LEGAL ISSUE: Whether the National Company Law Appellate Tribunal (NCLAT) was correct in admitting additional documents at the appellate stage without providing an opportunity for response to the corporate debtor.
CASE TYPE: Insolvency Law
Case Name: M/S Wizman Impex Pvt. Ltd. vs. Kedrion Biopharma Inc.
Judgment Date: 7th February 2022
Date of the Judgment: 7th February 2022
Citation: 2022 INSC 1592
Judges: Dinesh Maheshwari, J. and Vikram Nath, J.
Can additional evidence be admitted at the appellate stage in an insolvency case without giving the other party a chance to respond? The Supreme Court of India addressed this procedural question in a recent case concerning the Insolvency and Bankruptcy Code, 2016. The court had to decide whether the NCLAT was correct in admitting additional documents at the appellate stage without giving the corporate debtor an opportunity to respond. This case highlights the importance of procedural fairness in insolvency proceedings. The judgment was delivered by a two-judge bench comprising Justice Dinesh Maheshwari and Justice Vikram Nath.
Case Background
The case involves a dispute between M/S Wizman Impex Pvt. Ltd. (the corporate debtor) and Kedrion Biopharma Inc. (the operational creditor). Kedrion Biopharma claimed that Wizman Impex owed them money under a distribution agreement. According to the agreement, Wizman Impex was to sell Kedrion’s pharmaceutical products until Kedrion’s Indian subsidiary could take over. Kedrion raised several invoices and issued credit notes. They claimed that Wizman Impex defaulted on payments. Kedrion sent a demand notice on July 25, 2019, which was returned undelivered. A second notice was sent on August 7, 2019, to the new registered office of Wizman Impex. Wizman 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 then filed an application under Section 9 of the Insolvency and Bankruptcy Code, 2016, claiming Wizman Impex had defaulted on an operational debt.
Timeline:
| Date | Event |
|---|---|
| July 25, 2019 | Kedrion Biopharma sends a demand notice to Wizman Impex, which is returned undelivered. |
| August 7, 2019 | Kedrion Biopharma sends a second demand notice to Wizman Impex’s new registered office. |
| August 17, 2019 | Wizman Impex replies to the demand notice, disputing the dues. |
| June 30, 2020 | Kedrion Biopharma files an application under Section 9 of the Insolvency and Bankruptcy Code, 2016. |
| October 6, 2020 | The National Company Law Tribunal (NCLT) rejects Kedrion Biopharma’s application. |
| December 15, 2021 | The National Company Law Appellate Tribunal (NCLAT) sets aside the NCLT order and admits Kedrion Biopharma’s application after admitting additional documents. |
| February 7, 2022 | The Supreme Court of India sets aside the NCLAT order and remands the case back to NCLT for fresh consideration. |
Course of Proceedings
The National Company Law Tribunal (NCLT) initially rejected Kedrion Biopharma’s application, concluding that it was time-barred under Article 137 of the Limitation Act, 1963. The NCLT held that the provided documents did not constitute an acknowledgment of debt that would extend the limitation period. Kedrion Biopharma appealed to the National Company Law Appellate Tribunal (NCLAT), and filed an application (I.A. No. 2685 of 2020) seeking permission to produce additional email exchanges from November 3, 2017, to January 11, 2019, relating to settlement proposals. The NCLAT allowed the application and admitted the additional documents. Based on these emails, the NCLAT concluded that Wizman Impex had acknowledged its liability and was ready to make payments, reversing the NCLT’s decision. The NCLAT admitted the application under Section 9 of the Insolvency and Bankruptcy Code, 2016. Wizman Impex then appealed to the Supreme Court.
Legal Framework
The case primarily revolves around the interpretation and application of the following provisions:
- Section 3(11) of the Insolvency and Bankruptcy Code, 2016: Defines “operational debt” as a claim for payment of goods or services.
- Section 3(12) of the Insolvency and Bankruptcy Code, 2016: Defines “default” as non-payment of debt when due.
- Section 5(21) of the Insolvency and Bankruptcy Code, 2016: Defines “operational creditor” as a person to whom an operational debt is owed.
- Section 9 of the Insolvency and Bankruptcy Code, 2016: Deals with the initiation of corporate insolvency resolution process by an operational creditor.
- Article 137 of the Limitation Act, 1963: Prescribes a limitation period of three years for applications where no specific period is provided.
The Insolvency and Bankruptcy Code, 2016, provides a framework for resolving insolvency and bankruptcy matters in India. Section 9 allows an operational creditor to initiate the corporate insolvency resolution process if a corporate debtor defaults on an operational debt. The Limitation Act, 1963, sets the time limits within which legal actions must be initiated.
Arguments
Arguments by the Appellant (M/S Wizman Impex Pvt. Ltd.):
- The appellant argued that the NCLAT erred in admitting additional documents (email exchanges) at the appellate stage without giving the corporate debtor a chance to respond.
- The appellant contended that the NCLAT’s decision to admit the application under Section 9 of the Insolvency and Bankruptcy Code, 2016, was unsustainable because the additional documents were not part of the record before the NCLT.
- The appellant submitted that the NCLT’s decision to reject the application was correct as it was filed beyond the limitation period.
Arguments by the Respondent (Kedrion Biopharma Inc.):
- The respondent argued that the additional documents (email exchanges) showed that the corporate debtor had acknowledged its liability and had proposed settlement terms.
- The respondent contended that these acknowledgments extended the limitation period, and thus the application under Section 9 was not time-barred.
- The respondent submitted that the NCLAT was correct in admitting the additional documents and reversing the NCLT’s decision.
| Main Submission | Sub-Submissions by Appellant (Wizman Impex) | Sub-Submissions by Respondent (Kedrion Biopharma) |
|---|---|---|
| Admissibility of Additional Documents | ✓ NCLAT erred in admitting additional documents without giving a chance to respond. ✓ Additional documents were not part of the record before the NCLT. |
✓ Additional documents showed acknowledgment of liability and settlement proposals. ✓ NCLAT was correct in admitting additional documents. |
| Limitation Period | ✓ Application was filed beyond the limitation period. ✓ NCLT’s decision to reject the application was correct. |
✓ Acknowledgments in emails extended the limitation period. ✓ Application under Section 9 was not time-barred. |
| Validity of NCLAT Order | ✓ NCLAT’s decision to admit the application under Section 9 was unsustainable. | ✓ NCLAT was correct in reversing the NCLT’s decision. |
Issues Framed by the Supreme Court
The Supreme Court did not frame specific issues in a numbered list. However, the core issue before the court was:
- Whether the National Company Law Appellate Tribunal (NCLAT) was justified in admitting additional documents at the appellate stage without providing an opportunity for the corporate debtor to respond, and whether the NCLAT was correct in reversing the order of the NCLT.
Treatment of the Issue by the Court
The following table demonstrates as to how the Court decided the issues
| Issue | How the Court Dealt with It |
|---|---|
| Whether the NCLAT was justified in admitting additional documents at the appellate stage without providing an opportunity for the corporate debtor to respond? | The Supreme Court held that the NCLAT was incorrect in admitting additional documents and deciding the case on those documents without giving the corporate debtor an opportunity to respond. This violated principles of natural justice. |
| Whether the NCLAT was correct in reversing the order of the NCLT? | 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 taking the additional documents on record. The Court directed the NCLT to reconsider the application under Section 9, taking the additional documents into account and providing the corporate debtor an opportunity to respond. |
Authorities
The Supreme Court did not cite any specific cases or books in this judgment. The legal provisions considered by the court are:
- 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: Limitation period for applications.
| Authority | How the Court Considered It |
|---|---|
| Section 3(11) of the Insolvency and Bankruptcy Code, 2016 | The Court considered the definition of “operational debt” to determine if the debt claimed by the respondent fell under this category. |
| Section 3(12) of the Insolvency and Bankruptcy Code, 2016 | The Court considered the definition of “default” to determine if there was a non-payment of debt when due. |
| Section 5(21) of the Insolvency and Bankruptcy Code, 2016 | The Court considered the definition of “operational creditor” to determine if the respondent was an operational creditor under the law. |
| Section 9 of the Insolvency and Bankruptcy Code, 2016 | The Court considered the procedure for initiating corporate insolvency resolution process by an operational creditor. |
| Article 137 of the Limitation Act, 1963 | The Court considered the limitation period for applications to determine if the application was time-barred. |
Judgment
| Submission by Parties | How the Court Treated It |
|---|---|
| Appellant’s submission that NCLAT erred in admitting additional documents without giving a chance to respond. | The Court agreed with the appellant, holding that the NCLAT erred in admitting additional documents at the appellate stage without providing an opportunity for the corporate debtor to respond. |
| Respondent’s submission that additional documents showed acknowledgment of liability and extended the limitation period. | The Court did not pronounce on the merits of this submission, leaving it open for the NCLT to examine. |
| Appellant’s submission that the NCLT’s decision to reject the application was correct. | The Court set aside the order of the NCLT and directed the NCLT to reconsider the application. |
| Respondent’s submission that the NCLAT was correct in reversing the NCLT’s decision. | The 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 taking the additional documents on record. |
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 determine if the debt and application were valid under the Code.
- The Court considered Article 137 of the Limitation Act, 1963 to check if the application was time-barred, and stated that the NCLT must examine the documents to see if the limitation period was extended.
What weighed in the mind of the Court?
The Supreme Court’s decision was primarily influenced by the principle of natural justice and procedural fairness. The Court emphasized that the NCLAT should not have admitted additional documents and reversed the NCLT’s decision without giving the corporate debtor an opportunity to respond. The Court also considered the need for a fair and thorough adjudication of the matter, ensuring that all parties have an equal opportunity to present their case. The Court did not delve into the merits of the case or the evidentiary value of the documents, leaving that for the NCLT to decide.
| Sentiment | Percentage |
|---|---|
| Procedural Fairness | 60% |
| Natural Justice | 30% |
| Need for thorough adjudication | 10% |
| Ratio | Percentage |
|---|---|
| Fact | 20% |
| Law | 80% |
Fact:Law Ratio: The court’s decision was primarily based on legal principles (80%), focusing on procedural fairness and the requirements of natural justice, with a lesser emphasis on the factual aspects of the case (20%).
The Supreme Court’s reasoning was that the NCLAT should not have admitted additional documents without giving the corporate debtor a chance to respond. This was a violation of natural justice. The Court set aside the NCLAT’s order to the extent that it allowed the application under Section 9 of the Code. The Court directed the NCLT to reconsider the application after taking the additional documents into account and giving the corporate debtor an opportunity to respond. The Court did not pronounce on the merits of the case or the evidentiary value of the documents.
The Court stated, “the impugned order allowing the appeal and even admitting the application under Section 9 of the Code cannot be sustained on a short point that the said additional documents were taken on record only while finally deciding the appeal and without adequate opportunity of response to the corporate debtor.”
The Court also observed, “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 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
- Procedural Fairness: Appellate tribunals must ensure that all parties have an opportunity to respond to new evidence or arguments.
- Natural Justice: The principles of natural justice must be followed in all judicial and quasi-judicial proceedings.
- Remand for Reconsideration: When an appellate tribunal errs in procedure, the matter may be remanded to the lower authority for fresh consideration.
- Importance of Opportunity to Respond: Parties must be given an adequate opportunity to respond to new documents or evidence.
- Expeditious Resolution: Insolvency matters should be resolved expeditiously, given their time-sensitive nature.
Directions
The Supreme Court directed the National Company Law Tribunal (NCLT) to reconsider the application under Section 9 of the Insolvency and Bankruptcy Code, 2016, taking into consideration the additional documents taken on record by the NCLAT. The NCLT was also directed to provide an adequate opportunity of hearing to the corporate debtor and to proceed expeditiously.
Development of Law
The judgment clarifies that appellate tribunals cannot admit additional documents and decide on them without giving the other party a chance to respond. This reinforces the importance of procedural fairness and natural justice in insolvency proceedings. The ratio decidendi of the case is that the NCLAT should not have admitted additional documents without giving an opportunity to the corporate debtor to respond, and the matter should be remanded to the NCLT for fresh consideration.
Conclusion
The Supreme Court’s decision in M/S Wizman Impex Pvt. Ltd. vs. Kedrion Biopharma Inc. emphasizes the importance of procedural fairness in insolvency proceedings. The Court set aside the NCLAT order to the extent it allowed the application under Section 9 of the Insolvency and Bankruptcy Code, 2016, and directed the NCLT to reconsider the matter. This judgment underscores that all parties must be given an adequate opportunity to respond to new evidence or arguments, ensuring that the principles of natural justice are upheld.
Category:
Parent category: Insolvency and Bankruptcy Code, 2016
Child categories:
- Section 9, Insolvency and Bankruptcy Code, 2016
- Operational Creditor
- Corporate Insolvency Resolution Process
- Natural Justice
- Appellate Tribunal
- Limitation Act, 1963
FAQ
Q: What was the main issue in the case of M/S Wizman Impex Pvt. Ltd. vs. Kedrion Biopharma Inc.?
A: The main issue was whether the National Company Law Appellate Tribunal (NCLAT) could admit additional documents at the appellate stage without giving the corporate debtor an opportunity to respond.
Q: What did the Supreme Court decide in this case?
A: The Supreme Court held that the NCLAT erred in admitting additional documents without giving the corporate debtor a chance to respond. The Court set aside the NCLAT order to the extent it allowed the application under Section 9 of the Insolvency and Bankruptcy Code, 2016, and directed the NCLT to reconsider the matter.
Q: What is the significance of this judgment?
A: This judgment reinforces the importance of procedural fairness and natural justice in insolvency proceedings. It clarifies that appellate tribunals must ensure that all parties have an opportunity to respond to new evidence or arguments.
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.
Q: What is the Limitation Act, 1963?
A: The Limitation Act, 1963, sets the time limits within which legal actions must be initiated. In this case, it was relevant to determine if the application was time-barred.