2019 (10) TMI 1361 - Tri - IBC

Insolvency Ruling: Correct Entity Identification Crucial; Corporate Partner Not Liable Without Formal Debt Agreement.

The petition to initiate CIRP against the Corporate Debtor was dismissed by the NCLAT. The court emphasized the necessity of correctly identifying the ... Maintainability of application - initiation of CIRP - Petitioner submitted that even though the debt is owed by the partnership firm, in view of the non-payment of the debt by the partnership firm, one of the partner who is a Corporate Debtor herein is jointly and severally liable to pay the debt - HELD THAT:- Similar issue decided in judgement of the Hon'ble NCLAT in the case of Gammon India Ltd. Versus Neelkanth Mansions and Infrastructure Pvt. Ltd. [2019 (2) TMI 1116 - NATIONAL COMPANY LAW APPELLATE TRIBUNAL, NEW DELHI] where it was held that even if one of the partners or more than one partner is the 'Corporate Debtor' as the amount is due from the partnership firm, the application under Section 9 of the 'I&B Code' against one of the partners of such partnership firm will not be maintainable. Petition dismissed. Issues:1. Maintainability of the petition under Section 7 of the Code and limitation under Section 137 of the Limitation Act.2. Existence of financial debt owed to the Petitioner by the Corporate Debtor.3. Liability of the Corporate Debtor for the debt owed by the partnership firm.4. Applicability of the Insolvency and Bankruptcy Code (I&B Code) to the partnership firm debts.5. Enforcement of a loan extended to a partnership firm by the Corporate Debtor.Analysis:1. The Company Petition sought to initiate the Corporate Insolvency Resolution Process (CIRP) against the Corporate Debtor for defaulting on a payment, invoking Sections 8 & 9 of the I&B Code. The Petitioner disbursed an amount to a partnership firm, and the debt was confirmed by the partnership firm on specific dates. The demand notice was issued to the partnership firm and the Corporate Debtor, a partner in the firm, for the outstanding amount.2. The Corporate Debtor raised issues regarding the maintainability of the petition under Section 7 of the Code and limitation under Section 137 of the Limitation Act. It was contended that no document proved the debt owed to the Petitioner by the Corporate Debtor and that the debt was reflected in the partnership firm's accounts. The Partnership Firm had been making direct repayments to the Petitioner, and it was argued that the Code's provisions for partnership debts were yet to be notified.3. The Petitioner argued that due to the partnership firm's non-payment, the Corporate Debtor, as a partner, was jointly and severally liable for the debt under Section 25 of the Partnership Act, justifying the petition against the Corporate Debtor. However, the Corporate Debtor contended that the debt was owed by the partnership firm, not specifically by the Corporate Debtor, and highlighted the absence of a formal agreement empowering enforcement of the loan by the Corporate Debtor.4. The judgment referred to a case where the NCLAT held that an application under Section 9 of the I&B Code against one partner of a partnership firm would not be maintainable if the debt was due from the partnership firm, emphasizing a similar principle for the present petition under Section 7 of the Code. The judgment underscored the importance of correctly identifying the debtor entity when initiating insolvency proceedings.5. Ultimately, the petition was dismissed, granting liberty to the Petitioner to proceed as per the law. The decision emphasized the need for clarity on the debtor entity and the enforceability of debts in insolvency proceedings, highlighting the importance of legal agreements and proper documentation in establishing liability for debts in such cases.