When Recall Becomes a Door to Delay: Procedural Abuse and Finality in Insolvency Adjudication: Part 2

Shivangi Nawalkha & Shreshtha Saha Ray

In Part I, we examined how recall jurisdiction, though conceived as a narrow corrective safeguard, has increasingly been deployed as a strategic instrument of delay in insolvency proceedings. Part II builds on that diagnosis by examining the jurisprudential boundaries of recall and articulating a principled reform framework.

Case Studies on Recall in Insolvency Proceedings

An examination of the jurisprudence shows that recall is legitimately exercised where the insolvency process itself is tainted by fraud, collusion, jurisdictional defect or a fundamental procedural irregularity. In such situations, recall does not operate as a device to revisit merits but as a corrective mechanism to preserve the integrity of the insolvency framework. The following cases illustrate circumstances in which tribunals have upheld recall as a necessary judicial safeguard.

Rightful Recalls

Greater Noida v. Prabhjit Singh Soni

The Supreme court treated the recall application as a legitimate invocation of the tribunal’s corrective jurisdiction because the approval of the resolution plan was alleged to have occurred in circumstances marked by serious procedural and substantive defects. The applicant had contended that (i) it had not been informed of CoC meetings (ii) the proceedings leading to plan approval were effectively ex parte and (iii) the resolution professional had misrepresented the status and quantum of its claim.

The Court recognised that such allegations, if established undermine the fairness and legality of the insolvency process.

This decision affirms that recall is justified where foundational procedural safeguards are violated.

Experts Realty Professionals v. Logix Infrastructure Pvt. Ltd.

The Delhi bench of the NCLT found that the CIRP had been initiated by a collusive petition brought with fraudulent and mala fide intent. The tribunal observed that key directors overlapped between the creditor and the debtor and that the petition was a contrived mechanism designed to defeat the interests of the homebuyers. The NCLT therefore recalled its admission order, terminated the CIRP, directed return of performance guarantees and imposed costs and a monetary penalty. On appeal, the NCLAT affirmed the recall describing the scheme as a fraudulent misuse of the Code.

This case demonstrates recall functioning as a remedial tool to dismantle collusive and bad faith insolvency filings.

Directorate of Enforcement v. Alchemist Limited

The Delhi bench of NCLT recalled the initiation of CIRP after material from the Enforcement Directorate revealed that promoters had allegedly laundered funds and reintroduced them into the CoC through a front entity thereby securing effective control. The proposed resolution plan contemplated transfer of assets to a related concern.

The tribunal concluded that the proceedings were permitted by fraud and collusion and that allowing the process to continue would legitimize unlawful conduct. It therefore withdrew its earlier orders and excluded the related entity from the CoC.

Here, recall was exercised to prevent the insolvency framework from being used as an instrument to sanitize illicit financial arrangements.

Bharti Goyal v. Hector Realty Venture (P) Ltd.

The NCLAT held that the withdrawal order dated 7 September 2022 was vitiated by fraud.

The appellants in this case substantiated their allegations through documentary evidence while the respondents failed to rebut the material contradictions placed on record,

The appellate tribunal concluded that the Adjudicating Authority committed a serious error of law by refusing to recall the order despite clear evidence of fraud thereby failing in its judicial duty.

This decision underscores that where fraud is established through credible evidence, recall is not discretionary but necessary to uphold procedural integrity and prevent miscarriage of justice.

Wrongful Recalls

Advantagesai Projects Pvt. Ltd. v. Akshay Techforge Pvt. Ltd.

In this case, the NCLAT was confronted with an appeal arising out an admission order under Section 7 of IBC. The appellant argued that a short delay in filing had occurred due to a registry-related error and sought not only condonation of delay but also reopening of the admission order itself.

While the tribunal condoned the limited delay attributable to registry issues, it firmly declined to recall the admission order.

It opined that procedural or administrative lapses including registry errors cannot justify reopening a concluded judicial determination. Additionally, the admission had been passed after due consideration and the appellant had an adequate statutory appellate remedy.

The decision reinforces the principle that recall cannot be invoked to unsettle final orders merely because procedural irregularities occurred at the filing stage.

RCC E-Construct Pvt. Ltd. v. J. Ramkumar

A prospective resolution applicant sought recall on the ground that its submission had been overlooked in an earlier admission hearing. It further contended that that its interests had been prejudiced and that relevant material had been overlooked.

The NCLAT rejected the recall petition holding that the petitioner had voluntarily participated and that the order has been passed after hearing all parties. The tribunal concluded that invoking Rule 11 in such circumstances would amount to substantive review of findings rendered on merits which is impermissible under the IBC framework.

The tribunal expressly cautioned that recall cannot be used as a camouflage to reopen determinations already made after due hearing

Hamon Research Cottrell India (P) Ltd. v. Hamon Research Cottrell (Shanghai) Co. Ltd.

This matter arose from a procedural dispute concerning additional documents. The Adjudicating Authority had earlier rejected an application seeking to place certain documents on record. Instead of first deciding the recall application filed against that rejection, the Authority proceeded to entertain and allow a subsequent application for taking the same documents on record.

The NCLAT held that such a reverse procedural course was impermissible. It observed that no procedural framework contemplates adjudicating a fresh application for admission of documents without first recalling the order that had expressly denied their admission. Until the earlier order was independently recalled with reasons, the subsequent application could not be entertained.

The appellate tribunal found that this sequence violated judicial propriety and set aside the order.

Hence, recall cannot be indirectly nullified or bypassed through inconsistent interim orders.

Taken together, these decisions reveal a consistent judicial pattern. Where insolvency proceedings are tainted at inception by fraud, collusion or related party manipulation, tribunals exercise recall decisively and may impose deterrent consequences. Conversely, where recall is invoked to secure a second opportunity on merits, to cure ordinary procedural lapses or to delay implementation of orders, tribunals have refused to entertain such attempts.

Legislative and Procedural Intervention to Reform Recall Practice

If recall is to function as a safeguard rather than a strategic instrument, calibrated procedural reform is necessary through legislative amendment and tribunal led reforms. The following measures would discipline recall without extinguishing its corrective role.

1. Time Bound Filing of Recall Petitions – A firm limitation period should be prescribed for recall applications such as 30 or 60 days from the impugned order. This would prevent the parties from invoking recall long after resolution plans have been approved or implemented often as a substitute for lapsed appellate remedies. Any such time bar should include a narrow exception for cases where fraud or material misrepresentation is discovered subsequently subject to a high evidentiary threshold.
2. No automatic stay on the filing of recall – Recall petitions should not by default stall implementation of approved orders or resolution plans. Interim stays ought to be granted only upon a specific application demonstrating prima facie illegality and irreparable harm. Absent such a showing, proceedings should continue. This reform would prevent the routine freezing of CIRP or liquidation merely because a recall application is filed.
3. Costs as a deterrent – Costs should be imposed as a rule not as an exception where recall petitions are found to be frivolous or abusive. Orders such as those in Experts Realty Professionals v. Logix Infrastructure Pvt. Ltd., demonstrate that meaningful cost sanctions can deter misuse. A structured approach including compensation for delay caused to resolution professionals or creditors would discourage speculative filings
4. Expedited disposal of recall applications – these applications should be heard and disposed of within a short and fixed timeframe such as 30-45 days. Such speedy disposal would limit the disruptive effect of recall proceedings regardless of outcome and preserve the momentum of insolvency process.

The NCLT and NCLAT are well placed to issue directions prescribing affidavit requirements, timelines and cost consequences specific to recall applications.
Additionally, the IBBI can support this framework by issuing guidance notes or forms as it has in other procedural contexts. However, equally important is consistent enforcement through consistent cost sanctions and summary dismissal powers by the tribunals to deter repeat or strategic filings.

Conclusion

Recall jurisdiction occupies a vital place within the architecture of insolvency adjudication. It operates as a corrective safety valve against fraud, collusion, suppression of material facts and jurisdictional error that may not be adequately remedied through ordinary appellate mechanisms. Properly confined, recall preserves the legitimacy and integrity of the insolvency process.

However, its unchecked expansion carries systemic risks. The IBC is founded upon certainty, expedition and value maximization. If recall becomes routine rather than exception, it undermines finality, delays implementation of resolution plans, erodes asset value and incentivises tactical litigation.

The appropriate response is not to curtail recall jurisdiction but to discipline its exercise through structured procedural safeguards. These should include clearly defined filing timelines, summary and time bound disposal of recall applications, a high evidentiary threshold for allegations of fraud or jurisdictional defect and lastly meaningful cost consequences for abusive or repetitive filings.

It is therefore incumbent upon the NCLT, NCLAT, the Insolvency and Bankruptcy Board of India and Ministry of Corporate Affairs to institutionalise these guardrails through practice directions and calibrated rule making. By doing so, recall can remain what it was always intended to be i.e. a remedy for genuine procedural injustice not an instrument of strategic delay.

Shivangi Nawalkha is a 4th year B.A.LL.B (Hons.) student at National Law University, Patiala. Shreshtha Saha Ray is a 3rd year LL.B student at Shri Vile Parle Kelvani Mandals Pravin Gandhi College of Law Vile Parle, Mumbai.