The Supreme Court has ruled that the insolvency tribunal can recall a corporate insolvency process admitted on a fraudulent and collusive application. It also held that recall is not automatic, since the process may continue where other creditors and stakeholders have a stake in it.
Background
Orris Infrastructure owns about 47 acres in Sector 89, Gurgaon. It signed a development agreement in 2011 with Three C Shelters Private Limited for a housing project called Greenopolis, with 1,862 flats. The project stalled, and homebuyers approached the real estate regulator and consumer forums.
In 2019, Straight Edge Contracts Private Limited, claiming to be an operational creditor, filed a petition under Section 9 of the Insolvency and Bankruptcy Code, 2016. The tribunal admitted it and imposed a moratorium, which is a legal freeze on other actions against a company, from 16 October 2020. Homebuyers and Orris alleged fraud and collusion.
The tribunal found collusion between Straight Edge and the company but held it could not recall its own admission order. The appellate tribunal (NCLAT) disagreed, held that the power exists, and set aside the entire insolvency process on 28 August 2023. Orris, a homebuyers' body and two individual homebuyers challenged that order in the Supreme Court.
The Bench of Justice P. Sri Narasimha and Justice Alok Aradhe noted that the findings of fraud and collusion were not contested before it, and it affirmed them. It observed that the alleged debt was not real, and that the process had blocked the legal remedies of homebuyers and other claimants. On the first question, it said:
"Those who invoke IBC proceedings are under a public law obligation and duty not to deceive or mislead. If jurisdiction is exercised on the basis of fraud or collusion, the Court or the Tribunal can undoubtedly withdraw the proceedings at any point of time. Jurisdictional facts affected by fraud or collusion cannot be the foundation for assuming jurisdiction, as such facts cannot continue to sustain jurisdiction."
The Court then considered whether recall must always follow. It explained that once a petition is admitted, the process stops being a matter between two parties. It becomes a collective process involving all creditors, managed by a resolution professional and the Committee of Creditors, so it can go on even without the original applicant. On how the tribunal should decide, the Bench said:
"For deciding whether to continue the resolution process, the AA will take into account multiple factors, the most important of which lies in ensuring that the future proceedings can be conducted with integrity and confidence that the purpose and object of the Act could be achieved with certainty, probity and transparency."
The Court found that neither the tribunal nor NCLAT had taken this next step. It expressed no opinion on who owns the Greenopolis project.
The Supreme Court partly allowed the appeals and set aside the NCLAT order. It restored the insolvency case, IB-2721/ND/2019, to its original number before the tribunal. The tribunal must now decide whether the process should continue, after hearing the resolution professional, the Committee of Creditors and other stakeholders, including homebuyers who chose other remedies. If it continues, it must be concluded expeditiously.
The connected contempt petitions were closed.
Case Details:
Case Title: Orris Infrastructure Private Limited v. Rakesh Kumar Gupta & Ors.
Case Number: Civil Appeal Nos. 6797-6801 of 2023, along with connected appeals
Judge: Justice Pamidighantam Sri Narasimha and Justice Alok Aradhe
Decision Date: September 30, 2026
