Misrepresentation by financial creditor: NCLT recalls order initiating CIRP

Misrepresentation by financial creditor: NCLT recalls order initiating CIRP

The tribunal cited the judgment of the Supreme Court in a similar case

The Hyderabad bench of the National Company Law Tribunal (NCLT) has recalled its order whereby the Corporate Insolvency Resolution Process (CIRP) was initiated against the corporate debtor. It was done, as the order was obtained by the financial creditor over misrepresentation before the Adjudicating Authority (AA).

The bench comprising Dr. Venkata Ramakrishna Badarinath Nandula, (judicial member) and Satya Ranjan Prasad (technical member) was adjudicating an application filed in the Canara Bank vs Feno Plast Limited case.

Canara Bank (financial creditor) had filed a petition under the Insolvency and Bankruptcy Code (IBC), 2016 seeking initiation of CIRP against Feno Plast (corporate debtor) over a default of Rs.55,61,32,955.75, inclusive of interest.

Vide its October 2022 order, the AA admitted the petition and initiated CIRP against the corporate debtor. But the suspended director of the corporate debtor filed an application before AA to recall the order.

The director (applicant) argued that certain material facts pertaining to the July One-Time Settlement (OTS) entered between the parties was not placed on record. The financial creditor had sanctioned OTS in August in favor of the corporate debtor. The OTS was cancelled and revived the same month.

However, the financial creditor did not disclose to AA that OTS had been revived. Thus, he passed the order initiating CIRP under the impression that the OTS was cancelled and the corporate debtor had defaulted in payment. It argued that the AA did not have the jurisdiction to recall the order initiating CIRP.

The bench observed that the matter of OTS sanctioned in July and cancelled and revived a month later was not informed to the AA by either party. Thus, he acted on the premise of repayment default.

The tribunal found that suppression of material facts had influenced the findings of AA. It ruled, "The plea of the corporate debtor that the debt was not due and payable by the date of admission of the petition under IBC is a good ground against the admission. If the same is established, the petition has to be rejected."

NCLT relied on the Supreme Court judgment in the United India Insurance Co. Ltd. vs Rajendra Singh case, wherein it was held, "No court or tribunal can be regarded as powerless to recall its own order if it is convinced that the order was wangled through fraud or misrepresentation of such a dimension as would affect the very basis of the claim."

The tribunal held that AA had the jurisdiction to recall its order. The order was, therefore, recalled and the matter re-opened for considering the communication that transpired between the parties after the revival of OTS in August. The AA would, thereafter, arrive at a fresh finding.