Recall Application Filed By Shareholder Cannot Be Entertained When Director Who Pursued Earlier Proceedings Had Resigned, Rules NCLAT
Pranav B Prem
The National Company Law Appellate Tribunal (NCLAT), Chennai Bench, comprising Justice Rakesh Kumar Jain (Judicial Member) and Mr. Jatindranath Swain (Technical Member), has held that an application filed by a shareholder seeking the recall of an order cannot be entertained when the Suspended Director, who pursued the earlier proceedings, has resigned. The Tribunal clarified that a shareholder cannot substitute the Director due to their distinct legal status and limited rights in corporate insolvency proceedings.
Background of the Case
The appeal in question arose from a recall application seeking to overturn the order passed on October 14, 2024, which had vacated an interim order granted earlier on April 18, 2024. The proceedings initially involved M/s. Tarun Realtors Pvt. Ltd. and its shareholder, M/s. Mantri Developers Pvt. Ltd., which holds a 49.99% stake in the corporate debtor.
The core issue was that the appeal was initially pursued by Mr. S. Baaskaran, the Suspended Director of the corporate debtor. However, he had resigned from his position on August 12, 2024. When the matter came up for hearing on October 14, 2024, the Respondents objected to the continuation of the appeal, arguing that since the Suspended Director had resigned, he could no longer represent the corporate debtor. The Tribunal agreed with this contention and vacated the interim relief granted earlier.
Subsequently, a recall application, IA No. 1293/2024, was filed by the shareholder, M/s. Mantri Developers Pvt. Ltd., seeking to reinstate the interim order. The Applicant contended that it had filed the original appeal as a nominee director and that shareholder disputes had existed even before the initiation of the insolvency petition. The Karnataka High Court had also directed that if a recall application was filed, it should be heard. However, a financial creditor had challenged this before the Supreme Court, which on November 22, 2024, held that the Corporate Insolvency Resolution Process (CIRP) would continue as per law, subject to the final outcome of the pending writ petition.
Observations by the NCLAT
The Tribunal extensively examined the maintainability of the recall application and emphasized that the power of recall is not expressly vested in Appellate Tribunals except in exceptional circumstances. Referring to the Supreme Court’s decision in Union Bank of India v. Mr. Dinkar T. Venkatasubramaniam & Ors.CA (AT) (Ins) No.729/2020, the NCLAT stated that recall applications are confined to specific conditions and cannot be entertained universally.
Furthermore, the Tribunal observed that a recall application filed under Section 151 of the Code of Civil Procedure (CPC) would not be maintainable in such a scenario. It reasoned that since the resignation of the Suspended Director had occurred before the order on October 14, 2024, was passed, he could not have continued to pursue the appeal.
Additionally, the Tribunal noted that other shareholders with a higher stake than the applicant were not before the Tribunal. It was emphasized that shareholders cannot replace a Suspended Director in insolvency proceedings as their legal rights are limited to their investment in the corporate debtor and do not extend to managing or representing the company in CIRP-related disputes.
Tribunal’s Ruling
The NCLAT firmly held that the resignation of Mr. S. Baaskaran, the Suspended Director, meant that he was no longer authorized to pursue the appeal. Consequently, a shareholder could not step into his shoes and seek a recall of the order. The Tribunal observed: "Since the order under recall was passed on 14.10.2024 after taking note of the fact that the appellant was earlier represented by Mr. S. Baaskaran, the Suspended Director, who had resigned on 12.08.2024, the appellant had lost the authority to continue the appeal."
Thus, the recall application was held to be misconceived and was accordingly dismissed. The Tribunal ruled: "The recall application being IA No. 1293/2024 is therefore found to be misconceived and is dismissed accordingly."
Appearance
For Applicant: Mr. M.S. Shyamsundar, Senior Advocate For Mr. Sriram Venkatavaradan, Advocate
For Respondents: Mr. Chandramouli Prabhakar, Advocate for R1 Mr. Varghese Thomas, Advocate for R3 Mr. P.S. Raman, Senior Advocate For Mr. Vinod Kumar, Advocate for R6
Cause Title: M/s. Mantri Developers Pvt. Ltd. V. Ace Enviro Tech Pvt. Ltd. and Ors.
Case No: IA Nos.1293 & 1295/2024 in Company Appeal (AT) (CH) (Ins) No.129/2024 (IA Nos.1294 & 1296/2024)
Coram: Justice Sharad Kumar Sharma [Member (Judicial)], Jatindranath Swain [Member (Technical)]
[Read/Download order]
