NCLT Partially Allows Canara Bank’s Plea in Carnival Techno Park Insolvency Case
• Tribunal Permits Forensic Audit but Rejects Recall of CIRP Admission
Unmesh Gujarathi
Sprouts News Exclusive
The National Company Law Tribunal (NCLT), Mumbai Bench, comprising Justice V.G. Bisht (Member Judicial) and Prabhat Kumar (Member Technical), has issued a significant ruling in the Corporate Insolvency Resolution Process (CIRP) of Carnival Techno Park Pvt. Ltd. (CTPPL). The tribunal has rejected Canara Bank’s plea to recall the admission of CTPPL into CIRP but has allowed a forensic audit to investigate the legitimacy of the claim made by Reliance Commercial Finance Ltd. (RCFL) and its classification as secured financial debt.
• Background of the Case
The matter arises from the CIRP initiated against CTPPL under the Insolvency and Bankruptcy Code, 2016 (IBC). The proceedings originated from a company petition filed by RCFL, which led to the admission of CTPPL into CIRP by the NCLT Mumbai Bench on February 13, 2024.
Canara Bank, a secured financial creditor, had a claim of Rs. 116.99 crore against the corporate debtor. The bank contested the CIRP proceedings, alleging collusion and fraudulent conduct between RCFL, the Resolution Professional (RP), and the Prospective Resolution Applicant.
• Canara Bank’s Allegations
Canara Bank argued that RCFL had inflated its claim to Rs. 294.30 crore from an original loan of Rs. 75 crore, thereby distorting the voting rights within the Committee of Creditors (CoC). The bank further contended that RCFL had already assigned its debt to another entity, Asian Business Connections Pvt. Ltd., implying that CTPPL was no longer a debtor to RCFL. To support its claim, Canara Bank submitted financial statements and credit facility reports from NeSL.
Additionally, the bank accused the RP of colluding with RCFL and other parties by admitting RCFL’s claim without verifying key documents such as financial statements and Registrar of Companies (ROC) records.
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• Response from RP and RCFL
The RP opposed Canara Bank’s application, arguing that it was barred by the principle of res judicata, as NCLT had previously dismissed an identical request for documents related to RCFL’s claim. The RP also pointed out that Canara Bank had actively participated in the CoC meetings and CIRP proceedings without initially challenging the admission order before the National Company Law Appellate Tribunal (NCLAT). The RP alleged that Canara Bank’s attempt to derail the CIRP arose only after realizing its minority voting share in the CoC.
RCFL countered Canara Bank’s claims, asserting that NCLT does not possess the power to recall an admission order under CIRP. Any challenge to such an order, RCFL argued, must be made before NCLAT through an appellate jurisdiction rather than a recall application before NCLT.
• NCLT‘s Analysis and Judgment
The tribunal examined Canara Bank’s primary grievance—that the CIRP admission was obtained fraudulently due to RCFL’s inflated claim. The court acknowledged that Canara Bank had produced financial statements indicating that RCFL’s debt might have been assigned elsewhere. However, the tribunal found that these documents did not conclusively establish that RCFL had no financial claim against CTPPL at the time of CIRP admission.
• Jurisdiction to Recall Admission Order
A key legal issue considered by the tribunal was whether NCLT had the authority to recall its own admission order. The tribunal referred to the Supreme Court’s ruling in Greater Noida v. Prabhjit Singh Soni (2024) 6 SCC 767, which held that a tribunal possesses the power to recall an order only in limited circumstances, such as:
• When the order was passed without jurisdiction.
When the aggrieved party was not served with a notice.
When the order was obtained through fraud or misrepresentation leading to a gross failure of justice.
Applying this principle, the tribunal ruled that:
The admission of CTPPL into CIRP was not without jurisdiction, as NCLT had the authority to pass the order under Section 7 of IBC.
No conclusive evidence of fraud or misrepresentation was presented to justify a recall of the order.
As a result, Canara Bank’s plea to recall the CIRP admission was rejected. However, the tribunal permitted a forensic audit of RCFL’s claim, instructing the RP to take necessary legal action if any fraudulent conduct was uncovered.
• In Short
The NCLT’s ruling highlights the limited scope of recall applications in CIRP matters while reinforcing the importance of forensic audits in cases involving allegations of inflated claims. Canara Bank’s plea for recall was dismissed, but the forensic investigation into RCFL’s claim may impact the ongoing resolution process of CTPPL.
•’Case Details
Case Title: Canara Bank v. Mr. Bhavesh Mansukhbhai Rathod, Interim Resolution Professional & Ors.
Case Number: C.P.(IB) No. 383/MB/2023
Tribunal: National Company Law Tribunal, Mumbai
Coram: Justice V.G. Bisht (Member Judicial) and Prabhat Kumar (Member Technical)
For the Applicant: Zarir Bharucha a/w Prakash Shinde, Nishit Dhruva, Rishi Thakur, Niyati Merchant, Ruchita Jain i/b MDP Legal
For the Respondents: Mr. Rohit Gupta, Counsel for R-1; Mr. Gaurav Joshi, Senior Advocate a/w Kunal Mehta, Counsel for Respondents 3 and 4