The National Company Law Appellate Tribunal (“NCLAT”) on August 24, 2022 in the matter of Raghavendra G. Kundangar & Ors. v. Shashi Agarwal & Anr. held that when status of a debtor attains finality, the same cannot be altered on the basis of a subsequent judgment in different proceedings and further held that NCLT is exclusively invested with inherent jurisdiction to decide the petition filed either under Section 7, 9 or any of the provisions of Insolvency and Bankruptcy Code, 2016 (“IBC”).

In the instant matter, Jindal Steel & Power Limited (“Creditor” / “Respondent”) filed a petition under Section 7 of the IBC seeking initiation of CIRP against Bharat NRE Coke Ltd. (“Corporate Debtor” / “Appellant”), claiming that there was subsisting financial debt regarding supply of material to the Corporate Debtor. Consequently, the NCLT admitted the Corporate Debtor into insolvency under Section 7 of the IBC for defaulting in payments in respect of supply of material and in all subsequent appeals (including the appeal filed before the Supreme Court under Section 62 of IBC), the debt of the Creditor was declared as financial debt and had attained finality.

Subsequently, the Supreme Court in the matter of Anuj Jain v. Axis Bank Limited held that debt arising out of supply of materials is operational debt and not financial. Based on this judgment, the Corporate Debtor filed an application before NCLAT to recall the order initiating CIRP on the ground that the aforementioned is incompetent to file an application under Section 7 of IBC claiming to be financial creditor. The Corporate Debtor contented that once a judgment is overruled it will have retrospective effect, invalidating the proceedings undertaken in pursuance of the overruled judgment and further contented that the adjudicating authority lacks inherent jurisdiction.

Thus, the issue before NCLAT was to examine the impact of such overruling on the proceeding already attained finality. The tribunal observed that once the order of the adjudicating authority attains finality on account of affirmation by the Hon’ble Apex Court in appeal, the same cannot be reopened. It is hit by the doctrine of constructive res judicata, though the principle of res judicata is a part of CPC, the doctrine is applicable to the proceedings of IBC. If such issues are reopened on the basis of subsequent overruling, there will not be any end for legal proceedings. It was further observed that the doctrine of prospective overruling is a device innovated by the Apex Court to avoid reopening of settled issues and to prevent multiplicity of proceedings, avoid uncertainty and avoidable litigation. By the very object of prospective declaration of law, it is deemed that all actions taken contrary to the declaration of law prior to the date of declaration are validated. Therefore, the subordinate forums which are legally bound to apply the declaration of law made by the Hon’ble Supreme Court, are also duty-bound to apply such dictum to the cases which would arise in future only. In the matters where decisions opposed to the said principle have been taken prior to such declaration of law, cannot be interfered with on the basis of such declaration of law. Hence, the appeal was dismissed.