“Anubhav Anilkumar Agarwal v. BOI & RNA Corp Pvt. Ltd.”- Scope of Inherent Power of NCLAT demystified

INTRODUCTION

The National Company Law Appellate Tribunal (“NCLAT”) has recently, in the case of Anubhav Anilkumar Agarwal v. Bank of India & RNA Corp Private Limited, emphasized on the limited scope of powers vested in the NCLAT under Rule 11 of the  National Company Law Appellate Tribunal Rules, 2016 (“NCLAT Rules”). The NCLAT has deliberated on the issue as to whether Rule 11 of NCLAT Rules vests the NCLAT with inherent powers to review and rehear its own decision.

This article discusses the inherent powers of NCLAT under Rule 11 of the NCLAT Rules and tries to examine the limit and extent to which the NCLAT can exercise these powers. The Article further delves into the concept of “Prima Facie Error”, a test applied by the NCLAT to invoke its inherent power under Rule 11.

BACKGROUND OF THE CASE

The particular case was a Review Application filed by the Corporate Debtor/Guarantor ‘RNA Corporation Ltd.’ against the Order of the NCLAT dated 7 February 2020 which dismissed the appeal of the present appellant by holding that the Corporate Insolvency Resolution Process (hereinafter “CIRP”) initiated against the appellant (RNA Corp), is not barred by limitation and does not attract the dictum of law laid down in Dr. Vishnu Kumar Agrawal v. Piramal Enterprises Ltd.’

QUESTION OF LAW BEFORE THE COURT

• Does Rule 11 of NCLAT Rules vest the NCLAT with a power to review its own decision?

ARGUMENTS ON BEHALF OF APPELLANT

1. The Appellant submitted that this Tribunal should not have upheld the Order of the NCLT Mumbai, admitting the application under Section 7. Because the same claim and same default of the Corporate Debtor had been admitted in another insolvency process, thus having the effect of simultaneously claiming the same amount twice. The submission was buttressed by placing reliance upon “Dr. Vishnu Kumar Agarwal v. Piramal Enterprises Ltd.” in which it was held that-

“Once a claim is admitted for a set of claims against one Corporate Debtor in an application under Section 7, a second application by the same Financial Creditor against another Corporate Debtor, be it a Guarantor or Principal Borrower, would not be maintainable”.

2. The Appellant further contended that this Appellate Tribunal had made an error while passing the judgment on 7 February 2020. The basis for this was that Para 14 of the judgment had ignored various documents placed on record to prove that there is no debt of the Corporate Debtor. The documents included a “Deed of Guarantee” executed by Chamber Constructions in favour of the creditor on 9^th December, 2013. Hence the Tribunal’s observation in its February judgment that “there is nothing on record to suggest an issuance of guarantee” constitutes a grave miscarriage of justice on the part of the aAate Authority, apparent on the face of the record.
3. It was further submitted by the appellant that no one could be made to suffer because of the mistake of the Court and the error apparent on the face of the record must be rectified. Hence, under the Rule 11 of the NCLAT Rules, read with Section 420 of the Companies Act, 2013, the NCLAT is vested with an inherent power to rectify such mistakes and this Appellate Tribunal would not be required to travel beyond the record to see whether the judgment is correct or not.

ARGUMENTS ON BEHALF OF RESPONDENTS

1. The Respondents submitted that the Appellate Tribunal has not been conferred with the power to review its decisions, which was above and beyond the inherent powers to correct arithmetical/ typographical errors, i.e. the Power of Review is not provided to the NCLAT under Rule 11 of the NCLAT Rules.

ARGUMENTS ON BEHALF OF Resolution Professional (RP)

1. RP submitted that it is a settled position of law that the Appellate Tribunal does not have the power of review and that available inherent powers cannot be invoked to review the judgment. It is further emphasized that the inherent powers cannot be invoked to seek a rehearing of the appeal and/or reconsideration of the judgment passed by this Appellate Tribunal itself.
2. RP further submitted that the ratio of the Piramal Judgment could not be applied on a mere assumption as the issue would require an appreciation of material on record and elaborate discussion and arguments by the parties before taking any view in the matter, and an error which requires elaborate discussion of evidence cannot be said to be an error apparent on the face of the record. Hence, it is submitted that re-appreciation of evidence for finding an error would amount to an exercise of appellate jurisdiction, which is impermissible.

FINDINGS OF THE COURT

The Court dismissed the Applicant’s present review petition under Rule 11 of the NCLAT Rules and held that this Appellate Tribunal does not possess the authority under Rule 11 to review its own decision. The Court further held that substituting the observations and findings of this Court (February 2020 Judgment) is beyond the ambit and scope of Rule 11 of NCLAT Rules and reviewing the decision would amount to “substituting of finding by reappraisal of evidence”, which is a power only exercisable by a competent court while sitting in appeal.

ANALYSIS OF THE COURT’S REASONING

The Court relied upon the case of ‘Action Barter Private Limited v. SREI Equipment Finance Limited & Anr.’ to rule upon the limited scope of Rule 11. The Court analysed this case to enunciate the fact that Rule 11 cannot be invoked to revisit the findings related to the assertion of facts and pleas raised in the appeal. It is not open to re-examining the findings on questions of fact, how-so-ever erroneous they may be. The errors which can be rectified under Rule 11 include errors apparent on the face of the record, errors that occurred due to oversight, inadvertence or human error.

The Court further cited the case of ‘Lily Thomas and Ors. v. Union of India &Ors’ to hold that “Review” and “Appeal” are two different rights vested under the Statutes, and hence review cannot be treated as an appeal in disguise. The mere possibility of two views on the subject is not a ground for review. The Court, therefore, opined that Rule 11 couldn’t be exercised by the Appellate Tribunal to review the decision because the same would amount to usurping the jurisdiction vested in a court of appeal.

Further, with respect to Section 420 of the Companies Act, 2013 the Court noted that the powers under Section 420 are exercisable by the ‘Tribunal’ defined under Section 2(90) which means the ‘National Company Law Tribunal’, constituted under Section 408. This power is not specifically conferred on the Appellate Tribunal, and hence the latter does not have any right over and above rectifying errors which are prima facie apparent.

Consequently, the Court opined that the Applicant in the present case is aggrieved by the findings of this Appellate Tribunal and not by the alleged prima facie error. Hence, the Court held that it would be impermissible for this Appellate Tribunal to substitute the finding within the scope of powers exercisable under Rule 11 of NCLAT Rules. This power can only be exercised by the competent court sitting in an appeal. Accordingly, the Court dismissed the instant petition.

CRITICAL COMMENTS

The reasoning of the court can be condemned as the case fails to define a cogent difference between “error apparent on the face of the record” and “error which needs re-appraisal of records”.The Court mentioned that error must be a prima facie error, but this test of prima facie error is fallacious as judicial opinions are subjective and can differ. As a result, what can be considered as a mistake apparent from the record cannot be precisely defined, and thereby, the rationale of the Court lacks objectivity. It is necessary to have a concrete statutory framework so that the judicial interpretations of the words coupled with facts of the case don’t hamper the rights of the aggrieved parties.

CONCLUSION

The present case lays a remarkable judicial precedent for upcoming cases by framing the leeway conferred upon the Appellate Tribunal while exercising its inherent power under Rule 11 of the NCLAT Rules, 2016. In this case, the Applicant was primarily aggrieved by the ruling of the NCLAT, in Para 14 of the February Judgment wherein the tribunal held that no record substantiates the Contract of Guarantee for the same debt owed by the applicant, between the Financial Creditor and Guarantor. On this contention, the Tribunal concluded that Applicant’s ground for invocation of Rule 11 of NCLAT Rules, i.e. prima facie error on the part of the NCLAT to ignore the guarantee deed is fallacious. Substituting its own finding by a reappraisal of evidence is beyond the jurisdictional ambit of NCLAT and such a power can only be exercised by a competent court sitting in appeal. Hence, the judgment out-rightly demarcated the scope and ambit of inherent powers conferred upon the NCLAT. However, the concept of “Prima Facie Error” is yet to be adequately delineated and thereby, requires judicial analysis.

[Sanskar Modi and Vijpreet Pal are II-year students at NLIU, Bhopal. The authors can be reached at sanskarmodi.ug@nliu.ac.in & vijpreetlovi@gmail.com.]