The National Company Law Appellate Tribunal (“NCLAT”) in its judgment dated August 24, 2022, in the case of, Raghvendra G. Kundangar v. Shashi Agarwal discussed the circumstances under which an order passed by an adjudicating authority under the Insolvency and Bankruptcy Code, 2016 (“Code”), can be recalled.

Facts:

Jindal Steel and Power Limited (“Jindal Steel”/ “Respondent”) claiming to be a financial creditor of Bharat NRE Coke Limited (“Corporate Debtor”) had filed an application before National Company Law Tribunal, Kolkata (“NCLT”) under Section 7 of the Code, for initiation of corporate insolvency resolution process (“CIRP”) of the Corporate Debtor, on the basis of the existence of a financial debt regarding supply of material to the Corporate Debtor. Thereafter various appeals were preferred by the shareholders of the Corporate Debtor (hereinafter collectively referred to as the “Appellants”), which went up to the Supreme Court, and the Supreme Court by its order dated August 16, 2019, dismissed the appeal of the Appellants along with another batch of appeals in the matters of Arun Kumar Jagatramka v. Jindal Steel & Power Limited and Suraksha Asset Reconstruction Limited v. Jindal Steel & Power Limited, and the debt of the Respondent was held to be a ‘financial debt’. Subsequently however, in the case of Anuj Jain Interim Resolution Professional for Jaypee Infratech Limited v. Axis Bank Limited, the Supreme Court held that the person who supplied material under contract to the corporate debtor is not a financial creditor but only an operational creditor. Based on this judgement of the Apex Court, the Appellants filed an application for recalling the order of the NCLT whereby the CIRP against the Corporate Debtor was commenced.

Issue:

Whether the order passed by NCLT for initiation of CIRP of the Corporate Debtor was bad in law, since the decision passed by the Supreme Court in the instant case was overruled in Anuj Jain Interim Resolution Professional for Jaypee Infratech Limited v. Axis Bank Limited?

Appellants’ Arguments:

It was argued on behalf of the Appellants that, once the decision of the adjudicating authority which was confirmed by the Supreme Court is overruled in a subsequent judgement, the order passed by the NCLT for initiation of CIRP was bad in law and consequently, Jindal Steel was incompetent to initiate a proceeding under Section 7 of the Code, claiming to be a financial creditor. Further, relying on the Supreme Court’s judgment of Sri Budhia Swain v. Gopinath Deb,  the Appellants contended that once a judgement is overruled the same will have retrospective effect, invalidate the proceedings undertaken in pursuance of the overruled judgment as null and void.

NCLAT’s Findings:

The NCLAT observed that as per the judgment of the Apex Court in Sri Budhia Swain v. Gopinath Deb, an order or judgement can be recalled only in the following 4 (four) instances as specified under the judgement:

“i) The proceedings culminating into an order suffer from inherent lack of jurisdiction and such lack of jurisdiction is patent,

ii) There exists fraud or collusion in obtaining the judgment,

iii) There has been a mistake of the Court prejudicing a party, or

iv) A judgment was rendered in ignorance of the fact that a necessary party had not been served at all or had died and the estate was not represented.”

NCLAT further observed that in the instant case, the Appellants sought recall of the judgment on the ground of change of law, which is not a ground for recall. It was further noted that the ground of lack of jurisdiction would not be applicable as NCLT is vested with the jurisdiction to hear and decide any matter under the Code whether it be under Section 7 or under Section 9 of the Code.

Placing reliance on Supreme Court’s decision in, Union of India v. Madras Telephone SC & ST Social Welfare Association, NCLAT concluded that that once the rights of parties have been considered and declared, the proceedings cannot be reopened on the basis of any overruling judgements, since the purpose of the order or the judgement is to crystalise the rights of the parties based on the law prevailing as on that date.

Accordingly, the appeal was dismissed.

Please find attached a copy of the judgment. 

This update has been contributed by Aastha (Partner) and Rohit Singh (Associate).

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