NCLT and the Power to Recall

Posted On - 18 July, 2023 • By - Souvik Ganguly

Review and recall are two crucial legal mechanisms that safeguard the principles of fairness and justice within a judicial system. Review entails examination of the judgment to rectify any evident errors or inaccuracies which might be the result of an oversight. Conversely, recall empowers the court to rectify its previous orders if any procedural errors were committed while passing the order. These processes work in tandem to preserve the integrity of the legal system and ensure equitable outcomes for all stakeholders.

In recent times, there has been considerable confusion regarding whether insolvency tribunals such as the NCLT (National Company Law Tribunal) and NCLAT (National Company Law Appellate Tribunal) possess the authority to review and recall their earlier orders. Divergent opinions from various coordinate benches have further exacerbated this quandary. However, the uncertainty surrounding this matter was recently addressed and resolved by a significant ruling from a five-member bench of the NCLAT in the case of Union Bank of India v. T. Venkatasubramanian and Others. This landmark decision has provided much-needed clarity and guidance on the extent of review and recall powers vested in the insolvency tribunals.

Facts of the case

Union Bank of India (Bank) initiated corporate insolvency resolution process (CIRP) against Amtek Auto Ltd. (Amtek Auto). A resolution plan was submitted to the committee of creditors (CoC) which was approved by the CoC as well as the NCLT. The Bank filed an appeal with the NCLAT against the order of the NCLT which approved the resolution plan. This appeal was partly allowed by the NCLAT. It must be noted that the Bank did not include the CoC as a party to the appeal. The other financial creditors of Amtek Auto filed a review application with the NCLAT contending that the order of the NCLAT allowing the appeal filed by the Bank must be recalled as it was filed without hearing the CoC which was a necessary party. However, the NCLAT dismissed the review application, stating that it does not have the authority to entertain review applications as per the provisions of the Code. For this, the NCLAT relied upon its previous judgments in Agarwal Coal Corporation Private Limited v. Sun Paper Mill Limited and Another (Agarwal Coal) and Rajendra Mulchand Varma and Others v. K.L.J Resources Limited and Another (Rajendra Mulchand). Importantly, liberty was granted to the other financial creditors to take recourse to any other remedy in accordance with law.

Subsequently, the financial creditors filed another application before the NCLAT praying that the order of the NCLAT partly allowing the appeal must be recalled on grounds that a necessary party was not impleaded. The financial creditors argued that NCLAT has ‘inherent powers’ to recall an earlier judgment. In context, inherent powers are powers of courts or tribunals that arise not from a statute but from the judicial nature of the tribunals themselves. Among the inherent powers is the power to issue orders for maintaining its dignity, securing obedience to its process and rules, protecting its officers from indignity and wrong, and rebuking interference with the conduct of its business. In view of the same, the NCLAT referred the question to a larger bench.

NCLAT’s ruling

NCLAT noted that though the power of review has not been given to the NCLAT under the Code, insolvency tribunals have certain inherent powers to do complete justice, similar to a civil court. Citing Supreme Court precedents, the NCLAT explained that civil courts may use their inherent power to recall a judgment in certain cases, such as when a necessary party is not served properly, when the judgment was obtained through fraud or deception, or when the court itself commits an error, and therefore even the insolvency tribunals can exercise inherent powers accordingly.

The NCLAT emphasised the distinction between the power to review and the power to recall. Review involves evaluating the merits of a decision to correct an error that is evident on the face of the decision, and it must be conferred by statute or necessarily implied by statutory provisions. On the other hand, the power to recall, also known as “procedural review,” is exercised when the procedure for issuing an order or judgment is flawed due to violation of basic principles of natural justice. In such cases, the court corrects the procedural error without re-evaluating the matter on its merits.

Relying on the above position of law, the NCLAT held that the previous judgments of Agarwal Coal and Rajendra Mulchand do not lay down the correct position of law insofar as the insolvency tribunal’s power to recall is concerned. Therefore, it has now been settled by the five-member bench that insolvency tribunals, much like judicial bodies, have an inherent power to recall their orders on grounds of violation of principles of natural justice.

Our thoughts

The finality and conclusiveness of judgments and orders within the judicial system are crucial elements in increasing the efficiency of the judicial outcome. However, when a judgment or order is rendered in contravention of fundamental principles of natural justice, such as the denial of a fair opportunity to be heard by all relevant parties, it becomes inherently flawed. Seeking redressal for such decisions before the NCLAT or the Supreme Court of India for correction results in the wastage of time and resources for the parties involved. This is particularly detrimental in insolvency cases, which requires expeditious resolution to optimise the rescue of the corporate debtor. Hence, the recent decision rendered by the five-judge bench is commendable as it grants the insolvency tribunals the ability to rectify procedural errors. However, exercising caution when recalling a decision is essential to avoid unwarranted delays in the litigation process. Given the significance of the Code’s regime and the pivotal role played by the NCLT as a tribunal with extensive economic and financial implications, the efficacy of the Code’s mechanism for banks and financial institutions may be compromised if parties exploit the recall avenue to reverse unfavourable outcomes and impede further proceedings. The power to recall should only be invoked in limited circumstances where substantial evidence demonstrates a procedural irregularity that fundamentally undermines the decision. This approach ensures the efficient resolution of insolvency cases, reduces superfluous litigation, and safeguards the interests of all parties involved.

Authors: Souvik Ganguly, Altamash Qureshi and Shrishti Mishra

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