Re-agitating on an Issue That Has Attained Finality Is Abuse of Process: NCLAT
Moneylife Digital Team 18 August 2022
While rejecting the claim of an appellant, the principal bench of the national company law appellate tribunal (NCLAT) held that the doctrine of res judicata (a matter decided) applies to proceedings under the Insolvency and Bankruptcy Code (IBC). Challenges to the findings in the incidental or collateral proceedings amount to an abuse of the process of the court, it says. 
 
In an order passed earlier this month, the bench of justice Ashok Bhushan (chairperson), justice M Satyanarayana Murthy (member -judicial) and Barun Mitra (member - technical), says, "...the principle of res judicata, though a part of the Code of Civil Procedure (CPC), it would be applicable to the proceeding of this Tribunal and IBC. Only to prevent the abuse of process of law and give finality to any proceeding or orders, and to avoid an endless litigation to frustrate the very object of enacting IBC, the claim of appellants is liable to be rejected."
 
"Indeed, a judgment obtained by playing fraud on the Tribunal or judgment or order passed without inherent jurisdiction is non-est in the eye of law and the same can be challenged in a collateral or incidental proceeding, but it was not the case of the appellants in these appeals. Hence in any collateral or incidental proceeding, the judgment cannot be agitated which attained finality. If such course is permitted, it would amount to exercise of power of review of its own judgment or sitting over the judgment in appeal against its own order or judgment which is impermissible under law," the bench says.
 
Vikas Dahiya, former director of Golden Tobacco Ltd, had filed the appeal before the NCLAT challenging an order passed by the national company law tribunal's (NCLT's) Ahmedabad bench in the matter of Arrow Engineering Ltd, a financial creditor and Golden Tobacco, a corporate debtor.
 
Arrow Engineering had applied to NCLT at Ahmedabad to initiate the corporate insolvency resolution process (CIRP) under Section 7 of IBC against Golden Tobacco. This application was dismissed by the adjudicating authority (AA) on various grounds. The case then reached the NCLAT. 
 
The appellate tribunal formulated certain points regarding limitation, the relationship between financial creditor and corporate debtor, and acknowledgement of debt. The NCLAT concluded that the AA committed a grave error in dismissing the application filed by Arrow Engineering under Section 7 of IBC. It set aside the order while allowing the appeal and issued direction to the AA to pass consequential order, including an order of moratorium within one month.
 
The matter reached the Supreme Court, which dismissed the appeal, while confirming the order passed by NCLAT. After that, the AA, as per the directions from the Tribunal, passed an order. 
 
Arrow Engineering, the financial creditor, filed an appeal before the NCLT, Ahmedabad, seeking commencement of CIRP against Golden Tobacco as per the order passed on 2 December 2021 by NCLAT. 
 
The NCLT allowed the appeal, after which the CIRP was started and Vichitra Narayan Pathak was appointed an interim resolution professional (IRP).
 
Aggrieved by the order passed by NCLT, Mr Dahia, former director of Golden Tobacco and Oval Investment Pvt Ltd, claiming to be shareholders, filed appeals before NCLAT. 
 
He contended that there was no operational or financial debt and the claim of the financial creditor does not attract either Section 5(7) or 5(8) of IBC. He also contended that there was no acknowledgement of debt and statement of accounts, particularly the balance sheet of Golden Tobacco mentioning debt of Arrow Engineering, the financial creditor, does not amount to an acknowledgement of debt. 
 
"But these aspects were not considered in detail by the AA and simply passed an order admitting Section 7 of IBC application, appointing Mr Pathak as IRP to complete CIRP. Therefore, the admission of application and interlocutory application of Arrow Engineering, the financial creditor is illegal and requested to set aside the same," he submitted. 
 
Vikas Mehta, counsel for Arrow Engineering, contended that when the Appellate Tribunal recorded its findings, all contentions raised in the appeal were answered, and the order attained finality because of the judgment of the apex court; thereby, Mr Dahia was debarred from raising similar argument which attained finality.
 
During the hearing, the appellants contended that though the findings recorded by the appellate tribunal attained finality, the appellants only questioned the remand order passed by NCLAT in the appeal in the first round of litigation. Therefore, the principle of res judicata has no application to the present case.
 
However, the principal bench of NCLAT rejected the contention. It says, "Undoubtedly, the principle of res judicata is a principle enunciated under Section 11 of CPC and therefore, the rules of CPC has no application to this Tribunal in view of Section 238 of IBC but still the appellants are not entitled to raise such pleas which were already decided by this Tribunal, as it amounts to abuse of process of law."
 
"Even assuming for a moment that those findings were not challenged by the appellants, still the judgment became final. Therefore, the appellants are disentitled to re-agitate the findings recorded by this Tribunal and affirmed by the Supreme Court, in the incidental proceedings. This Tribunal cannot sit in appeal over its own order, cannot review its own order," NCLAT says.
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