2020 (2) TMI 1457 - Tri - Insolvency and Bankruptcy

Proprietorship firm's insolvency claim dismissed due to legal technicality

The application filed by M/S. Mateshwari Minerals, a proprietorship concern, claiming to be an operational creditor under the Insolvency and Bankruptcy ... Jurisdiction - power of proprietorship firm claiming to be operational creditor to file a suit - whether any proprietorship firm claiming to be operational creditor can file a proceeding/suit as it is not legal entity in the eye of law? - HELD THAT:- A proprietor ordinarily means a person who carries on trade or business in a name other than his name. The law on this aspect is fairly well settled. No suit can be instituted by a sole proprietorship firm in its own name unless there are specific amendments stating that proprietorship sues through its proprietor. It has been recognised in number of decisions that a proprietorship concern unlike a company or a partnership is not a legal entity and therefore any proceeding initiated by it would be a nullity. On this count alone the application is bad and is not maintainable. A proprietorship firm is not a legal entity - it is only the proprietor of the firm who is a legal entity and as such the petition should have been filed by the sole proprietor in his name on behalf of his sole proprietorship firm - It is also the duty of the Adjudicating Authority to dispose of cases 'jus dicers', in accordance with law as it is and not 'jus dare' in accordance with law as it should be. The application, so filed by the applicant is not maintainable and is bad in law as well as in facts - Application dismissed. Issues:Application filed by a proprietorship concern as an operational creditor under the Insolvency and Bankruptcy Code, 2016.Analysis:The application was filed by M/S. Mateshwari Minerals, a proprietorship concern, claiming to be an operational creditor under Section 9 of The Insolvency and Bankruptcy Code, 2016. The respondent, a company engaged in manufacturing ceramic tiles, disputed the debt claimed by the applicant. The applicant alleged non-payment of an aggregate amount of Rs. 17,68,899.04 for the supply of raw mix. The respondent contested the claim, particularly disputing an invoice dated 31.07.2016 amounting to Rs. 5,63,213/-, alleging it to be a bogus invoice. The respondent argued that the outstanding debt was only Rs. 7,35,038/- as per their audit report, not the amount claimed by the applicant.The Tribunal considered the legal issue of whether a proprietorship firm could file a proceeding as an operational creditor. It was noted that a proprietorship firm is not a legal entity; only the proprietor is a legal entity. Citing relevant case law, it was established that a proprietorship firm cannot initiate legal proceedings in its own name and must do so through its proprietor. The application in the name of M/S. Mateshwari Minerals, a proprietorship firm, was deemed not maintainable as the firm itself is not a 'person' as defined under the Insolvency and Bankruptcy Code. The Tribunal emphasized that the application should have been filed by the sole proprietor on behalf of the proprietorship firm.Additionally, the Tribunal highlighted the duty of the Adjudicating Authority to dispose of cases in accordance with the law as it is, rather than as it should be. The application was found to be not maintainable and dismissed on the grounds of legal and factual inadequacy. However, the dismissal was clarified not to prevent the petitioner from seeking recourse through the appropriate forum to enforce its claim against the respondent. The dismissal was solely based on the issue of maintainability, and no opinion was expressed on the merits of the underlying controversy.