D. Srinivasa Rao vs Stressed Assets Stabilisation Fund

This Comp. App (AT) (CH) (INS) No. 80 / 2024 puts a challenge to the Impugned Order dated 10.01.2024, as it was passed by the Learned Adjudicating Authority in RST-A(IBC) No. 21 / 2023, by the NCLT, Hyderabad - II, in seeking Recall of Order passed on IA No. 58 / 2023, as it was preferred in CP(IB) No. 314 / 95 / HDB / 2022.

The Appellant while putting the challenge to the Impugned Order, pleads that he happens to be the Personal Guarantor of M/s. Priyaranjani Fibres Limited (the `Corporate Debtor’). He submits that the Corporate Debtor had taken a Loan of Rs.936.16 Lakhs from IDBI and at the stage of advancement of the Loan, a Guarantee Agreement dated 15.09.1994, was admittedly executed by the then three Directors, out of which, the Appellant contends that he happens to be the only surviving Director, as of now.

The Corporate Debtor had committed a Default as on 01.04.1997 and as a consequence thereto, the Financial Creditor had invoked the Bank Guarantee as recorded in the Orders which was passed by the Learned Adjudicating Authority, while deciding the IA No. 58 / 2023, preferred in the aforesaid CP(IB) No. 314 / 95 / HDB / 2022. There had been other parallel proceedings too. One was carried under Section 15 of Sick Industrial Companies Act, 1985. Subsequently, IDBI initiated proceedings against the Appellant under SARFAESI Act, Demand Notice was issued under Section 13(2) of the said Act in 29.08.2006 and the said proceedings before the Debt Recovery Tribunal, by way of OA No. 373 / 2007, culminated in issue of the consequential Recovery Certificate which was issued on 19.11.2009 and accordingly, the proceedings have attained finality.

In the instant case, a Petition bearing No. CP(IB) No. 314 / 95 / HDB / 2022, was filed by M/s. Stressed Assets Stabilization Fund (Respondent / Financial Creditor), as it was preferred under Section 95 of the I & B Code, 2016, before the NCLT, Hyderabad on 21.09.2022. The Appellant sought to oppose the same by filing an Application i.e. IA No. 58 / 2023, BEFORE THE Adjudicating Authority. The same IA No. 58 / 2023 was dismissed by the Adjudicating Authority vide its Order dated 14.09.2023. Against this Order, on 30.10.2023, the Appellant preferred a Restoration Application vide IA/RST-A(IBC) No. 21 / 2023, seeking Recall of the Order, passed on IA No. 58 / 2023, i.e. seeking Recall of the Order dated 14.09.2023. The Petition was dismissed by NCLT, Hyderabad on 10.01.2024, with a cost of Rs. 1 Lakh.

Primarily, the ground which has been taken by the present Appellant in the Application seeking Recall of the Order dated 14.09.2023, dismissing his IA No. 58 / 2023, was on the ground, that the O.T.S. (One Time Settlement) Offer to Financial Creditor has not been given by him, that unauthorised persons Viz. K. Sivananda Reddy’s Group had illegally occupied the Corporate Debtor and had allegedly issued certain O.T.S. Offers during the period from 2006 to 2010 and had also made certain payments to the IDBI and that the same will not bind the Corporate Debtor, by virtue of the restraint order, passed against K. Sivananda Reddy’s Group by the Company Law Board in the proceedings of CP No. 87 / 2007 dated 16.07.2008, which has attained its finality, by an adjudication made by the Hon’ble High Court vide its Judgment dated 28.01.2009. However, the Financial Creditor had made a misrepresentation of the fact, amounting to fraud by filing letters i.e. Mr. K. Sivananda Reddy, even though he was a non-Debtor and non-Guarantor, before the Adjudicating Authority, by portraying as if, those Letters are acknowledgement of the debt by Appellant emanating from his status as Personal Guarantor.

In the Application thus preferred, seeking Recall of the Order dated 14.09.2023, and further as argued by the Appellant-in-Person, he has stated that he has addressed Conditional OTS Offer Letters to the Financial Creditor, during the period from 2012 to 2022 and paid a sum of Rs.95 Lakhs towards Upfront Fees, with the mutually accepted condition that the said Amount is to be kept in no-lien Account until the Offer was finally accepted.

He submits that the said letters did not evoke any response and were consequently rejected by the Financial Creditor purely on a premise that the payments were made by the Shareholders not from the Corporate Debtor Company. The said letters never constituted any `promise’ or `unconditional promise’, as stipulated, under Section 2 (b) of The Indian Contract Act, 1872, which could at all be read as to be binding for the purposes of payment of Debt.

He submits that all those letters of his pertaining to O.T.S. Settlement which stood rejected by the Financial Creditor were very much after the period of Limitation prescribed under Law, given the `date of Default’, was that of 01.04.1997.

He submits that controversy herein, will not attract Section 18 of Limitation Act, 1963 nor Section 25 (3) to be read with Section 2 (b) of the Contract Act, and it is on this procedural premise that he has filed the Recall Application on 30.10.2023, and he had contended that, since the entire proceedings are based upon misrepresentation and were the dealings of fraud, the same would be vitiated, right from its inception and consequently in view of the grounds on which he has raised in his Recall Application. The Appellant-in-Person further submits that when the proceedings are based upon misrepresentation of facts and suppression of material document, including that of non-disclosure of the relevant fact and documents to the Court, which may have a material bearing, the proceedings would be vitiated on account of misrepresentation and fraud and consequently based upon the foundation, he has filed an Application for Recall on 30.10.2023. It was this Application which had came up for consideration before the Learned Adjudicating Authority and the same was dismissed by the Impugned Order dated 10.01.2024.

The Appellant-in-Person submits that the fraud, would vitiate the proceedings right from inception, irrespective of the stage at which it is determined and as such, his Recall Application which was preferred allegedly invoking the provisions contained under Rule 11 to be read with Rule 154, was required to be considered by the Tribunal in his favour by Recalling the Order dated 14.09.2023, in which his Application in IA No. 58 / 2023 was rejected. Ultimately the issue which emerges for consideration is, as to how a Restoration Application, as against the final adjudication made in the principal proceedings under Section 95, by an Order of 09.01.2023, which ultimately stood culminated with the rejection of the IA No. 58 / 2023 by an Order of 14.09.2023, can be permitted to be re-opened and permitted to be argued afresh by the Appellant on the premise that the Orders are based upon misrepresentation and fraud and hence the argument that at any stage of the proceedings when the fraud or misrepresentation is detected or when the Order is shown to be based upon a suppression of material fact or a document, the same could be recalled.

This Tribunal is of the view as regards the Power of Recall and Power of Review, they operate in two different fields and has different facets altogether, dealing with two different legal procedural situations. The Power of Recall, if at all, could be made in the proceedings under the I & B Code, 2016, under Powers conferred within the ambit of Rule 11, which has to be read as to be a provision akin to that of Section 151 of the Code of Civil Procedure, for exercising of inherent power, when the principal code is silent over a procedural field.

It is clarified at this stage that Rule 11 of the NCLT Rules, where it provides for an exercise of inherent powers to undo an injustice, could only be attracted to be applied when the Code itself is silent on the field or where there is a procedural vacuum persistent in the procedural Law.

Rule 11 cannot be permitted to be invoked at all given set of circumstances by agitating a new question of fact which was alien to earlier proceedings by filing a Recall Application, which was otherwise available to the Appellant to be argued at the stage when the proceedings under Section 95 itself was being decided or even at the stage when his IA No. 58 / 2023 was being considered on merits and was ultimately dismissed on 14.09.2023.

The Recall Application cannot be given and camouflaged to be given a colour of a review to re-agitate the issue de-novo by overcoming the slackness or an act of lack of diligence on the part of the Appellant for having not agitated the questions which were available to him to be argued at the stage when the matter was argued finally.

The Power of Review is a creation of a Statute. It is not in debate that under the provisions of the Companies Act or under the I & B Code, the Statute with its clear intention has not vested the Authorities / Tribunals, created under the Act and I & B Code, the Power to Review its own Judgment and in that eventuality, when this power has not been specifically vested under the Law, the same cannot be vested or imposed or self-derived by virtue of filing of an Application for Recall and that too, by expanding the horizon of argument much beyond than what was actually agitated and argued before the principal proceedings, before the Adjudicating Authority.

It has been argued by the Learned Counsel for the Respondent, that in fact, the Restoration Application, as well as, IA No. 58 / 2023, would itself be bad in the eye of Law for the reasons being that the proceedings under Section 7, which stood finally culminated has been put to challenge by the Appellant by filing the Comp. App (AT) (CH) (INS) No. 159 / 2023 D. Srinivasa Rao V. Stressed Assets Stabilization Fund and the said Company Appeal, has been decided on merits and has attained finality by the adjudication made by this Tribunal by the Judgment as rendered on 18.01.2024.

It is not in debate, that the proceedings under Section 7 of I & B Code, 2016, on an Application filed by the Respondent (Financial Creditor) has been laid to rest by the said Judgment. It has been further affirmed by the Hon’ble Apex Court in a Judgment rendered in Civil Appeal No. 7831 of 2023 D. Srinivasa Rao V. Stressed Assets Stabilization Fund, whereby the Judgment passed by this Tribunal has been affirmed and the Appeal, as preferred by the Appellant has been dismissed by the Hon’ble Apex Court.

It has been argued by the Appellant (Party-in-Person) that the confirmation of the proceedings under the Section 7 of I & B Code, 2016, up to the stage of the Hon’ble Apex Court, will not create any impediment as such, against him to sustain this Application for Restoration and that it cannot act as a restraint in the instant Company Appeal for the reason being that, as against the Judgement of the Hon’ble Apex Court dated 05.02.2024, he contends that he has filed a Review Petition and the same is still pending consideration, before the Hon’ble Apex Court.

We are of the view that once the Judgment of the Hon’ble Apex Court dated 05.02.2024 affirming the initiation of the CIRP proceedings by confirming the Order passed under Section 7 of I & B Code, 2016, by this Tribunal, has attained finality, mere pendency of a Review Petition before Hon’ble Apex Court will not be taken as to be a proceedings in continuance to the Judgment of 05.02.2024 of the Hon’ble Apex Court, affirming the Order passed by this Tribunal on 18.01.2024. Hence, pendency of a Review will not come to his rescue, as we are of the opinion that it is not a proceedings independent to itself.

Apart from it, it will be worthwhile to note that the Full Bench of the Hon’ble Allahabad High Court, had an occasion to deal with the issue as to what will be the scope of review, in the Full Bench Judgment as reported in 1997 (31) ALR 680 in the matter of Smt. Shivraji and Ors. V. Deputy Director of Consolidation, wherein the Full Bench of the Hon’ble Allahabad High Court has observed that once the Statute is silent and has not provided with any specific Power of Review, the Court cannot self-ordain to exercise its Power of Review under the garb of filing of a Review Application or a Recall Application, and hence, the matter could not be permitted to be argued de-novo. This is what has been answered by the Tribunal while interpreting the implications of Rule 11, as well as Rule 154 in the context of the proceedings, held under the I & B Code, 2016, as to under what parameters and the restrictions the powers vested under Rule 11 (inherent powers) and the powers vested under Rule 154 (which is confined and limited to the rectification of errors), will fall to be within the ambit of Section 152 of the C.P.C., and in which exceptional circumstances it could be exercised by the Tribunal.

The Adjudicating Authority, while dealing with the rival contentions and the authorities relied by the respective Parties have answered the arguments extended by the Appellant, against him and by observing so, the Learned Adjudicating Authority has dealt with the arguments extended by the Appellant as to what would be the distinction to interpret the so-called theory of Fraud and Misrepresentation, as it was argued before the Tribunal, while pressing the Recall Application.

The Hon’ble Apex Court has dealt with these aspects pertaining to the Misrepresentation, Suppression of Material Fact and Fraud in various Judgments as referred to in the Impugned Order and we are of the view that we are not required to dwell with the Judgments by way of repetition, which has already been referred to and determined by the Learned Adjudicating Authority while rejecting the Recall Application.

Looking for the tenacity of argument and particularly the grounds which has been raised by the Appellant (Party-in-Person) in the Recall Application, the so-called elements of Fraud or Misrepresentation were the elements already available to the Appellant to be argued at the stage when the principal proceedings under Section 95 was being decided and later on, at least at the stage when IA No. 58 / 2023 was being decided on 14.09.2023. These grounds cannot be pressed now to sustain a Recall Application filed in a shape of Review which is impermissible under Law.

As having held so, that there is no inherent Power of Review vested with the Learned Adjudicating Authority, under the I & B Code, 2016, the Application RST-A(IBC) No. 21 / 2023, as preferred by the Appellant cannot be used as a tool to initiate a Review under the garb of a Restoration, because the Restoration or a Recall Application which has been preferred by the Appellant, was the subject matter of consideration emanating from the Impugned Order of 10.01.2024, which is much in contradiction to the Power of Review vested with the Statutory Courts / Tribunals created under the Law.

The Restoration by recalling the Order dated 14.09.2023 could have been possible, only when there was any inherent power to correct an inherent apparent error at Law, committed by the Adjudicating Authority, while rejecting the IA No. 58 / 2023 by the Order of 14.09.2023.

The Appellant-in-person in order to substantiate his argument as referred to the pleading being raised in para 27 of the Recall Application, has referred to the Judgment relied by him, as rendered by the Hon’ble Apex Court in Civil Appeal No. 2085 / 2022 in Axis Bank Limited Vs. Naren Sheth & Anr.

The Hon’ble Apex Court in the said Judgment, had at that stage was exercising its powers under Section 62 of the I & B Code, 2016, as against the Judgment of the Appellate Tribunal dated 04.01.2022, as rendered in the Insolvency Proceedings, whereby the Adjudicating Authority, had admitted the Application preferred under Section 7 of the I & B Code, 2016, after condoning the delay.

The question therein, which was the subject matter before the Hon’ble Apex Court is not to be read from the perspective, as it has been argued by the Appellant in Person, as to whether the Judgment of the Hon’ble Apex Court could at all be read in support of the argument extended by the Appellant-in-Person, with regards to the maintainability of his Application preferred under Rule 11 to be read with Rule 154 of the Rules as framed under the Code.

The complexion given to the Judgment of the Hon’ble Apex Court by the Appellant-in-Person, may not be a matter to be considered at a stage when this Tribunal is confined to consider the propriety of the Impugned Order of 10.01.2024, whereby this Restoration Application itself has been dismissed on merits, since in fact it was not falling within the scope of an inherent review of an Order passed on an Interlocutory Application.

We are of the view that since the Application itself was in the shape of a Review which is not permissible under the Statute, and since the same was not maintainable, it has been rightly rejected by the Learned Adjudicating Authority by the Impugned Order under challenge, and it does not call for an interference while exercising our Appellate jurisdiction under Section 61 of the I & B Code, 2016. Accordingly, the Comp. App (AT) (CH) (INS) No. 80 / 2024 stands dismissed.