NCLAT: No Recall of CoC Inclusion Without Proven Fraud; Related Party Status Must Be Substantiated Under IBC
- REEDLAW
- Aug 8
- 3 min read
Updated: Aug 12
REEDLAW Legal News Network reports: In a pivotal ruling, the National Company Law Appellate Tribunal (NCLAT) clarified that a party cannot seek recall of a judicial order allowing inclusion in the Committee of Creditors (CoC) solely on the basis of public documents, such as annual reports, unless fraud or procedural irregularity is clearly proven. The Tribunal further held that merely mentioning a corporate debtor as a subsidiary of an associate company does not suffice to establish related party status under Section 5(24) of the Insolvency and Bankruptcy Code (IBC).
The National Company Law Appellate Tribunal (NCLAT), Principal Bench, comprising Justice Ashok Bhushan (Chairperson) and Technical Members Mr. Barun Mitra and Mr. Arun Baroka, while adjudicating a Company Appeal, held that a mere reference to a corporate debtor as a subsidiary of an associate company in an annual report is insufficient to establish related party status under Section 5(24) of the Insolvency and Bankruptcy Code, 2016. The Tribunal further observed that the recall of a judicial order cannot be sought solely on the basis of public documents already available on record, unless clear evidence of fraud or a procedural error is demonstrated.
The National Company Law Appellate Tribunal (NCLAT), Principal Bench, dismissed an appeal filed by the promoter of the Corporate Debtor, Sarga Udaipur Hotels & Resorts Private Limited, challenging the order of the Adjudicating Authority dated 20.12.2024. The promoter had sought recall of the earlier order dated 30.08.2023, wherein HUDCO was held not to be a related party and was permitted to be part of the Committee of Creditors (CoC). The Appellant alleged that HUDCO suppressed material facts and Annual Reports from the Adjudicating Authority, and thereby obtained the order fraudulently.
The Tribunal noted that HUDCO, holding 40% in a joint venture company SUIDL (which had 60% shareholding by Shristi Infrastructure Development Corporation), had appointed a Nominee Director in the Corporate Debtor. The Adjudicating Authority had earlier allowed HUDCO's inclusion in the CoC, rejecting the Resolution Professional’s contention that HUDCO was a related party under Section 5(24) of the IBC. The Appellant initially filed an appeal against this order but withdrew it, opting to file a recall application instead.
The Appellant relied on HUDCO’s 51st Annual Report, which referred to the Corporate Debtor as a subsidiary of an associate company and claimed that such disclosure was suppressed. However, the Tribunal found that the Annual Report was a matter of public record filed with the ROC and was even referred to and extracted by the Adjudicating Authority in the impugned order. The Tribunal clarified that the reference in the Annual Report did not signify that the Corporate Debtor was a related party of HUDCO directly.
Relying on its own precedent in Union Bank of India (Erstwhile Corporation Bank) v. Dinkar T. Venkatasubramanian and Others, REEDLAW 2023 NCLAT Del 05604, the Tribunal emphasized the narrow scope of the recall jurisdiction under Rule 11 of NCLAT Rules, clarifying that recall cannot be used to re-argue a matter already decided on merits unless procedural error or fraud is clearly established. It held that no case of suppression or fraud was made out, and all necessary documents were available and considered in the prior proceedings.
Concluding that the grounds raised were insufficient to warrant recall, the NCLAT upheld the Adjudicating Authority’s decision and dismissed the appeal.
Mr. Abhishek Anand, Ms. Sugandh Kocchar, Ms. Srishti Juneja, and Ms. Akshra Arshi, Advocates, represented the Appellant.
Mr. Ashok Kumar Jain, Advocate, appeared for the Respondents.
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