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Synopsis

The Supreme Court has set aside the orders passed by the NCLAT and NCLT, which approved the resolution plan for a corporate debtor, M/s JNC Construction (P) Ltd under the Insolvency and Bankruptcy Code without considering a claim by the statutory body Greater Noida Industrial Development Authority for Rs 43.40 Cr.

A bench of Chief Justice of India D Y Chandrachud and Justices J B Pardiwala and Manoj Misra declared that a court or a tribunal, in absence of any provision to the contrary, has inherent power to recall an order to secure the ends of justice and/or to prevent abuse of the process and neither the IBC nor the regulations framed thereunder, in any way, prohibit, exercise of such inherent power.

"No doubt, the record indicates that the appellant was advised to submit its claim in Form B (meant for operational creditor) in place of Form C (meant of financial creditor). But, assuming the appellant did not heed the advice, once the claim was submitted with proof, it could not have been overlooked merely because it was in a different Form," bench said.

The court also held the Form in which a claim is to be submitted is directory. 

"What is necessary is that the claim must have support from proof. Here, the resolution plan fails not only in acknowledging the claim made but also in mentioning the correct figure of the amount due and payable," the bench added.

According to the resolution plan, the amount outstanding was Rs 13,47,40,819 whereas, the appellant claimed the amount due was Rs 43,40,31,951. The corporate debtor had committed default in payment of instalments to plots of land leased to it.

"This omission or error, as the case may be, in our view, materially affected the resolution plan as it was a vital information on which there ought to have been application of mind. Withholding the information adversely affected the interest of the appellant because, firstly, it affected its right of being served notice of the meeting of the COC, available under Section 24 (3) (c) of the IBC to an operational creditor with aggregate dues of not less than ten percent of the debt and, secondly, in the proposed plan, outlay for the appellant got reduced, being a percentage of the dues payable," the bench said.

The court held the resolution plan stood vitiated. 

"However, neither NCLT nor NCLAT addressed itself on these aspects which render their orders vulnerable and amenable to judicial review," it said.

The court also noted the resolution plan did not specifically place the appellant in the category of a secured creditor even though, by virtue of Section 13-A of the UP Industrial Area Development Act, 1976, in respect of the amount payable to it, a charge was created on the assets of the corporate debtor. 

"As per Regulation 37 of the CIRP Regulations 2016, a resolution plan must provide for the measures, as may be necessary, for insolvency resolution of the CD for maximisation of value of its assets, including, but not limited to, satisfaction or modification of any security interest," the bench said.

"Further, as per Explanation 1, distribution under clause (b) of sub-section (2) of Section 30 must be fair and equitable to each class of creditors. Non placement of the appellant in the class of secured creditors did affect its interest. However, neither NCLT nor NCLAT noticed this anomaly in the plan, which vitiates their order," the bench added.

Under Regulation 38 (3) of the CIRP Regulations, 2016, a resolution plan must, inter alia, demonstrate that it is feasible and viable; and it has provisions for approvals required and the time-line for it, the bench said. 

In the instant case, the plan conceived utilisation of land owned by the appellant. 

"Ordinarily, feasibility and viability of a plan are economic decisions best left to the commercial wisdom of the COC. However, where the plan envisages use of land not owned by the CD but by a third party, such as the appellant, which is a statutory body, bound by its own rules and regulations having statutory flavour, there has to be a closer examination of the plan’s feasibility," the bench said.

The court pointed out on the part of the corporate debtor, there were defaults in payment of instalments which, allegedly, resulted in raising of demand and issuance of pre-cancellation notice. 

"In these circumstances, whether the resolution plan envisaged necessary approvals of the statutory authority is an important aspect on which feasibility of the plan depends. Unfortunately, the order of approval does not envisage such approvals. But neither NCLT nor NCLAT dealt with those aspects," the bench said.

In the case, the bench concluded neither NCLT nor NCLAT took note of the fact that the appellant had not been served notice of the meeting of the COC; and the entire proceedings up to the stage of approval of the resolution plan were ex parte to the appellant.

"The appellant had submitted its claim, and was a secured creditor by operation of law, yet the resolution plan projected the appellant as one who did not submit its claim; and the resolution plan did not meet all the parameters laid down in sub-section (2) of Section 30 of the IBC read with Regulations 37 and 38 of the CIRP Regulations, 2016," the bench said.

The court ordered for sending back the resolution plan to the COC for re-submission.