NCLT Can Recall Insolvency Admitted on Collusive Debt Claim, but May Continue CIRP for Creditors: Supreme Court

Orris Infrastructure owned 47.218 acres in Sector 89, Gurgaon and agreed in 2011 with Three C Shelters to build the Greenopolis project of 1,862 flats; construction stalled, and the Haryana RERA held Orris primarily responsible for completing it (paras 4-4.5). In 2019 Straight Edge Contracts, claiming to be an operational creditor, filed a Section 9 petition, which the NCLT admitted on the corporate debtor's admission of the debt (paras 5-6). The NCLT later found the petition fraudulent and collusive but held it had no power to recall the admission; the NCLAT held that the power existed and set aside the whole CIRP (paras 12, 16-19). Orris and homebuyers appealed (para 20).

The findings of fraud and collusion were not contested and were affirmed: the debt was a mirage, portrayed to trigger a moratorium that blocked the homebuyers' remedies (paras 13, 30). The existence of a debt is a jurisdictional fact; relying on Carona and Shrisht Dhawan, a tribunal cannot assume jurisdiction on facts procured by fraud or collusion, and those invoking the IBC owe a public-law duty not to deceive, so the NCLT can recall the admission (paras 22-30). Following GLAS Trust v. Byju Raveendran, however, admission makes the CIRP a proceeding in rem: the moratorium, the IRP's management, collation of claims, the committee of creditors and Section 12A show that the initiating creditor is only the trigger, not the owner of the process (paras 32-43). The process can therefore continue without the collusive applicant, guided by the committee's commercial wisdom and the RP's submissions (paras 44-47). Both tribunals erred in not deciding whether the CIRP should continue (para 48).