Supreme Court Restores Appeal, Emphasizes Fair Hearing in Insolvency Case: Jord Engineers vs. Valia and Co. (2022)

Introduction

Date of the Judgment: 28 March 2022

Citation: 2022 INSC 207

Judges: Dinesh Maheshwari, J. and Aniruddha Bose, J.

Can a court decision stand if one party was not given a fair chance to present their case? The Supreme Court of India recently addressed this critical question in an insolvency matter, emphasizing the importance of providing a reasonable opportunity for all parties to be heard. This case highlights the fundamental principle of natural justice within the framework of the Insolvency and Bankruptcy Code, 2016.

The Supreme Court, in this judgment, dealt with an appeal against an order of the National Company Law Appellate Tribunal (NCLAT) that had been passed without the presence of one of the parties. The court underscored the necessity of ensuring that all parties are given a fair chance to present their side of the story, especially in cases with significant financial implications.

The bench consisted of Justice Dinesh Maheshwari and Justice Aniruddha Bose. The judgment was authored by Justice Dinesh Maheshwari.

Case Background

The case originated from an application filed by Valia and Co. (the respondent), an operational creditor, against Jord Engineers India Ltd. (the appellant). Valia and Co. claimed that Jord Engineers defaulted on a payment of ₹4.72 crores for goods supplied in 2012. This led to the initiation of the corporate insolvency resolution process (CIRP) against Jord Engineers.

The National Company Law Tribunal (NCLT), Mumbai Bench, admitted the application on 31 July 2017. However, the NCLAT set aside this order on 13 October 2017, primarily because the demand notice was served by an advocate who did not have a direct relationship with the operational creditor.

Valia and Co. then appealed to the Supreme Court, which, on 2 April 2018, remanded the matter back to the NCLAT. The Supreme Court’s decision was based on the judgment in the case of *Macquarie Bank Limited v. Shilpi Cable Technologies Limited: (2018) 2 SCC 674*, which clarified that a notice issued by a lawyer on behalf of an operational creditor is valid. However, this order was passed without notice to Jord Engineers.

The NCLAT then proceeded to hear the matter again. The NCLAT noted that despite attempts to notify Jord Engineers, the company could not be reached at the given address. The NCLAT, relying on the *Macquarie Bank Limited* judgment, ruled that the operational creditor’s petition was within the limitation period.

Jord Engineers, having not been present during these proceedings, appealed to the Supreme Court, arguing that they were not given a fair hearing.

Timeline

Course of Proceedings

The National Company Law Tribunal (NCLT), Mumbai Bench, initially admitted the application filed by Valia and Co. on 31 July 2017. However, the National Company Law Appellate Tribunal (NCLAT) set aside this order on 13 October 2017, because the demand notice was served by an advocate who did not have a direct relationship with the operational creditor.

Valia and Co. then appealed to the Supreme Court, which, on 2 April 2018, remanded the matter back to the NCLAT. The Supreme Court’s decision was based on the judgment in the case of *Macquarie Bank Limited v. Shilpi Cable Technologies Limited*, which clarified that a notice issued by a lawyer on behalf of an operational creditor is valid. However, this order was passed without notice to Jord Engineers. The Supreme Court order also stated that Jord Engineers could approach the court if aggrieved by the order.

The NCLAT then proceeded to hear the matter again. The NCLAT noted that despite attempts to notify Jord Engineers, the company could not be reached at the given address. The NCLAT, relying on the *Macquarie Bank Limited* judgment, ruled that the operational creditor’s petition was within the limitation period.

Legal Framework

This case primarily involves Section 9 of the Insolvency and Bankruptcy Code, 2016. This section allows an operational creditor to initiate the corporate insolvency resolution process (CIRP) against a corporate debtor if there is a default in payment of a debt.

Section 9 of the Insolvency and Bankruptcy Code, 2016 states:

“9. Application for initiation of corporate insolvency resolution process by operational creditor.—(1) After the expiry of the period of ten days from the date of delivery of the notice or invoice demanding payment under sub-section (1) of section 8, if the operational creditor does not receive payment from the corporate debtor or notice of the dispute under sub-section (2) of section 8, the operational creditor may file an application before the Adjudicating Authority for initiating a corporate insolvency resolution process.
(2) The application under sub-section (1) shall be accompanied by such documents and records as may be specified by the Board.
(3) The operational creditor shall, along with the application under sub-section (1), file—
(a) a copy of the invoice demanding payment or a copy of the demand notice delivered to the corporate debtor;
(b) an affidavit to the effect that there is no notice given by the corporate debtor relating to a dispute of the unpaid operational debt;
(c) a copy of the certificate from the financial institutions maintaining accounts of the operational creditor confirming that there is no payment of an unpaid operational debt by the corporate debtor;
(d) a copy of any other document or record in support of the claim.”

The Supreme Court also considered its previous decision in *Macquarie Bank Limited v. Shilpi Cable Technologies Limited: (2018) 2 SCC 674*, which clarified that a notice issued by a lawyer on behalf of an operational creditor is valid.

Arguments

Arguments by Jord Engineers (Appellant):

• The appellant argued that the NCLAT order was passed without giving them a reasonable opportunity to be heard.
• They contended that they were not aware of the Supreme Court’s order dated 02.04.2018, which remanded the matter back to the NCLAT.
• They stated that they did not receive notice of the revived proceedings before the NCLAT.
• The appellant submitted that there was a pre-existing dispute regarding the debt owed to the respondent, which should have been considered by the NCLAT.

Arguments by Valia and Co. (Respondent):

• The respondent argued that the demand notice was valid as per the ruling in *Macquarie Bank Limited v. Shilpi Cable Technologies Limited*.
• The respondent contended that the petition was within the limitation period.
• The respondent did not make any specific submissions regarding the lack of opportunity to be heard for the appellant.

Issues Framed by the Supreme Court

The primary issue before the Supreme Court was:

1. Whether the impugned order dated 09.07.2018 passed by the National Company Law Appellate Tribunal, New Delhi, can be sustained, given that the appellant was deprived of a reasonable opportunity of hearing.

Treatment of the Issue by the Court

Authorities

The Supreme Court considered the following authorities:

Cases:

• Macquarie Bank Limited v. Shilpi Cable Technologies Limited: (2018) 2 SCC 674 – This case was cited to support the validity of a demand notice issued by a lawyer on behalf of an operational creditor. The Supreme Court in this case held that a notice on behalf of the operational creditor by a lawyer would be in order.

Legal Provisions:

• Section 9 of the Insolvency and Bankruptcy Code, 2016 – This section deals with the initiation of the corporate insolvency resolution process by an operational creditor.

Judgment

How each authority was viewed by the Court?

• The Supreme Court acknowledged the precedent set in *Macquarie Bank Limited v. Shilpi Cable Technologies Limited: (2018) 2 SCC 674*, which validated the demand notice issued by the lawyer. However, the court clarified that this did not negate the requirement for a fair hearing.
• The court recognized that the case was initiated under Section 9 of the Insolvency and Bankruptcy Code, 2016, but emphasized that the procedural fairness was not followed.

What weighed in the mind of the Court?

The primary concern of the Supreme Court was the lack of a fair hearing for Jord Engineers. The court emphasized that the principles of natural justice require that all parties be given a reasonable opportunity to present their case. The Court noted that Jord Engineers were not present during the proceedings before the NCLAT and were not aware of the order passed by the Supreme Court on 02.04.2018, which had remanded the matter back to the NCLAT. The court also highlighted that the NCLAT proceeded to decide the matter without ensuring that Jord Engineers had received proper notice.

Fact:Law Ratio:

The court’s decision was primarily driven by the legal principle of natural justice, which requires a fair hearing for all parties. While the court acknowledged the factual aspects of the case, such as the debt and the demand notice, the core of their decision was rooted in ensuring that the proper legal procedure was followed.

Logical Reasoning:

The Court did not delve into the merits of the case, such as the existence of a pre-existing dispute or the limitation period. Instead, it focused on the procedural aspect of ensuring a fair hearing. The court reasoned that without a fair hearing, the decision of the NCLAT could not be sustained. The court also considered alternative interpretations but rejected them because the lack of a fair hearing was a fundamental flaw in the process. The final decision was to set aside the NCLAT order and restore the appeal for reconsideration.

The Supreme Court stated:

“…the fundamental factor remains that the appellant was not present before the Appellate Tribunal; and it is difficult to impute knowledge in the appellant about the order passed by this Court on 02.04.2018 without notice and then, about revival of the proceedings before the Appellate Tribunal.”

“…so far as initiation of corporate insolvency resolution process at the instance of respondent-operational creditor is concerned, the relevant facts and factors, including the question of pre-existing dispute, deserve due and adequate consideration by the Appellate Tribunal.”

“…it appears just and proper that while setting aside the impugned order dated 09.07.2018, the matter be again restored to the file of the Appellate Tribunal for decision afresh and on merits.”

The court did not discuss any minority opinions as it was a unanimous decision.

Key Takeaways

• The Supreme Court emphasized the importance of a fair hearing in legal proceedings, particularly in insolvency cases.
• An order passed without giving a reasonable opportunity of being heard to a party cannot be sustained.
• The principles of natural justice are paramount in ensuring that all parties are given a fair chance to present their case.
• The validity of a demand notice does not negate the requirement for a fair hearing.
• The matter was remanded back to the NCLAT for a fresh decision on merits.
• Other creditors are allowed to proceed in accordance with the law, subject to objections.

Directions

The Supreme Court directed that:

• The impugned order dated 09.07.2018 passed by the Appellate Tribunal is set aside.
• The appeal is restored for reconsideration by the Appellate Tribunal.
• The parties are to appear before the Appellate Tribunal on 18.04.2022.
• The Appellate Tribunal is requested to assign a reasonable priority to this matter and to proceed expeditiously.
• Further proceedings before the Tribunal shall remain stayed until the final decision of the appeal by the Appellate Tribunal.
• The pendency of the said appeal or any observations made in these proceedings shall not affect other proceedings taken by other creditors.

Development of Law

The ratio decidendi of this case is that an order passed without giving a reasonable opportunity of being heard to a party cannot be sustained. This reaffirms the importance of the principles of natural justice in legal proceedings. There is no change in the previous position of law, but the court has emphasized the importance of ensuring that all parties are given a fair chance to present their case.

Conclusion

The Supreme Court’s decision in *Jord Engineers India Ltd. vs. Valia and Co.* underscores the critical importance of procedural fairness and the right to be heard in legal proceedings. By setting aside the NCLAT order and remanding the case for reconsideration, the Supreme Court has reaffirmed the principle that no decision should be made without affording all parties a reasonable opportunity to present their case. This judgment serves as a reminder that even in complex cases involving financial disputes, the fundamental principles of natural justice must be upheld.