Introduction

The landmark case of Greater Noida Industrial Development Authority v. Prabhjit Singh Soni (2024 INSC 102) adjudicated by the Supreme Court of India on February 12, 2024, delves into the intricacies of the Insolvency and Bankruptcy Code, 2016 (IBC). The case centers around the classification of creditors, the procedural fairness in the resolution plan approval process, and the inherent powers of the National Company Law Tribunal (NCLT) to recall its orders. The appellant, Greater Noida Industrial Development Authority (GNIDA), challenged the National Company Law Appellate Tribunal (NCLAT) and NCLT decisions that dismissed its applications related to the classification of its claims and the approval of a corporate resolution plan.

Summary of the Judgment

In this case, GNIDA, a statutory authority, had submitted a substantial claim against M/s. JNC Construction (P) Ltd (the Corporate Debtor) under the IBC's Corporate Insolvency Resolution Process (CIRP). The core issue revolved around GNIDA's classification as a financial creditor versus an operational creditor and the implications thereof on its participation in the Committee of Creditors (CoC) and its priority in the resolution plan.

The Supreme Court concluded that the NCLT possesses inherent powers to recall its orders under Section 60(5) of the IBC, ensuring due process and fairness, especially when the resolution plan fails to comply with statutory requirements or overlooks significant creditor interests. Consequently, the Supreme Court allowed the appellant's appeal, set aside the NCLT's order approving the resolution plan, and mandated the NCLT to reconsider the plan in light of the highlighted deficiencies.

Analysis

Precedents Cited

The judgment extensively referenced several key precedents that shaped the legal framework for the decision:

• New Okhla Development Authority v. Anand Sonbhadra (2023 SCC 724): Established that disbursement is essential to classify a debt as financial under Section 5(8) of the IBC.
• Grindlays Bank Ltd. v. Central Govt. Industrial Tribunal (1980 Supp SCC 420): Affirmed the inherent power of tribunals to recall orders to prevent abuse of process.
• Budhia Swain v. Gopinath Deb (1999) 4 SCC 396: Outlined specific grounds on which tribunals or courts may recall judgments, such as lack of jurisdiction, fraud, or procedural irregularities.
• Union Bank of India vs. Dinakar T. Vekatasubramanian & Ors. (2023): Reinforced that NCLAT possesses inherent powers to recall judgments to ensure justice.
• Jaypee Kensington Boulevard Apartments Welfare Association v. NBCC (India) Ltd.: Clarified the limited scope of judicial review over resolution plans, emphasizing non-justiciability of commercial decisions by CoC.
• Manohar Lal Chopra v. Rai Bahadur Rao Raja Seth Hiralal (Specific citation not provided): Highlighted that inherent powers to make orders are not limited by statutory provisions unless explicitly stated.

Legal Reasoning

The Supreme Court's reasoning was anchored in a meticulous examination of the IBC provisions and the CIRP Regulations, 2016. Key elements of the legal reasoning include:

• Inherent Powers of NCLT: The court emphasized that tribunals like NCLT inherently possess powers to recall orders to uphold justice and prevent procedural abuses, even if not explicitly stated in the statute.
• Classification of Creditors: GNIDA's contention of being a financial creditor was scrutinized. The court relied on the precedent set by New Okhla Development Authority v. Anand Sonbhadra, determining that GNIDA should be classified as an operational creditor due to the nature of its claim, despite its statutory charges.
• Compliance with IBC and Regulations: The resolution plan failed to acknowledge GNIDA's valid claim with the correct amount, neglected its secured creditor status, and did not seek necessary approvals from GNIDA, violating Section 30(2) and related regulations.
• Procedure and Due Process: GNIDA was not notified of CoC meetings and was subjected to an ex parte resolution plan approval, infringing upon its rights to be heard and adequately represented.

Impact

This judgment reinforces the judiciary's commitment to procedural fairness within the IBC framework. Key impacts include:

• Strengthening Creditor Rights: Ensures that all creditors, especially secured and statutory ones, are adequately represented and their claims accurately reflected in resolution plans.
• Judicial Oversight: Affirms the role of judicial bodies like NCLT and Supreme Court in overseeing the CIRP process to prevent arbitrary or unfair decisions by CoC.
• Clarification on Inherent Powers: Clearly delineates the circumstances under which tribunals can exercise inherent powers to recall orders, fostering greater accountability and adherence to due process.
• Precedent for Future Cases: Serves as a guiding precedent for similar disputes regarding creditor classification, plan approval discrepancies, and tribunal recall powers.

Complex Concepts Simplified

Conclusion

The Supreme Court's decision in Greater Noida Industrial Development Authority v. Prabhjit Singh Soni underscores the judiciary's pivotal role in ensuring fairness and adherence to procedural norms within the IBC framework. By affirming the NCLT's inherent powers to recall resolution plan approvals, especially in scenarios where creditor rights and due process are compromised, the judgment fortifies the protective mechanisms for all stakeholders involved in CIRP. This not only enhances the credibility and effectiveness of the IBC but also ensures that the revival of distressed companies is achieved in a just and equitable manner.

Moving forward, tribunals and creditor committees must exercise due diligence in classification of creditors, transparency in proceedings, and compliance with statutory requirements to mitigate legal challenges and uphold the integrity of the insolvency resolution process.