Mr. H. Kishen Vs. Feno Plast Limited & Anr. - 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".

NCLT Hyderabad (15.11.2022) in Mr. H. Kishen  Vs. Feno Plast Limited & Anr. [ IA 1248 of 2022 in CP(IB) No. 10/7/HDB/2022 ]  held that;

• 'The principle that a person who does not come to the Court with clean hands is not entitled to be heard on the merits of his grievance and, in any case, such person is not entitled to any relief is applicable not only to the petitions filed under Articles 32, 226 and 136 of the Constitution but also to the cases instituted in others courts and judicial forums”

• Therefore, we have no doubt that the remedy to move for recalling the order on the basis of the newly discovered facts amounting to fraud of high degree, cannot be foreclosed in such a situation. 

• "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".

 

Excerpts of the order;

I.  The instant Interlocutory Application is filed on behalf of the Suspended  Managing Director of the Corporate Debtor / M/s. Feno Plast Limited  under Section 60(5) of IBC, 2016 r/w Rule 11 of NCLT Rules, 2016  praying the Adjudicating Authority - 

• "To recall the Order dated 19.10.2022 passed in CP(IB)  No.10/7/HDB/2022 by this Hon'ble Tribunal admitting the same and  initiating Corporate Insolvency Resolution Process against the  Corporate Debtor, M/s. Feno Plast Limited". 

 

 IV. Learned Counsels for both sides filed the Written Submissions. 

 

V. In the light of the contest as above, the point that emerges for consideration by this Adjudicating Authority is  

• Whether the Adjudicating Authority has jurisdiction to recall its order directing initiation of CIRP against the Corporate Debtor? 

• If so whether the Order dated 19.10.2022 in CP No.10/7/HDB/2022 warrant recall? 

 

VI. We have heard the Learned Counsels for both sides, perused the record  and the Case Law. 

 

VII. The facts of this case require us to quote the following finding of Hon'ble Supreme Court of India, in re, Ramjas Foundation & Ors. Vs. Union of India & Ors, 

• 'The principle that a person who does not come to the Court with clean hands is not entitled to be heard on the merits of his grievance and, in any case, such person is not entitled to any relief is applicable not only to the petitions filed under Articles 32, 226 and 136 of the Constitution but also to the cases instituted in others courts and judicial forums” (Emphasis is ours) 

 

VIII. Alleging that the deliberate suppression of the material communication dated 24.08.2022 by the Financial Creditor despite being full aware of the same, lead to the passing of the impugned order whereby Corporate Insolvency Resolution Process, for short, 'CIRP", has been ordered against the Corporate Debtor, the Applicant who is the ex-director of the Corporate Debtor has filed the present application seeking to recall the said Order. 

 

IX. Admittedly, the Corporate Debtor has been sanctioned OTS, vide letter  dated 12.07.2022 whereby the Financial Creditor agreed to receive a sum  of Rs.6.84 crores from the Corporate Debtor towards the dues payable to the 2nd Respondent / Financial Creditor. It is stated after adjusting the  upfront payment of Rs.0.40 crores and the balance of Rs.4.66 crores to be  paid as follows: 

• ➤ Rs.6.84 crores (our share is Rs.5.06 crores) - As an amount of Rs.0.40 crores is adjusted towards OTS upfront amount, the balance payable by the Company is Rs.4.66 crores to be paid on or before 31.07.2022. 

• ➤ Rs.28.00 crores (our share is Rs.20.71 crores) to be paid on or  before 31.07.2022. 

• ➤ Rs.20.27 crores (our share is Rs.15.00 crores) to be paid on or  before 31.10.2022. 

• ➤ Balance OTS amount of Rs.13.29 crores (our share is Rs.9.83 crores) to be paid on or before 31.12.2022. 

On receipt of offer amount of Rs.34.84 crores (Rs.6.84 crores and  Rs.28.00 crores) to the Consortium, permitted to release the Unit I  (as mentioned in Sl.No.1) and handover the physical possession of remaining Unit II and Unit III (as mentioned under Sl.No.2 and  SI.No.3) to the Company. 

 

X. As the Corporate Debtor failed to comply the terms relating to the payment to be made by 31.07.2022, the 2nd Respondent/Financial Creditor had in terms of the Sanction Letter dated 12.07.2022 cancelled  the said OTS, vide communication dated 03.08.2022. 

 

XI. However, the Corporate Debtor approached the Authorities of the  Financial Creditor seeking for revival of the said OTS by accepting to pay interest for the delayed period amounting to approximately Rs.25,38,100/-  up to 30.08.2022. The said request of the Corporate Debtor dated  23.08.2022 has been accepted by the Authorities of the Financial Creditor,  vide communication dated 24.08.2022, which inter alia, states as follows: 

• 1. Upon receipt of Rs.32.91 crores into our no lien account  (209272434), IFSCO Code: CNRB0004929 the auction will be  stalled. 

• 2. OTS sanction communication dated 12.07.2022 will be activated as  per the earlier terms and the bids EMI paid will be refunded to the  bidders. 

• 3. Bank will release the charge on Unit-I land to the extent of 10,046   sq. yds. And give no objection to 8,898 sq. yds. also (18,944 sq. yds.) 

• 4. Bank shall release the charge on the entire extent of 18,944 sq. yds and the extent of land at Unit-I, 21 & 21/A, IDA, Phase-1, Patan  Cheruvu would be registered in the name of buyer by the bank. 

 

XII. Pursuant thereto, the Corporate Debtor sought for the details of the 'No Lien Account' enabling him to transfer the amount and accordingly transferred the sum of Rs.32.91 crores representing the interest for the delayed payment as well as the first tranche payment. The receipt of the  same has been duly acknowledged by the Financial Creditor, vide email  letters dated 29.08.2022 and 01.09.2022 which are as follows: 

Email Letter dated 29.08.2022 - 

"We are in receipt payment of Rs. 32.91 crores in no lien account on 26.08.2022, we will release our charge to the extent of our mortgage i.e. 10046 sq. yds. in Unit No. 1 (total comprising of total 18944 sq. yds) after adjusting the amount”. 

Email Letter dated 01.09.2022 

"In terms of our OTS sanction, on receipt of part amount of Rs.34.84 crores (Rs.6.84 crores + Rs.28.00 crores) to the Consortium. We have permitted to release Unit 1 property and to handover the physical possession of Unit 2 and Unit 3 properties to the borrower subject to obtention of NOC from your Bank (SBI) for release of the Unit-1 property and NOC for handing over of possession of the properties of Unit 2 & 3. 

We have received the part amount of Rs.34.84 crores as per terms of our sanction and we are in receipt of your NOC dated 30.08.2022 for release of unit 1 property. You are requested to provide NOC for handing over of physical possession of Unit 2 & Unit 3 subject to not to release of the charge on the said properties (Unit 2 & 3)". 

 

XIII.. Thus, by 24.08.2022 the OTS dated 12.07.2022 which was cancelled on 03/08/2022 has been revived, part amount of Rs.34.84 crores as per terms of sanction has been received by 01/09/2022 and the financial creditor in terms of the OTS has initiated steps for release of Unit 1 property, while the second tranche payment was due by 30.10.2022 and the last payment by 31.12.2022. 

 

XIV. While things stood thus, the above matter came up for hearing on 14/09/2022, after it was reopened due to change in the constitution of  Bench. Surprisingly, neither parties have disclosed the above material  facts before this Tribunal. On the other hand, the Financial Creditor  maintained (even in the counter filed in the present application) that due  to the default committed in complying the terms of the OTS by the Corporate Debtor, the OTS dated 12/07/2022 stood cancelled by  03/08/2022. Therefore, in the wake of the said submission of the Ld.  Counsel for the Financial Creditor that the OTS dated 12/07/2022 has 

failed, this Adjudicating Authority on 19.10.2022 after having held that  'the Adjudicating Authority is satisfied that the Financial Creditor has established the debt and also the default in repayment of the said debt' and admitted the Company Petition, thus, triggered initiation of Corporate  Insolvency Resolution Process against the Corporate Debtor.. 

 

XV. The prayer of the Applicant/Suspended Managing Director of Corporate Debtor, in this application is resisted by the 2nd respondent/Financial Creditor contending that, the Adjudicating Authority has no jurisdiction to recall the order dated 19/10/2022 and nextly, that as the OTS dated 12/07/2022 since cancelled by 03/08/2022, the default in repayment of the admitted debt as on 19/10/2022 was apparent, the order admitting the company petition is in accordance with law. Both these pleas were resisted by the Applicant contending that the Adjudicating Authority has the Jurisdiction to recall its order by relying on the rulings of the Hon'ble NCLAT, in re, Apex Court in United India Insurance Co. Ltd. vs. Rajendra Singh where the Apex Court held that: 

• Therefore, we have no doubt that the remedy to move for recalling the order on the basis of the newly discovered facts amounting to fraud of high degree, cannot be foreclosed in such a situation. 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". (Emphasis is ours) 

 

XVI. The plea of jurisdiction in so far as the case on hand is concerned needs to be considered not only on the basis of ruling in re, United India Insurance Co. Ltd. supra, but also from the facts that lead to the passing of the impugned order of admission of the company petition by this Adjudicating Authority.. 

 

XVII. .Ld. Counsel for the Applicant strenuously contended that, since the indisputable communication dated 24/08/2022 allows time to the Applicant to pay the 2nd tranche amount till 30/10/2022, taking a firm stand before this Adjudicating Authority that the OTS dated 12/07/2022 has been cancelled and that the Corporate Debtor defaulted in discharging the debt and pressing for triggering CIRP against the Corporate Debtor well before 30/11/2022 is nothing but a deliberate misrepresentation of facts and playing 'fraud' as such, on the grounds of misrepresentation and fraud on the part of the Financial Creditor the impugned order is liable to be set aside. Nextly, Ld. Counsel contended that, had the Financial Creditor/2nd Respondent placed the above material before this Adjudicating Authority by 19.10.2022, this Tribunal would not have admitted the Company Petition, as existence of default at the time of admission of a petition filed under Section 7 of IB Code being the sine qua non, for triggering CIRP against the Corporate Debtor is totally absent in the case on hand. 

 

XVIII..Per contra, the Learned Counsel for the 2nd Respondent/Financial Creditor argued that as the OTS has been cancelled by 12/07/2022 due to default on the part of the Corporate Debtor in complying the terms of OTS, default by 19/10/2020 in repayment of the admitted debt is apparent, hence the order dated 19/10/2022 admitting the company petition is perfectively valid both under law and on facts. 

 

XIX..A bare perusal of the communication dated 24.08.2022 filed by the applicant along with this application in unambiguous terms reveals that, the OTS dated 12.07.2022 which was cancelled on 03/08/2022, has been revived subject to the following terms: 

• 1. Upon receipt of Rs.32.91 crores into our no lien account (209272434),  IFSC Code: CNRB0004929 the auction will be stalled. 

• 2. OTS sanction communication dated 12.07.2022 will be activated as per the earlier terms and the bids EMI paid will be refunded to the bidders. 

• 3. Bank will release the charge on Unit-I land to the extent of 10,046 sq. yds. and give no objection to 8898 sq. yds also (18,944 sq. yds.) 

• 4. Bank shall release the charge on the entire extent of 18,944 sq. yds and the extent of land at Unit-I, 21 & 21/A, IDA, Phase-1, Patan Cheruvu would be registered in the name of buyer by the bank. 

 

XX. The Email Letter dated 29.08.2022 from the Financial Creditor which is as follows confirms compliance of the part of the terms of the letter dated 24/08/2022, supra, 

• “"We are in receipt payment of Rs.32.91 crores in no lien account on 26.08.2022, we will release our charge to the extent of our mortgage i.e. 10046 sq. yds. in Unit No.1 (total comprising of total 18944 sq. yds) after adjusting the amount”. 

 

XXI.. The next Email Letter dated 01.09.2022 from the Financial Creditor which  is as below, confirms that the OTS has been revied; 

• "In terms of our OTS sanction, on receipt of part amount of Rs.34.84 crores (Rs.6.84 crores + Rs.28.00 crores) to the Consortium. We have permitted to release Unit 1 property and to handover the physical possession of Unit 2 and Unit 3 properties to the borrower subject to obtention of NOC from your Bank (SBI) for release of the Unit-1 property and NOC for handing over of possession of the properties of Unit 2 & 3. 

• We have received the part amount of Rs.34.84 crores as per terms of our sanction and we are in receipt of your NOC dated 30.08.2022 for release of unit 1 property. You are requested to provide NOC for handing over of physical possession of Unit 2 & Unit 3 subject to not to release of the charge on the said 

 

XXII. .Undoubtedly, the Financial Creditor failed in bringing the above facts to the notice of this Tribunal, when the impugned order was passed. No doubt even the Corporate Debtor also withheld the above material  information from being placed before us, but unlike the Financial Creditor  the Corporate Debtor did not gain by concealing the said material information, in fact the said suppression has resulted in passing an adverse order of initiation of CIRP against the Corporate Debtor. Therefore, in so far as the Corporate Debtor is concerned, it is a case of "fault" on the part of the Ld. Counsel for the Corporate Debtor in not placing the said material before this Adjudicating Authority by 19.10.2022. 

 

XXIII..It is trite to say that for the fault of an Advocate party should not suffer. Reliance in this regard can be placed on the ruling of Hon'ble Supreme Court of India, in re, Rafiq & Anr. vs Munshilal & Anr 1981. 

• "It is not proper that an innocent litigant, after doing everything in his power to effectively participate in his proceedings by entrusting his case to the Advocate, should be made to suffer for the inaction, deliberate omission or misdemeanour of his agent. For whatever reason the Advocate might have absented himself from the Court, the innocent litigant could not be allowed to suffer injustice for the fault of his Advocate. (Emphasis is ours). 

 

XXIV. In our considered opinion the Financial Creditor's approach is unclean.  Hon'ble Supreme Court of India, in re, Ramjas Foundation & Ors.  supra, wherein it was held that; 

• 'The principle that a person who does not come to the Court with clean hands is not entitled to be heard on the merits of his grievance and, in any case, such person is not entitled to any relief is applicable not only to the petitions filed under Articles 32, 226 and 136 of the Constitution but also to the cases instituted in others courts and judicial forums" (Emphasis is ours). 

 

XXV. Therefore, in the light of our discussion as above, it is as clear as crystal  that the finding in the Order dated 19/10/2022 as to the existence of  default on the part of the Corporate Debtor, was arrived at without  regard to the material factors that existed as on 19/10/2022, namely, the  revival of the OTS dated 12.07.2022 which was cancelled on 03/08/2022,  receipt of part amount of Rs.34.84 crores as per terms of sanction of OTS  by 01/09/2022, 30.10.2022 being the due date for second tranche  payment, initiation of steps in terms of the OTS by the Financial  Creditor for release of Unit 1 property. Needless to say, that the above  factors which were suppressed have a tremendous influence on the finding regarding the plea of default. 

 

XXVI.. Here, it is pertinent to refer to the ruling in re, Vidarbha, supra, Hon'ble Supreme Court categorically held that, 

• "Ordinarily, the Adjudicating Authority (NCLT) would have to exercise its discretion to admit an application under Section 7 of the IBC and initiate CIRP on satisfaction of the existence of a financial debt and default on the part of the Corporate Debtor in payment of the debt, unless there are good reasons not to admit the petition. The Adjudicating Authority (NCLT) has to consider the grounds made out by the Corporate Debtor against admission, on its own merits". (Emphasis is ours). 

 

XXVII.. There can be no doubt that the plea of the Corporate Debtor that the debt  was not due and payable by the date of admission of the Petition under Section 7 of IB Code, is a good ground against admission and therefore,  if the same is established the petition under section 7 of IB Code has to be  rejected. In so far as the case on hand, had the Financial Creditor placed the above material information relating to OTS post 12/07/2022 before this Adjudicating Authority, we were duty bound to consider the same. While arriving at a finding on the plea of default. However, as the same has been withheld by the Financial Creditor this Adjudicating Authority had no opportunity to consider the same. As such, the finding in so far as the 'default' on the part of the Corporate Debtor arrived at vide order dated 19/11/2022, is in violation of the ruling in Vidharbha, supra, that 'The Adjudicating Authority (NCLT) has to consider the grounds made out by the Corporate Debtor against admission, on its own merits". 

 

XXVIII. Therefore, it is overwhelmingly clear that the submission of the Financial Creditor all through that the OTS dated 12/07/2022 has failed as such the default was apparent, was nothing but misrepresentation of fact before this Adjudicating Authority. When once it is found that the impugned order dated 19/10/2022 was the outcome of misrepresentation of facts, as held in re, United India Insurance Co. Ltd., supra, where it was held that, “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", this Adjudicating Authority, therefore has the jurisdiction to recall its order dated 19/10/2022. 

 

XXIX. Needless to say, that the object of the proceeding under Section 7 of Insolvency & Bankruptcy Code, for short 'IBC' is not 'recovery' but "resolution' of the Corporate Debtor. Therefore, to drag a Corporate Debtor into CIRP without there being an honest finding of default on the part of the Corporate Debtor by the date of admission of the petition under section 7 of IB Code, is nothing but an arm twisting. Therefore, on facts and under law it is imperative to recall the order dated 19.10.2022 and reopen the matter for the purpose of considering the post 24/08/2022 correspondence between the Financial Creditor and the Corporate Debtor relating to OTS dated 12.07.2022 and then arrive at a fresh finding on whether or not the corporate debtor has committed default in payment of the debt which is admittedly not in dispute. We therefore accordingly recall the order dated 19/10/2022 and direct that the matter be listed on 21/11/2022. 

Point is answered accordingly. 

 

XXX.. It may be stated that the Financial Creditor has not placed any information as regards to constitution of Committee of Creditors as on date, by the IRP. It is not even stated whether or not the IRP has taken the charge and acted upon. 

.

XXXI.  Therefore, in the light of our discussions as above, we hereby recall the Order dated 19.10.2022 in CP (IB) 10/7/HDB/2022 whereby CIRP has been triggered against the Corporate Debtor, consequently, the moratorium ordered against the Corporate Debtor stands revoked forthwith and the Corporate Debtor is at liberty to function through its directors as per law. Let the matter be listed on 21.11.2022 for considering the correspondence/record now placed relating to OTS dated 12.07.2022. .Accordingly, IA 1248 of 2022 in CP(IB) No.10/7/HDB/2022 is allowed.  However, without costs. 

 

XXXII. .In the result, IA 1248 of 2022 in CP(IB) No.10/7/HDB/2022 is allowed and stands disposed of. 

 

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