The dispensation of creditor meetings under Section 230(9) is an order that affects the procedural rights of the creditors who are not before the Tribunal. The order is, therefore, vulnerable to recall if it is obtained by fraud, suppression of material facts, or a fundamental procedural defect. The NCLT's power to recall is not a review on merits; it is an exceptional jurisdiction that is exercised sparingly.
The Source and Scope of the Power
The power to recall is derived from Rule 11 of the National Company Law Tribunal Rules, 2016, which preserves the Tribunal's inherent power to make such orders as may be necessary for the ends of justice. The power is not a substitute for an appeal; it is a remedy against an order that is vitiated by fraud or suppression.
The NCLT Chandigarh, in Microtek International, applied the Supreme Court's formulation in Budhia Swain v. Gopinath Deb and A.R. Antulay v. R.S. Nayak to hold that the power of recall is exceptional and ordinarily exercisable only where the order is obtained by fraud, suppression of material facts, or fundamental procedural defect. A mere disagreement with the order, or a subsequent change in circumstances, is not a ground for recall.
The Fraud Standard: Intentional Concealment
The applicant for recall must establish intentional concealment of an admitted and undisputed liability, not a mere accounting disagreement. In Microtek, the applicant alleged that the company had understated its debt in the list of creditors. The Tribunal found that the company's disclosure represented the vendor ledger balance, while the applicant's higher figure included reciprocal customer transactions and warranty replacement adjustments that were not independent creditor liabilities. The dispute was a reconciliation issue, not a fraud on the Tribunal.
The Tribunal also applied the threshold test under the proviso to Section 230(4). Even taking the applicant's higher figure, the consenting creditors' percentage remained above ninety per cent, and the applicant's holding was below five per cent, which meant that the applicant did not have standing to object to the scheme in the first place. The recall application was dismissed.
The Implications for Dispensation Practice
The Microtek line of cases sends a clear signal: a dispensation order will not be recalled merely because a creditor disagrees with the value attributed to its debt. The applicant must show that the company knowingly concealed a liability, that the concealment was material to the ninety per cent computation, and that the applicant has standing to object under Section 230(4).
A company seeking dispensation should ensure that the list of creditors is complete, that the values are reconciled to the books of accounts, and that the consent affidavits are obtained from creditors whose debts are undisputed. A record that survives a recall challenge is a record that is built before the order is sought, not after.
Call to Action
Anuj Desai & Associates advises companies and creditors on the recall of dispensation orders—from the drafting of recall applications and the proof of fraud or suppression to the defence of dispensation orders in NCLT and NCLAT proceedings. If you are challenging or defending a dispensation order, we can help you navigate the exceptional standard.
📧 office@anujdesaiassociates.com
📞 9619456656
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