NCLAT Order Set Aside: Supreme Court Remands Section 9 IBC Case for Reconsideration

The Supreme Court, in its judgment dated February 7, 2022, ruled in favor of M/s Wizaman Impex Pvt. Ltd. by setting aside the order of the National Company Law Appellate Tribunal (NCLAT) that had allowed a Section 9 Insolvency and Bankruptcy Code (IBC) application against the company. The Court remanded the matter back to the National Company Law Tribunal (NCLT) for reconsideration while ensuring that the corporate debtor is given an opportunity to respond to new evidence submitted at the appellate stage.

Background of the Case

The case arose from a commercial dispute between M/s Wizaman Impex Pvt. Ltd. (Corporate Debtor) and Kedrion Biopharma Inc. (Operational Creditor). Kedrion Biopharma alleged that Wizaman Impex failed to clear its dues under a distribution agreement for pharmaceutical products.

The dispute followed this timeline:

July 25, 2019: Kedrion Biopharma sent a demand notice for USD 901,000.
August 7, 2019: A second demand notice was sent to the corporate debtor’s new registered office.
August 17, 2019: Wizaman Impex replied, disputing the debt and citing issues with the Directorate of Health Services, Maharashtra, concerning short shelf-life pharmaceutical products.
June 30, 2020: Kedrion Biopharma filed a Section 9 application under the IBC before the NCLT.
October 6, 2020: NCLT dismissed the application as time-barred under the Limitation Act, 1963, ruling that the three-year limitation period had expired.
December 15, 2021: NCLAT overturned NCLT’s ruling, holding that email exchanges between 2017-2019 constituted an acknowledgment of debt, thereby extending the limitation period.
February 7, 2022: Supreme Court ruled that NCLAT had erred in considering additional documents without giving the corporate debtor an opportunity to respond, and remanded the case to NCLT.

Arguments of the Parties

Petitioner’s (Corporate Debtor) Arguments

M/s Wizaman Impex Pvt. Ltd. contended:

The Section 9 application was time-barred as the last alleged acknowledgment of debt was in 2017.
NCLAT allowed new email evidence from 2017-2019 at the appellate stage without giving the corporate debtor an opportunity to respond.
The case should have been decided based on the material before the NCLT, and additional evidence should not have been admitted so late in the proceedings.

Respondent’s (Operational Creditor) Arguments

Kedrion Biopharma argued:

The emails exchanged between November 3, 2017, and January 11, 2019 showed that the corporate debtor acknowledged the debt and offered revised settlement proposals.
As per Article 137 of the Limitation Act, 1963, the limitation period restarts from the date of acknowledgment of debt, making the June 30, 2020, Section 9 application valid.
NCLAT had the discretion to admit additional evidence to ensure justice was served.

Supreme Court’s Observations

On Procedural Impropriety by NCLAT

The Supreme Court held that:

“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.”

On Admissibility of Additional Evidence

The Court recognized that the additional evidence (emails from 2017-2019) was relevant but emphasized:

“Due consideration of the said documents also appears requisite and the documents cannot be removed out of consideration only because they were not on record before NCLT.”

On Setting Aside NCLAT’s Judgment

The Court decided to:

Set aside NCLAT’s order dated December 15, 2021, which admitted the Section 9 application.
Direct NCLT to reconsider the application while taking into account the additional documents.
Ensure that the corporate debtor is given a fair opportunity to present its case.

Final Judgment

The Supreme Court ruled:

NCLAT’s order allowing the Section 9 application was set aside.
NCLT was directed to reconsider the case with additional evidence.
The corporate debtor must be given a chance to respond before any decision is made.

The Court clarified:

“It goes without saying that 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.”

Implications of the Judgment

This ruling has significant implications for insolvency proceedings in India:

Ensuring Procedural Fairness: It reinforces the principle that additional evidence should not be considered at the appellate stage without giving the opposing party an opportunity to respond.
Clarifying Acknowledgment of Debt: The judgment highlights that while email communications can be considered as an acknowledgment of debt, they must be scrutinized with procedural fairness.
Guidance for IBC Cases: The decision serves as a precedent that NCLT should fully examine additional evidence before rejecting or admitting insolvency applications.

The Supreme Court’s verdict safeguards the rights of corporate debtors while ensuring that operational creditors get a fair opportunity to establish their claims.

Petitioner Name: M/s Wizaman Impex Pvt. Ltd..
Respondent Name: Kedrion Biopharma Inc..
Judgment By: Justice Dinesh Maheshwari, Justice Vikram Nath.
Place Of Incident: New Delhi.
Judgment Date: 07-02-2022.

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