Supreme Court: insolvency tribunal can continue CIRP even after unmasking a collusive creditor

A real-estate developer's project, Greenopolis in Gurgaon, was pushed into corporate insolvency resolution in 2019 after an operational creditor's Section 9 petition under the Insolvency and Bankruptcy Code, 2016 was admitted. The Adjudicating Authority and the NCLAT later found, on facts, that the original applicant creditor had acted in collusion with the corporate debtor's suspended directors to engineer the insolvency filing. The Adjudicating Authority held it had no power to recall CIRP once admitted; the NCLAT held that such a power exists and used it to dismiss the petition and unwind the entire CIRP, leaving homebuyers and other stakeholders without a resolution process.

The Supreme Court held that an Adjudicating Authority can recall admission of a Section 7, 9 or 10 petition if the jurisdictional facts on which it was admitted are later proved fraudulent or collusive, since a party invoking statutory jurisdiction owes a public-law duty not to deceive the tribunal. But once CIRP is admitted, the proceeding becomes one in rem, binding all creditors through the Committee of Creditors and the Resolution Professional, and withdrawal by the original applicant is barred by Section 12A. The Court held that unmasking collusion does not automatically require scrapping CIRP: the Adjudicating Authority must separately decide, after hearing the Resolution Professional, the Committee of Creditors and other stakeholders including homebuyers, whether continuing the process serves the corporate debtor's genuine insolvency resolution.