LEGAL ISSUE: Whether the National Company Law Appellate Tribunal (NCLAT) was correct in admitting additional documents at the appellate stage without giving the corporate debtor an opportunity to respond, in an application under Section 9 of the Insolvency and Bankruptcy Code, 2016.
CASE TYPE: Insolvency Law
Case Name: M/S Wizaman Impex Pvt. Ltd. vs. Kedrion Biopharma Inc.
[Judgment Date]: 7th February 2022
Date of the Judgment: 7th February 2022
Citation: 2022 INSC 114
Judges: Justice Dinesh Maheshwari and Justice Vikram Nath
Can an appellate tribunal admit new evidence in an insolvency case without giving the other party a chance to respond? The Supreme Court of India recently addressed this important question of procedural fairness in the case of M/S Wizaman Impex Pvt. Ltd. vs. Kedrion Biopharma Inc. The core issue was whether the National Company Law Appellate Tribunal (NCLAT) was right to consider additional documents at the appellate stage, which were not part of the original record before the National Company Law Tribunal (NCLT), without giving the corporate debtor an opportunity to respond. The judgment was delivered by a bench of Justice Dinesh Maheshwari and Justice Vikram Nath.
Case Background
The case revolves around a dispute between M/S Wizaman Impex Pvt. Ltd. (the corporate debtor) and Kedrion Biopharma Inc. (the operational creditor). Kedrion Biopharma Inc. claimed that Wizaman Impex owed them money under a distribution agreement. According to the agreement, Wizaman Impex was to sell Kedrion’s pharmaceutical products until Kedrion’s Indian subsidiary, “Kedrion India,” was capable of doing so.
Kedrion Biopharma Inc. raised several invoices and also issued credit notes. They claimed that Wizaman Impex failed to pay the dues. On July 25, 2019, Kedrion sent a demand notice for USD 901,000, which was returned undelivered. Another demand notice was sent on August 7, 2019, to Wizaman Impex’s new registered office. Wizaman Impex replied on August 17, 2019, disputing the dues, citing a pending dispute with the Directorate of Health Services, Maharashtra, regarding the supply of short shelf-life products.
Kedrion Biopharma Inc. filed an application under Section 9 of the Insolvency and Bankruptcy Code, 2016, on June 30, 2020, claiming that Wizaman Impex had defaulted on its operational debt. The NCLT rejected this application, stating that it was barred by limitation.
Timeline
| Date | Event |
|---|---|
| July 25, 2019 | Kedrion Biopharma Inc. sent a demand notice for USD 901,000, which was returned undelivered. |
| August 7, 2019 | Another demand notice was sent to Wizaman Impex’s new registered office. |
| August 17, 2019 | Wizaman Impex replied, disputing the dues. |
| June 30, 2020 | Kedrion Biopharma Inc. filed an application under Section 9 of the Insolvency and Bankruptcy Code, 2016. |
| October 6, 2020 | The NCLT rejected the application filed by Kedrion Biopharma Inc. |
| December 15, 2021 | The NCLAT set aside the NCLT order and allowed the application under Section 9 of the Code. |
| February 7, 2022 | The Supreme Court delivered its judgment. |
Course of Proceedings
The NCLT, in its order dated October 6, 2020, considered the documents submitted by Kedrion Biopharma Inc. to support their claim of debt acknowledgment. The NCLT observed that a credit memo dated December 15, 2017, was issued by Kedrion and not Wizaman Impex, and thus could not be considered an acknowledgment of debt. The NCLT also considered a letter dated July 7, 2016, signed by a Director of Wizaman Impex, addressed to the bank regarding payment of pending invoices. The NCLT noted that even if this letter was an acknowledgment of debt, the limitation period would run from July 7, 2016. Similarly, another letter dated February 2, 2017, was considered, and the NCLT concluded that the limitation period would run from that date as well. Therefore, the NCLT concluded that the application filed on June 30, 2020, was beyond the three-year limitation period under Article 137 of the Limitation Act, 1963, and rejected the application.
Kedrion Biopharma Inc. appealed the NCLT order before the NCLAT. During the appeal, Kedrion filed an application (I.A. No. 2685 of 2020) seeking permission to produce additional documents, specifically emails exchanged between November 3, 2017, and January 11, 2019, regarding settlement proposals. These documents were not presented before the NCLT. The NCLAT allowed the application and admitted these additional documents on record. Based on these documents, the NCLAT concluded that Wizaman Impex had admitted its liability and showed readiness to make payments. The NCLAT held that the NCLT erred in holding that the claim was barred by time and set aside the order of the NCLT and allowed the application under Section 9 of the Insolvency and Bankruptcy Code, 2016.
Legal Framework
The case primarily involves the interpretation of the following sections of the Insolvency and Bankruptcy Code, 2016:
- Section 3(11) defines “operational debt” as “a claim in respect of the provision of goods or services including employment or a debt in respect of the payment of dues arising under any law for the time being in force and payable to the Central Government, any State Government or any local authority.”
- Section 3(12) defines “default” as “non-payment of debt when whole or any part or installment of the amount of debt has become due and payable and is not repaid by the debtor or the corporate debtor, as the case may be.”
- Section 5(21) defines “operational creditor” as “a person to whom an operational debt is owed and includes any person to whom such debt has been legally assigned or transferred.”
- Section 9 of the Insolvency and Bankruptcy Code, 2016, deals with the initiation of the corporate insolvency resolution process by an operational creditor.
Additionally, Article 137 of the Limitation Act, 1963, which prescribes a three-year limitation period for applications where no specific period is provided, is also relevant.
Arguments
Appellant (M/S Wizaman Impex Pvt. Ltd.) Arguments:
- The appellant argued that the NCLAT erred in admitting additional documents at the appellate stage without providing the corporate debtor with an opportunity to respond.
- The appellant contended that the NCLAT’s decision to admit the application under Section 9 of the Code based on these additional documents was incorrect and violated principles of natural justice.
Respondent (Kedrion Biopharma Inc.) Arguments:
- The respondent argued that the additional documents (emails) showed that the corporate debtor had acknowledged its liability and had shown its readiness to make payments.
- The respondent contended that these acknowledgments extended the limitation period, making their application under Section 9 of the Code valid.
- The respondent also argued that the appeal by the corporate debtor was not maintainable since the NCLAT had allowed the application under Section 9 of the Code.
Submissions
| Main Submission | Sub-Submission | Party |
|---|---|---|
| Admissibility of Additional Documents | NCLAT erred in admitting additional documents without opportunity to respond. | Appellant |
| Emails show acknowledgment of liability, extending limitation period. | Respondent | |
| Maintainability of Appeal | Appeal by corporate debtor is not maintainable as NCLAT allowed Section 9 application | Respondent |
| Corporate debtor has the right to challenge the order of NCLAT until it attains finality. | Appellant |
Issues Framed by the Supreme Court
The Supreme Court addressed the following key issue:
- Whether the order of the NCLAT allowing the application under Section 9 of the Code can be sustained when the additional documents were taken on record only while finally deciding the appeal and without adequate opportunity of response to the corporate debtor?
Treatment of the Issue by the Court
| Issue | Court’s Decision |
|---|---|
| Whether the order of the NCLAT allowing the application under Section 9 of the Code can be sustained when the additional documents were taken on record only while finally deciding the appeal and without adequate opportunity of response to the corporate debtor? | The Supreme Court held that the NCLAT’s order could not be sustained because the additional documents were taken on record without giving the corporate debtor an opportunity to respond. The court emphasized that the principles of natural justice required that the corporate debtor be given a chance to respond to the new evidence. |
Authorities
The Supreme Court did not specifically cite any previous cases or books in this judgment. However, the Court considered the following legal provisions:
- Section 3(11) of the Insolvency and Bankruptcy Code, 2016: Definition of “operational debt.”
- Section 3(12) of the Insolvency and Bankruptcy Code, 2016: Definition of “default.”
- Section 5(21) of the Insolvency and Bankruptcy Code, 2016: Definition of “operational creditor.”
- Section 9 of the Insolvency and Bankruptcy Code, 2016: Initiation of corporate insolvency resolution process by an operational creditor.
- Article 137 of the Limitation Act, 1963: Prescribes a three-year limitation period for applications where no specific period is provided.
Authorities Considered by the Court
| Authority | How it was Considered |
|---|---|
| Section 3(11) of the Insolvency and Bankruptcy Code, 2016 | Used to define the nature of the debt claimed by the respondent. |
| Section 3(12) of the Insolvency and Bankruptcy Code, 2016 | Used to determine if a default had occurred. |
| Section 5(21) of the Insolvency and Bankruptcy Code, 2016 | Used to define the status of the respondent as an operational creditor. |
| Section 9 of the Insolvency and Bankruptcy Code, 2016 | Used to understand the procedure for initiating the corporate insolvency resolution process. |
| Article 137 of the Limitation Act, 1963 | Used to determine the limitation period for the application. |
Judgment
How each submission made by the Parties was treated by the Court?
| Submission | Court’s Treatment |
|---|---|
| NCLAT erred in admitting additional documents without opportunity to respond. | The Court agreed with this submission and held that the NCLAT’s order was unsustainable. |
| Emails show acknowledgment of liability, extending limitation period. | The Court did not rule on the merits of this submission and left it open for the NCLT to consider. |
| Appeal by corporate debtor is not maintainable as NCLAT allowed Section 9 application | The Court overruled this objection, stating that the corporate debtor had the right to challenge the NCLAT’s order until it attained finality. |
How each authority was viewed by the Court?
- The Court considered Section 3(11), Section 3(12), Section 5(21) and Section 9 of the Insolvency and Bankruptcy Code, 2016 to understand the nature of the debt, default, and the process of initiating corporate insolvency.
- The Court considered Article 137 of the Limitation Act, 1963 to determine the limitation period.
The Supreme Court held that the NCLAT had erred in admitting additional documents at the appellate stage without providing the corporate debtor with an adequate opportunity to respond. The court emphasized that principles of natural justice require that all parties be given a fair chance to present their case and respond to the evidence against them. The Supreme Court set aside the NCLAT order to the extent it allowed the application under Section 9 of the Code, but retained the part of the order that took the additional documents on record. The court also set aside the NCLT order and directed the NCLT to reconsider the application under Section 9 of the Code, taking into account the additional documents and providing the corporate debtor with an adequate opportunity to be heard.
What weighed in the mind of the Court?
The Supreme Court’s decision was primarily influenced by the principle of natural justice, which requires that all parties be given a fair opportunity to be heard and to respond to the evidence presented against them. The Court emphasized that the NCLAT’s decision to admit additional documents at the appellate stage without giving the corporate debtor a chance to respond was a violation of this principle. The Court also considered the procedural fairness and the need for a balanced approach in insolvency proceedings.
| Sentiment | Percentage |
|---|---|
| Procedural Fairness | 60% |
| Natural Justice | 40% |
| Ratio | Percentage |
|---|---|
| Fact | 20% |
| Law | 80% |
Logical Reasoning
Reasoning of the Court
The Supreme Court’s reasoning can be summarized as follows:
- The Court emphasized that the NCLAT should not have admitted the additional documents without giving the corporate debtor a chance to respond.
- The Court stated that the principles of natural justice are fundamental and must be followed in all judicial and quasi-judicial proceedings.
- The Court held that the NCLAT’s decision to admit the application under Section 9 of the Code based on these additional documents was incorrect and violated principles of natural justice.
- The Court also observed that the NCLT should re-consider the application after taking into account the additional documents and giving the corporate debtor an opportunity to be heard.
The Court quoted, “the appropriate course in this matter would be to set aside the impugned order dated 15.12.2021 passed by NCLAT to the extent it has allowed the application under Section 9 of the Code filed by the applicant-respondent but while retaining the other part of the impugned order taking the documents filed with I.A. No. 2685 of 2020 on record.”
The Court further stated, “After taking the said documents on record, for the appropriate process of adjudication in the matter, it is also considered just and proper that the order dated 06.10.2020 passed by NCLT be also set aside and the NCLT be directed to re-consider the application under Section 9 of the Code as filed by the applicant-respondent while taking into consideration the additional documents now taken on record and at the same time, while extending an adequate opportunity of hearing to the corporate debtor.”
The Court also clarified, “we have not pronounced on the merits of the case either way and not even on the evidentiary value and effect of the documents in question. All the aspects are left open for examination by the Adjudicating Authority in accordance with law.”
Key Takeaways
- Appellate tribunals must ensure that all parties have an opportunity to respond to new evidence introduced at the appellate stage.
- The principles of natural justice are paramount in all judicial and quasi-judicial proceedings.
- Insolvency proceedings must be conducted fairly and transparently, ensuring that all parties have an equal opportunity to be heard.
- The NCLT is directed to reconsider the matter expeditiously, taking into account the additional documents and giving an opportunity to the corporate debtor.
Directions
The Supreme Court directed the NCLT to reconsider the application under Section 9 of the Code, taking into account the additional documents and providing the corporate debtor with an adequate opportunity to be heard. The Court also directed the NCLT to assign reasonable priority to the matter and proceed expeditiously, given that the application was filed on June 30, 2020.
Development of Law
The ratio decidendi of this case is that an appellate tribunal cannot admit additional documents at the appellate stage without providing the opposing party an adequate opportunity to respond. This judgment reinforces the importance of procedural fairness and the principles of natural justice in insolvency proceedings. There is no change in the previous positions of law, but this judgment emphasizes the importance of following the principles of natural justice.
Conclusion
In the case of M/S Wizaman Impex Pvt. Ltd. vs. Kedrion Biopharma Inc., the Supreme Court set aside the NCLAT’s order to the extent it allowed the application under Section 9 of the Insolvency and Bankruptcy Code, 2016, because the NCLAT had admitted additional documents without giving the corporate debtor an opportunity to respond. The Supreme Court directed the NCLT to reconsider the application, ensuring that the corporate debtor is given a fair hearing. This judgment underscores the importance of procedural fairness and adherence to the principles of natural justice in insolvency proceedings.
Category
Parent Category: Insolvency and Bankruptcy Code, 2016
Child Categories: Section 9, Insolvency and Bankruptcy Code, 2016, Natural Justice, Procedural Fairness, Corporate Insolvency Resolution Process
FAQ
Q: What was the main issue in the M/S Wizaman Impex Pvt. Ltd. vs. Kedrion Biopharma Inc. case?
A: The main issue was whether the NCLAT could admit additional documents at the appellate stage without giving the corporate debtor a chance to respond.
Q: What did the Supreme Court decide?
A: The Supreme Court ruled that the NCLAT’s action was incorrect and violated principles of natural justice. The court set aside the NCLAT’s order and directed the NCLT to reconsider the case after allowing the corporate debtor to respond to the new evidence.
Q: What are the practical implications of this judgment?
A: The judgment reinforces the importance of procedural fairness in insolvency proceedings. It means that appellate tribunals must ensure that all parties have an opportunity to respond to new evidence before making a decision.
Q: What is the principle of natural justice?
A: The principle of natural justice requires that all parties be given a fair opportunity to present their case and respond to the evidence against them.
Q: What is Section 9 of the Insolvency and Bankruptcy Code, 2016?
A: Section 9 of the Insolvency and Bankruptcy Code, 2016, deals with the initiation of the corporate insolvency resolution process by an operational creditor.