Overlooking Document Already On Record Is Ground For Appeal, Not Recall: NCLAT

The National Company Law Appellate Tribunal (NCLAT) has recently ruled that a party cannot seek recall of an order on grounds of fraud by relying on documents that were already available during the original proceedings. If a tribunal overlooks a document or fails to consider its evidentiary value, the party must challenge the decision in an appeal.

A Bench of Judicial Member Mohammad Faiz Alam Khan and Technical Member Naresh Salecha observed:

“A document that was already on the record, or that the applicant could have called for in the original proceedings, cannot support a charge of fraud. A mistake in dealing with such a document is for appeal. New evidence found later is not a ground for recall.”

The tribunal was hearing appeals filed by Amarendra Financial Pvt. Ltd. and Dinkar Commercial Pvt. Ltd. against the NCLT's refusal to recall its order dismissing their insolvency petitions against Cynosure Real Estates Pvt. Ltd.

The two NBFCs claimed that they had advanced unsecured loans of ₹1.70 crore and ₹2.30 crore, respectively, to the company in April 2017. The company disputed the existence of financial debt and the appellants' status as financial creditors. The NCLT dismissed the insolvency petitions on April 19, 2022, holding that the lenders had failed to establish financial debt.

Seeking recall of that order, the lenders alleged that the company had falsely denied the loan transactions. They relied on its balance sheet for FY 2017-18, which recorded the amounts under unsecured loans. They also produced the company's income tax return, arguing that it supported their claim.

The NCLAT found that the balance sheet had already been placed before the NCLT nearly three months before it dismissed the insolvency petitions. If the NCLT had overlooked the document, that would amount to an error in appreciating the evidence. Such an error could be challenged in an appeal, but would not establish fraud by the company.

The tribunal also rejected the allegation that the company had suppressed its income tax return. The lenders had produced the return during the recall proceedings, but had not shown that they had asked the NCLT to direct the company to produce it during the original proceedings. They had also failed to explain why they could not have obtained it earlier.

The NCLAT noted that the return merely recorded ₹24.62 crore under "Other Loans and Advances". It did not identify any lender and classified the amount under long-term borrowings, whereas the balance sheet showed the same aggregate figure under short-term borrowings. Both documents had been prepared from the company's own books and could not be treated as independent corroboration.

The tribunal clarified that newly discovered evidence can justify recall only when its non-production was itself part of a fraud on the tribunal. A party cannot use recall proceedings to reopen a case simply because it later finds evidence that may support its claim.

It also observed that the balance sheet entry could be relevant as an acknowledgement of liability, depending on the facts. However, such an entry does not by itself establish that money was disbursed against consideration for the time value of money or when the debt became due. The NCLAT clarified that it was not deciding what evidentiary effect the balance sheet and return would have had if accepted.

The tribunal also considered the allegation that the company's denial of financial debt amounted to fraud. It observed that if the company had merely disputed the appellants' status as financial creditors, it was taking a position on how the transactions should be characterised under the Code. Even an incorrect position on that question would not, by itself, amount to a false statement of fact.

The NCLAT held that the original dismissal was based on the lenders' failure to establish the debt and default through sufficient evidence, and not on the company's reply. Finding no grounds to recall the order, it rejected both appeals at the admission stage. It clarified that it was not deciding whether any debt was actually owed to the lenders.