NCLT Mumbai: Order Admitting CIRP Cannot Be Recalled In Absence Of Fraud Or Misrepresentation
Pranav B Prem
The National Company Law Tribunal (NCLT) Mumbai Bench, comprising Justice V.G. Bisht (Judicial Member) and Prabhat Kumar (Technical Member), has ruled that an order admitting a corporate debtor into the Corporate Insolvency Resolution Process (CIRP) cannot be recalled unless there is evidence of fraud or misrepresentation. The ruling came in response to an interim application filed by Canara Bank concerning the CIRP of Carnival Techno Park Pvt. Ltd. (CTPPL). While the Tribunal rejected Canara Bank’s plea to recall the CIRP admission, it permitted a forensic audit to investigate the legitimacy of Reliance Commercial Finance Limited’s (RCFL) claim and its classification as secured financial debt.
Background of the Case
The dispute arose from the CIRP proceedings of CTPPL, initiated after RCFL filed a company petition under Section 7 of the Insolvency and Bankruptcy Code (IBC), 2016. The petition was admitted by the NCLT Mumbai on February 13, 2024, leading to the commencement of CIRP against CTPPL. Canara Bank, a secured financial creditor with a claim of Rs. 116,99,83,474.66, contested the CIRP admission, alleging collusion and fraudulent conduct between RCFL, the Resolution Professional (RP), and the Prospective Resolution Applicant (PRA). The Bank contended that RCFL’s claim had been inflated from an original loan of Rs. 75 crores to Rs. 294.30 crores, thereby altering the voting dynamics within the Committee of Creditors (CoC). It also asserted that the debt had been assigned to another entity, Asian Business Connections Pvt. Ltd. (ABCPL), meaning that CTPPL was no longer a debtor to RCFL.
Arguments by Canara Bank
Canara Bank argued that RCFL’s claim was allegedly inflated, which directly impacted its voting rights in the CoC. The bank maintained that RCFL’s original loan of Rs. 75 crores had been artificially increased to Rs. 294.30 crores, significantly shifting the voting power in favor of RCFL. Further, it asserted that the debt had been assigned to ABCPL, and as a result, CTPPL no longer owed any financial obligations to RCFL. The bank accused the RP of colluding with RCFL and other parties by admitting the disputed claim without verifying essential documents such as financial statements and ROC records, leading to an unfair CIRP process.
Response by RP and RCFL
The Resolution Professional opposed the application, arguing that it was barred by the principle of res judicata since NCLT had already dismissed a similar application seeking details of RCFL’s claim. The RP emphasized that Canara Bank had actively participated in the CIRP and CoC meetings without initially challenging the admission order. Only after realizing that it had a minority voting share in the CoC did Canara Bank attempt to disrupt the CIRP by filing the present application. RCFL contended that NCLT lacked the authority to recall its own order admitting a company into CIRP. It stated that any challenge to such an order had to be made before the National Company Law Appellate Tribunal (NCLAT) and not via a recall application before the NCLT.
NCLT’s Analysis and Judgment
Jurisdiction to Recall an Admission Order
One of the key issues before the Tribunal was whether it had the power to recall its own order admitting a corporate debtor into CIRP. The Tribunal referred to the Supreme Court’s decision in Greater Noida v. Prabhjit Singh Soni (2024) 6 SCC 767, stating: “……………………………. Therefore, even in absence of a specific provision empowering the Tribunal to recall its order, the Tribunal has power to recall its order. However, such power is to be exercised sparingly, and not as a tool to re-hear the matter. Ordinarily, an application for recall of an order is maintainable on limited grounds, inter alia, where (a) the order is without jurisdiction; (b) the party aggrieved with the order is not served with notice of the proceedings in which the order under recall has been passed; and (c) the order has been obtained by misrepresentation of facts or by playing fraud upon the Court /Tribunal resulting in gross failure of justice.”
Applying this principle, the Tribunal ruled that:
The order admitting CTPPL into CIRP was not without jurisdiction, as NCLT had the authority to pass such an order under Section 7 of the IBC.
There was no sufficient evidence of fraud or misrepresentation to justify recalling the order. Canara Bank’s financial statements did not conclusively prove that RCFL had no financial debt against CTPPL at the time of CIRP admission. Accordingly, Canara Bank’s request for recalling the CIRP order was rejected.
Forensic Audit Ordered
While denying the recall of the CIRP admission, the Tribunal noted the inconsistencies in financial records and allowed a forensic audit. The Tribunal directed that: “Since, the debt, in question, is alleged to be result of certain journal entries to settle the liability of group companies of the Corporate Debtor owed to group Companies of Reliance Capital Limited (the predecessor), we consider it appropriate to direct the Respondent No.1 to conduct a Forensic Audit in relation to such transactions through the Applicant’s empanelled auditor at the cost of the Applicant.”
Advocates representing hte parties:
For the Applicant : Zarir Bharucha a/w. Prakash Shinde, Nishit Dhruva, Rishi Thakur, Niyati Merchant, Ruchita Jain i/b MDP Lega
For the Respondent : Mr. Rohit Gupta, for R-1, Mr. Gaurav Joshi Sr. Adv a/w Mr. Kunal Mehta for Respondent Nos. 3 and 4
Case Title: Canara Bank V/s Mr. Bhavesh Mansukhbhai Rathod, The Interim Resolution Professional & Ors.
Case Number: C.P.(IB) No. 383/MB/2023
Coram: Justice V.G. Bisht (Member (Judicial) and Prabhat Kumar (Member (Technical)
[Read/Download order]
