Suppression of Allottee Data Amounts to Fraud—Recall under Rule 11 to Prevent Miscarriage of Justice Upheld
- REEDLAW
- 9 minutes ago
- 3 min read
NCLAT held that suppression of allottee data by the Corporate Debtor amounted to fraud, and upheld the recall of the dismissal order under Rule 11 of the NCLT Rules to prevent miscarriage of justice.
The National Company Law Appellate Tribunal (NCLAT), Principal Bench, comprising Justice Ashok Bhushan (Chairperson) and Technical Members Mr. Barun Mitra and Mr. Arun Baroka, held that an order obtained through misrepresentation and suppression of material facts—particularly concerning the number of units in a real estate project relevant to the threshold under the second proviso to Section 7(1) of the IBC—can be validly recalled by the Adjudicating Authority under its inherent powers. The Tribunal clarified that such recall is permissible even where the original order was not expressly for non-prosecution but was passed in the absence of the opposing counsel due to a bona fide medical emergency. It further affirmed that inherent powers under Rule 11 of the NCLT Rules can be invoked to prevent abuse of process and to remedy injustice arising from fraud.
In a recent judgment, the National Company Law Appellate Tribunal (NCLAT) upheld the decision of the Adjudicating Authority recalling its earlier dismissal order in a petition filed under Section 7 of the Insolvency and Bankruptcy Code, 2016 (IBC). The appeal was filed under Section 61 of the IBC by the Corporate Debtor, challenging the order dated 18.11.2024, whereby the National Company Law Tribunal (NCLT), Mumbai Bench, had recalled its earlier order dated 04.06.2024 dismissing the company petition on the ground of non-compliance with the amended threshold under the second proviso to Section 7(1) of the IBC. The background of the case involved a petition filed by the Respondent-homebuyers on 30.11.2019, alleging failure to deliver possession under agreements concerning units in the Marvel Isola J Building Project. The Appellant contended that the petition was not maintainable due to non-fulfilment of the threshold criteria introduced in 2020, as the project allegedly consisted of 282 units and the applicants did not constitute 10% of the total allottees.
The Company Petition was dismissed on 04.06.2024 after the Respondents’ counsel failed to appear on two consecutive hearing dates. Seeking recall of this dismissal, the Respondents moved an application under Rule 11 of the NCLT Rules, 2016, citing a medical emergency faced by the counsel's spouse and asserting misrepresentation by the Corporate Debtor regarding the total number of units in the project. They argued that the actual number of units was only 44, with 25 units booked, and the 12 applicants formed more than 10% of the total allottees, thus meeting the eligibility threshold. The Adjudicating Authority allowed the recall application, noting that the earlier dismissal was not on merits and had been influenced by misleading submissions by the Appellant.
Challenging the recall, the Appellant argued that the NCLT had undertaken an impermissible review of a final order, which was passed after hearing and on merits, and that inherent powers under Rule 11 or Section 151 of the CPC could not be invoked to unsettle settled issues. However, the NCLAT found that the order dated 04.06.2024 had been passed solely on the basis of submissions made by the Corporate Debtor’s counsel, who misrepresented material facts regarding the project. The Tribunal held that such misrepresentation deflected the judicial process and constituted sufficient ground for invoking inherent powers to recall the order.
The NCLAT observed that the Adjudicating Authority rightly exercised its discretion to prevent abuse of the process and miscarriage of justice. The recall was not a review of a final order on merits but a corrective measure against an order passed due to fraud and suppression of facts. It further noted that the non-appearance of the Respondents’ counsel was bona fide and supported by medical documentation. Convinced by the rationale provided by the Adjudicating Authority, the Appellate Tribunal affirmed the restoration of the Company Petition No. 4320 of 2019 and the connected interlocutory applications for adjudication on merits, and accordingly dismissed the appeal without costs.
Mr. Abhijeet Sinha, Sr. Advocate with Mr. Dhyal Deshpandy and Mr. Amit Arsiwala, Advocates, represented the Appellant.
Mr. Chaitanya Nikte and Mr. Anuj Tiwari, Advocates, appeared for the Respondents.
Subscribers can access the Case, including Case Analysis, Ratio Decidendi, Headnotes, Briefs, Case Research, Cited Case Laws, Case Law Cross-references, and the latest updates on Statutes, Notifications, Circulars, Guidelines, Press Releases and more.
Click on the following Citation/Link to access these resources:
Comments