2025 (8) TMI 1303 - AT - IBC

Appeal allowed; order denying Corporate Debtor's filing of additional documents set aside under Rule 55; matter remitted

Gannon Dunkerley & Company Ltd. Versus RDC Concrete (India) Pvt. Ltd.

NCLAT allowed the appeal, set aside the Adjudicating Authority's order rejecting the Corporate Debtor's application to file additional documents, and held ... Rejection of application filed by the Appellant, the Corporate Debtor for taking additional documents on record - Adjudicating Authority while rejecting the application observed that the Corporate Debtor had adequate opportunity to place the documents on record at two prior stages - HELD THAT:- Corporate Debtor did not take any extension of time and complied the order by filing the reply on the date fixed. The Operational Creditor took time for filing rejoinder-affidavit and thereafter when the matter was taken on 27.06.2025 where Adjudicating Authority passed following order noticing that the parties have expressed their willingness to explore the settlement. In the reply to demand notice, the Corporate Debtor has to bring to the notice of the Operational Creditor (a) existence of a dispute, if any, or record of the pendency of the suit or arbitration proceedings; (b) the payment of unpaid operational debt. Sub-section (2) of Section 8 does not contemplate filing of any other record or document except those referred to in sub-section (2). The view of the Adjudicating Authority is not subscribed that at the time of submitting reply to the demand notice Corporate Debtor had opportunity to place the documents which are sought to be filed along with the IA on record. It is true that at the time of filing of Affidavit-in-Reply, all necessary documents could have been filed but the question of submission of additional documents only arises when pleadings are complete and any document which may deem necessary by the parties has not been brought on the record. Rule 55 of the NCLT Rules, 2016 empowers the Court to grant leave on such terms as the Tribunal may deem fit subsequent to filing of reply, thus, accepting additional documents after filing reply is contemplated by the rule itself. The present is a case where the Corporate Debtor has neither taken any adjournment nor has been prolonging the proceeding. Neither any finding has been recorded by the Adjudicating Authority that the Corporate Debtor is causing delay in disposal of the proceeding. It is true that if a party causes undue delay and is prolonging proceeding, Adjudicating Authority can refuse to exercise its discretion in accepting the document. The facts of the present case, as noted above, clearly indicate that reply was filed by the Corporate Debtor within the time allowed by the Court without seeking any extension of time. Adjudicating Authority itself granted opportunity to explore settlement by its order passed on 27.06.2025 and on 27.06.2025, the next date fixed was 17.07.2025 when parties to report the outcome of the settlement - The relevancy of the document has neither been adjudicated by the Adjudicating Authority nor it is necessary to express any opinion on the relevancy of the documents which are sought to be brought on the record by the Corporate Debtor and it is for the Adjudicating Authority to consider the same. The present is not a case where application filed by the Corporate Debtor was held not maintainable nor any such finding has been entered by the Adjudicating Authority in the impugned order. Adjudicating Authority although have not held that application is not maintainable but rejected the application on merits where order was reserved for issuance of notice and maintainability. Present was a case where sufficient cause has been made out by the Corporate Debtor in IA No.3245 of 2025 to take additional documents on record - the impugned order is set aside - appeal allowed. 1. ISSUES PRESENTED AND CONSIDERED 1. Whether an Adjudicating Authority may refuse, in exercise of its discretion, to permit a corporate debtor to place additional documents on record after filing its affidavit-in-reply in a Section 9 proceeding where the reply was filed within time and no adjournment was sought. 2. Whether the scope of reply to a statutory demand under Section 8(2) compels a corporate debtor to file all contemporaneous documentary evidence with the initial reply, or whether additional documents may be permitted later under procedural rules. 3. The proper approach to exercise of discretion by the Adjudicating Authority in admitting additional documents after pleadings are complete, including the relevance of delay, prejudice to the opposing party, and the duty to do substantial justice. 4. Whether the Adjudicating Authority erred in relying on a period of elapsed time between filing of affidavit-in-reply and an interlocutory application to reject the application without considering the reasons for late filing and the procedural provisions permitting subsequent filing. 2. ISSUE-WISE DETAILED ANALYSIS Issue 1: Discretion to refuse additional documents post-reply where reply was timely filed Legal framework: The Adjudicating Authority Rules empower the Tribunal to grant leave to file documents after filing of reply; the Adjudicating Authority exercises discretion to admit or refuse additional documents until a final order admitting or dismissing the petition is passed. Precedent treatment: Higher court authority has recognised there is no absolute bar to filing additional documents until final disposal, while also acknowledging that discretion may be exercised to refuse when delay is inordinate or manifestly intended to obstruct disposal. Interpretation and reasoning: The Court examined the chronology: reply filed within the time fixed, no extension sought, no adjournment requested, and an interlocutory application filed before the next listed date after settlement discussions failed. The Tribunal's rejection rested on the view that the corporate debtor had 'adequate opportunity' earlier and on the lapse of days between reply and the IA. The Court concluded that the discretion to refuse must be exercised objectively and judicially, and that mere lapse of time, absent a finding of deliberate delay or prejudice, cannot be sole basis to deny leave. Ratio vs. Obiter: Ratio - An Adjudicating Authority may not decline to admit additional documents solely because earlier opportunities existed where the party filed reply within time and has offered cogent reasons for later filing. Obiter - Observations on general conduct that may constitute undue delay when a party prolongs proceedings. Conclusions: The Adjudicating Authority erred in rejecting the application on the ground of elapsed time and the notion of prior opportunity without assessing whether sufficient cause existed; the additional documents should have been permitted to be placed on record subject to the Authority's consideration of relevance and any prejudice. Issue 2: Scope of reply to statutory demand under Section 8(2) and requirement to file all documents with reply Legal framework: Section 8(2) prescribes that the corporate debtor, within ten days of receipt of demand notice, must bring to the operational creditor's notice (a) existence of a dispute or record of pendency of suit/arbitration, and (b) payment of unpaid operational debt by specified proof forms. Precedent treatment: Judicial guidance accepts that Section 8(2) does not enumerate an exhaustive requirement to file extensive documentary records contemporaneously with the reply and procedural rules preserve court's power to admit additional material thereafter. Interpretation and reasoning: The Court held that Section 8(2) contemplates only specific disclosures and does not require filing of all contemporaneous correspondence or supporting documents with the reply to the demand notice. Rule-based power to grant leave post-reply contemplates situations where voluminous or collated documents are produced later. Hence, the Tribunal's assertion that the corporate debtor had adequate opportunity at the demand-reply stage to file all such documents misconstrued Section 8(2). Ratio vs. Obiter: Ratio - Section 8(2) does not mandate filing of all supporting documentary evidence with the initial reply; admission of additional documents thereafter can legitimately be sought. Obiter - Practical observations on volume and collation issues leading to later filing. Conclusions: The Adjudicating Authority's reliance on Section 8(2) as a ground to refuse later-produced contemporaneous documents is unsound; the statutory provision does not preclude subsequent placing of relevant material on record under the Rules. Issue 3: Exercise of judicial discretion - delay, prejudice, and substantial justice in admitting additional documents Legal framework: Adjudicating Authority has discretion to admit or refuse additional pleadings/documents under the Rules; discretion should be exercised objectively, judicially, and in furtherance of substantial justice. Procedural provisions and jurisprudence permit filing until final order, subject to Court's discretion where delay is inordinate or prejudicial. Precedent treatment: Higher court pronouncements endorse liberal approach to admitting documents to enable resolution on merits unless delay is undue or prejudicial; procedural technicalities should not thwart substantial justice where prejudice is absent. Interpretation and reasoning: The Court applied the principle that procedure is the handmaid of justice and that courts should lean towards enabling adjudication on merits when procedural non-compliance does not cause serious prejudice. It evaluated facts: no recorded finding of deliberate delay by the corporate debtor, filing occurred before the reserved hearing date, reasons provided for collation from multiple project offices, and the Authority itself had adjourned for settlement. Taking these into account, the Court found sufficient cause to admit the additional documents and ordered the Authority to receive them and allow the operational creditor time to reply. Ratio vs. Obiter: Ratio - Discretion to refuse additional documents must consider whether there is inordinate delay or prejudice; absent such factors and where cogent reasons for late production are shown, leave ought to be granted to secure fair adjudication. Obiter - Emphasis on courts' duty to enable discovery of underlying truth and the permissive tenor of Rule-based leave provisions. Conclusions: The Adjudicating Authority's rejection based on elapsed time without addressing sufficiency of reasons and prejudice was an incorrect exercise of discretion. The correct approach is to admit documents where sufficient cause is demonstrated and allow the opposing party reasonable opportunity to respond. Issue 4: Consequences and remedial direction where Adjudicating Authority rejects application to admit documents without proper exercise of discretion Legal framework: Appellate oversight ensures that discretionary orders are exercised judicially; where discretion is misapplied, appellate court can set aside and remit for further consideration or direct admission subject to conditions. Precedent treatment: Appellate courts have remitted or allowed filing where lower tribunals declined to admit documents without proper judicial consideration of reasons and prejudice. Interpretation and reasoning: Given absence of findings that the corporate debtor caused delay or sought to prolong proceedings, and in view of rules permitting subsequent filings and the need for substantial justice, the appellate court concluded that the appropriate remedy was to set aside the rejection, admit the documents, and grant the operational creditor time to reply, while making no pronouncement on the merits of those documents. Ratio vs. Obiter: Ratio - Where discretionary denial to admit documents is unsustainably founded on elapsed time without assessment of reasons or prejudice, appellate court may set aside the order and permit filing, providing time for adversarial response. Obiter - Directions as to fixing fresh dates by the Adjudicating Authority to continue adjudication in accordance with law. Conclusions: The Court set aside the impugned order, allowed the additional documents to be taken on record, directed a limited timeline for the opposing party to file reply, and left substantive evaluation of the documents to the Adjudicating Authority. The direction preserves both the right to fair adjudication and procedural fairness to the opposing party.