IBC Section 142: Modification or recall of bankruptcy order

Section 142 of Insolvency and Bankruptcy Code, 2016: Modification or recall of bankruptcy order

Official Bare Act Text

Override / Mandate Mens Rea (Intent) Actus Reus (Conduct) Punishment Limitation Monetary

(1) The Adjudicating Authority may, on an application or suo motu, modify or recall a bankruptcy order, whether or not the bankrupt is discharged, if it appears to the Adjudicating Authority that-

(a) there exists an error apparent on the face of such order; or

(b) both the bankruptcy debts and the expenses of the bankruptcy have, after the making of the bankruptcy order, either been paid for or secured to the satisfaction of the Adjudicating Authority.

(2) Where the Adjudicating Authority modifies or recalls the bankruptcy order under this section, any sale or other disposition of property, payment made or other things duly done by the bankruptcy trustee shall be valid except that the property of the bankrupt shall vest in such person as the Adjudicating Authority may appoint or, in default of any such appointment, revert to the bankrupt on such terms as the Adjudicating Authority may direct.

(3) A copy of the order passed by the Adjudicating Authority under sub-section (1) shall be provided to the Board, for the purpose of recording an entry in the register referred to in section 191.

(4) The modification or recall of the order by the Adjudicating Authority under sub-section (1) shall be binding on all creditors so far as it relates to any debts due to them which form a part of the bankruptcy.

Legal Commentary & Landmark Judgments: Section 142

Section 142 empowers the Adjudicating Authority to modify or recall a bankruptcy order upon proof of full debt satisfaction or abuse of judicial process.

Grounds for Recall: The Adjudicating Authority may recall a bankruptcy order if the bankruptcy debts have been paid in full or if the order ought not to have been made due to fundamental factual error.
Modification of Orders: The Authority may modify the order or impose conditions where debt compromises have been executed post-adjudication.
Restitution and Validity of Prior Acts: The recall of a bankruptcy order does not invalidate past bona fide asset sales, conveyances, or disbursements executed by the bankruptcy trustee.

Key Landmark Precedents:

Swiss Ribbons Pvt. Ltd. v. Union of India (2019) 4 SCC 17: The Supreme Court held that where insolvency defaults are genuinely resolved and debts fully paid, statutory mechanisms allow termination of insolvency status.
Innoventive Industries Ltd. v. ICICI Bank (2018) 1 SCC 407: Observed that judicial powers to modify or recall orders must be exercised cautiously to prevent abuse by recalcitrant debtors.

Courtroom Practice & Strategic Litigation Guidance:

An application under Section 142 for recall must be accompanied by unconditional 'No Dues Certificates' and bank reconciliation statements from all registered creditors; conditional or future promises to pay will not support a recall.