and confirmed the admission of Section 9 petition on the ground that a number of other creditors, whose petitions were pending, had already invoked the provisions of the Code and the moratorium had commenced from 16.10.2020. The relevant portion of the order is as follows; "13. The grievance of the Appellant appears to be that it was the biggest Financial Creditor and instead of acting on it....
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....e R-5). The Adjudicating Authority cured defect and we do not wish to interfere on technical grounds, as it will serve no purpose. Record shows that both Respondents are now under CIRP and we would trust the IRPs/RPs to follow the law. As such, alleged collusion would be irrelevant, even otherwise. 8. By a subsequent order dated 15.04.2021, passed on an application filed by the RP of the CD, the AA directed the parties to maintain status quo as regards to the amounts lying in the escrow account. Various parties, including Orris, challenged this order and the contest continued till this Court, when, by its order dated 01.07.2021, this Court permitted Orris to approach the AA by filing an appropriate application for the necessary clarification. On the basis of the liberty granted by this Court, Orris filed an application for relevant directions before the AA. Apart from this, an application by Orris for impleadment and an application by RP of M/s Three C Universal Developers, being a shareholder of the CD, were also pending. 9. It is important to note the prayers of Orris and M/s Three C Universal Developers. The prayers of Orris, in IA 2902/ND/2021 (the other IA 2482/ND/2021 i....
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....ate Debtor and owes Rs. 127,56,03,605/-, excluding interest. c. It is also submitted that Mr. Rajiv Baisoya filed an affidavit expressing the company's inability to pay the debt of Operational Creditor and on the basis of same affidavit the CIRP was initiated against the corporate debtor. However, it is submitted that the Board Resolution filed by Mr. Rajiv Baisoya was dated 24.06.2019, 107 days prior to the issuance of Demand Notice. d. It is also stated that when the applicant/RP inquired from Mr. Rajiv Baisoya about affairs of the Three C Universal Developers Private Limited, since he was also director of Three C Universal Developers Private Limited, Mr. Rajiv Baisoya informed applicant vide e-mail dated 07.07.2020 that he is only office boy/filing boy/store keeper of the company, and he also gave in a writing letter dated 06.02.2021 confirming the said facts. e. Further, Mr. Girish Chander Joshi, another director of both the companies also informed the applicant that he was only a pantry boy and had no knowledge about the business and operations of the company. Mr. Joshi also gave same facts vide written letter dated 06.02.2021. It has been pointed ou....
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....n contractor on costs basis. Further, the assignment work order was executed on 28th November, 2017 and invoices were raised for the period of Nov. 2017 to August 2018... However, in the same report, it is also reflected that the arrangement of Rs. 21 crores was made for the payment of Straight Edge Contracts Pvt. Ltd. Apart that, a sum of Rs. 53 crores were also lying in the escrow account. Once the arrangement of payment was there and then the factum of not making the payment of Rs. 33 crores as alleged on behalf of the Straight Edge Contracts Pvt. Ltd. creates a serious doubt in the story of the petitioner. This fact also indicates that there was a collusion between them. 47. No doubt, the agreement dated 28th November, 2017 was executed between Straight Edge Contracts Pvt. Ltd. as well as Three C Shelters Pvt. Ltd. and by virtue of that, it was agreed to provide the services for the remaining construction of the project Greenopolis. But it is also matter of fact that in the said agreement dated 28th November, 2017, two other parties were also there i.e. M/s Econovation Homes LLP & M/s Three C Builders Pvt. Ltd. These companies were never found in the subsequent Memoran....
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...., the parties must have entered into agreement on or before that month and not after five months of the execution of the work that too, when the completion of construction work was worth Rs. 256 crores. Admittedly, the land about 47 acres worth more than Rupees Five Hundred Crore was put into project by Orris Infrastructure Pvt. Ltd., but strangely enough, when the project completion work was allegedly assigned by Three C Shelters Pvt. Ltd. to Straight Edge Contracts Pvt. Ltd., the tentative costs was Rs. 256 crores, then why only Rs. 5 Crore were agreed to be spent by Straight Edge Contracts Pvt. Ltd. and Rs. 65 crores by M/s Econovation Homes LLP. The entire agreement is silent about the rest of the payment, how it would have to come to the project and even the mode of making payment to Straight Edge Contracts Pvt. Ltd. was also not clearly laid down in the said agreement. Further, no default clause is laid down in the said agreement to fix the liability of the Straight Edge Contracts Pvt. Ltd. These all facts & circumstances create a serious dent not only in the story of the petitioner, but also Corporate Debtor as well. 50. Further, it is to be mentioned that the deman....
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....t that, Three C Shelters Pvt. Ltd. was being represented by Mr. Rajiv Basoya and Mr. Girish Chander Joshi, who were mere pantry boys or office boys in the company... These affidavits clearly proves that these two persons were not at all aware of any of the activities of the company and they were also not familiar with any documents etc. accordingly, they have also made request to discharge and remove them from the directorship... Pleading of the main petition has been merely admitted by these dummy Directors, Mr. Rajiv Basoya and Mr. Girish Chander Joshi. Except, this admission, there is no authenticated document to corroborate the fact whether the work was actually carried out at the site. Ld. HRERA, also specifically held that no construction was going on Greenopolis since earlier 2016. Although, the contention has been raised on behalf of M/s Straight Edge Contract Pvt. Ltd. that it was not a party to that litigation, the said findings, if any recorded, are not binding upon it. But in this context, it is to be mentioned that Three C Shelters Pvt. Ltd. was in fact party therein and the said complaint as well as other proceedings were duly contested by it. Further, Ld. HREAT also ....
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....ts. In this view of the matter, it held that there is no option but to continue the CIRP proceedings. The logic of AA is as follows; "59. No doubt there is collusion between the petitioner & respondent qua initiation of the CIR proceedings, but under the garb of section 65 of code the entire proceedings already stand initiated before filing of this application, cannot be set aside. Though, NCLT-In the matter of Middle Zone Solitor Hotel India Pvt. Ltd. Vs. Middle Tone Hotel Pvt. Ltd, held that once there are fraudulent initiation of the proceedings, the said proceedings can be set aside. However, Hon'ble NCLAT, in the matter of Adesh Jain (supra) categorically held that this Tribunal has no power to review its own order. Thus, in the light of the principle laid down in order passed in the matter of Adesh Jain (supra), it is held that this Tribunal is not empowered to review or recall its order, except where there is error apparent on the record. Accordingly, this Tribunal stand barred to recall or review its order dated 20.7.2020/16.10.2020. 61. Pursuant to specific provision 61 of the Code, it could be said that if Orris was aggrieved of the order dated 20th ....
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....itled to take its control & custody. f. Rs. 53 Crores lying in the Escrow account pertains to project Greenopolis and has to be utilized for its construction only, accordingly, Ld. RP of Corporate Debtor doesn't have any right & interest in the same also accordingly, it could not be controlled by him." 18. Against this order, the RP of Three C Universal Developers, Straight Edge Contracts Pvt. Ltd., RP of the CD, GWA and Girish Chander Joshi (suspended director of CD) filed appeals at the NCLAT. 19. The NCLAT vide the impugned order dated 28.08.2023 examined only the narrow issue of, "whether the NCLT committed a patent error in not recalling the admission order". Relying on Beacon Trusteeship v. Earthcon Infracon Pvt. Ltd. 2020 SCC OnLine SC 1233., S.P. Chengalvaraya Naidu v. Jagannath (1994) 1 SCC 1. and A.V. Papayya Sastry v. Govt. of A.P. & Ors. (2007) 4 SCC 221., the NCLAT came to the conclusion that CIRP initiated under the garb of fraud cannot be sustained and that the AA has the power to recall its own orders. With this finding, the NCLAT set aside the CIRP owing to fraud at the time of initiation of insolvency proceedings. The relevant portion of the fin....
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....d 19.11.2024 of this Court absolute. Mr. Mukul Rohatgi argued that the proceedings under the IBC can steer clear of fraudulent and collusive initiation of M/s Straight Edge Contracts Pvt. Ltd. by adopting the principles contemplated under the erstwhile Rule 101 to 103 of Companies (Court) Rules, 1959. He would submit that the CIRP proceedings, once initiated, would be in rem. On the other hand, Mr. Krishnan Venugopal has submitted that fraud and collusion vitiate the entire proceedings and he strongly supported the conclusion of the NCLAT. It is in this context that the first question of law has arisen for our consideration. 22. A fundamental principle of statutory law is that when statutory authorities are empowered to exercise a certain jurisdiction, the power to exercise such jurisdiction rests on the existence of certain facts and events. In administrative law, such facts are referred to as jurisdictional facts. Under the Insolvency and Bankruptcy Code, for example, the existence of a "debt" is the jurisdictional fact. In Carona Ltd. v. Parvathy Swaminathan & Sons (2007) 8 SCC 559, paras 27 and 28., it is explained that - "...the fact or facts upon which the jurisdi....
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....on of jurisdiction should not be confused with mistake, legal or factual in exercise of jurisdiction. In the former the order is void whereas in the latter it is final unless set aside by higher or competent court or authority. An order which is void can be challenged at any time in any proceeding. A permission granted under Section 21 once permitted to attain finality becomes unassailable on error in exercise of jurisdiction. It could be challenged later or in execution only if it could be brought in the category of a void or ultra vires permission. Such invalidity can arise if jurisdiction is exercised by misrepresentation of facts either about existence of vacancy or nature of premises. In other words what attains finality in accordance with law cannot be permitted to be reagitated or reopened except in the larger social interest of preventing a person from practising deceit. Therefore an error of jurisdictional fact which could entitle a Controller to re-examine the matter in the context of Section 21 is the same, namely, fraud or collusion." 24. Thus, it becomes essential for an AA to be satisfied of the existence of a jurisdictional fact, which alone grants to it the power....
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....isht Dhawan, this Court held - "20... But fraud in public law is not the same as fraud in private law. Nor can the ingredients which establish fraud in commercial transaction be of assistance in determining fraud in Administrative Law... it is dangerous to introduce maxims of common law as to effect of fraud while determining fraud in relation to statutory law... it was observed that fraud in relation to statute must be a colourable transaction to evade the provisions of a statute. "If a statute has been passed for some one particular purpose, a court of law will not countenance any attempt which may be made to extend the operation of the Act to something else which is quite foreign to its object and beyond its scope". Present day concept of fraud on statute has veered round abuse of power or mala fide exercise of power... The colour of fraud in public law or administrative law, as it is developing, is assuming different shades. It arises from a deception committed by disclosure of incorrect facts knowingly and deliberately to invoke exercise of power and procure an order from an authority of tribunal. It must result in exercise of jurisdiction which otherwise would not ha....
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....itiation of CIRP and a call for submission of claims; and appoints an IRP... 42. From this scheme of Chapter II IBC, it appears that the admission of an application is a significant event that alters the nature of the proceedings, and the stakeholders involved. Initially, when the petition is filed by the financial creditor, operational creditor or corporate applicant, as the case may be, the proceedings are in personam and the only relevant stakeholders are the applicant creditor and the corporate debtor... Therefore, the proceedings now change character - they become in rem and are no longer the preserve of only the applicant creditor and the corporate debtor and even creditors who were not the original applicants, become necessary stakeholders. 43. A three-Judge Bench of this Court in Indus Biotech (P) Ltd. v. Kotak India Venture (Offshore) Fund adjudicated on the question of the stage at which the proceedings under the IBC attain the status of in rem and create third-party rights for all creditors. This Court held that the trigger point is not the filing of the application, but the admission of the application, and observed as follows... 44. In summar....
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....on of proceedings, execution of judgments, enforcement of security interests and other coercive actions. The process that commences after admission encompasses the entire body of creditors and other stakeholders, not merely interests of the applicant. A proceeding having consequences of this magnitude cannot logically remain a private proceeding between the original Operational Creditor, the applicant under Section 9 and the Corporate Debtor. 37. Sections 17 and 20 relating to passing on the management to the IRP: Section 17 provides that, from the date of appointment of the IRP, management of the affairs of the Corporate Debtor vests in the IRP and the powers of the Board of Directors stand suspended. Section 20 obliges the IRP to preserve and protect the value of the property of the Corporate Debtor and continue its operations as a going concern. The consequence is material as the applicant creditor loses the character of being the person in control of the insolvency proceeding. The insolvency process is placed in the hands of an independent insolvency professional. 38. Section 18 relating to collection and collation of claims: Section 18 requires the IRP to collect informa....
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....lustrates the collective character of insolvency proceedings where distribution is not according to the identity of the person who first invoked the code. This again reinforces the proposition that the initiating creditor is merely the triggering creditor, and not the proprietor of the CIRP. 42. Yet another provision of the Code, Section 12A, introduced in 2018, is significant as it demonstrates that the applicant ceases to have unilateral control of the proceedings. Section 12A provides for withdrawal of the application admitted under Sections 7, 9 or 10 "with the approval of 90% voting share of the Committee of Creditors".^1 The provision was introduced precisely because after admission, withdrawal is no longer a unilateral choice of the applicant. 43. Once the CIRP proceedings have commenced, a large number of independent creditors would have submitted their claims. These creditors have not chosen the original applicant but are seeking to participate in the resolution process. Their claims are pursuant to the invitation issued by the resolution professional and their rights become part of the collective insolvency estate. It would be against the very concept of finding a r....
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....e NCLAT have concurrently found that the Original Application of M/s Straight Edge Contracts Pvt. Ltd. is collusive and has been motivated by the interests of the suspended Directors of the Corporate Debtor, the consequential decision as to whether CIRP proceedings should be continued or not in the facts and circumstances of the case has not been taken. While the AA wrongly held that there is no power under the Code to withdraw the proceedings once admitted, the NCLAT reversed that decision and held that such a power exists but did not take the crucial step of deciding whether the proceedings should be continued. We are not in agreement with the approach adopted either by the AA or by the NCLAT; both failed to take the proper consequential action upon finding that the original application is collusive. 49. In view of the above discussion, we restate the principles that we have followed in arriving at our decision: i. Initiation of proceedings under Sections 7, 9 or 10, as case may be, of the Insolvency and Bankruptcy Code, 2016, is based on certain fundamental facts which are jurisdictional in nature. If reliance on such jurisdictional facts, as indicated in the applica....
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.... part and the judgment and order of the NCLAT in Comp. App. (AT) (Ins) No. 444 of 2022, Comp. App. (AT) (Ins) No. 651 of 2022, Comp. App. (AT) (Ins) No. 370 of 2022, Comp. App. (AT) (Ins) No. 602 of 2022, and Comp. App. (AT) (Ins) No. 1379 of 2022 is hereby set aside, and it is further directed that; (ii) The CIRP proceedings No. IB-2721/ND/2019 pending before AA are restored to their original number. (iii) The AA shall now decide upon the continuation of the proceedings in view of the conclusive finding of fraud and collusion of the original applicant M/s Straight Edge Contracts Pvt. Ltd. For this purpose, it shall take into account all the necessary facts and events, including the ownership of the Greenopolis project, hear the RP, the CoC and other stakeholders, including the homebuyers who have already adopted other statutory and judicial remedies. (iv) In the event AA decides to continue the CIRP process, in view of the long pendency of these cases, there shall be a further direction to the AA to conclude the proceedings expeditiously. 51. In view of the above, the Contempt Petition (C) Nos. 249-253/2025 are closed. Pending applications, including ....