2019 (5) TMI 1833 - Tri - Insolvency and Bankruptcy

Maintainability of application - initiation of CIRP - Corporate Debtor failed to make repayment of its dues - existence of debt and dispute or not - petitioner is an unregistered partnership firm - eligible to initiate the present petition or not - section 69 of the Partnership Act - HELD THAT - The provision of section 69 of the Partnership Act are specific and applicable for filing a suit to enforce rights arising from a contract. It is well settled that a petition for winding up cannot be construed as a suit within the meaning of section 69 (2) of the Partnership Act and therefore there is no disability under the Companies Act for initiating winding up by an unregistered firm. Similar are the provisions under the Insolvency Bankruptcy Code. The right to invoke the statutory provision accrues on occurrence of a default and does not arise out of a contractual liability. What is relevant for the court is to consider whether the company is commercially solvent or insolvent and incapable of liquidating its debt. The proceedings under the Insolvency Bankruptcy Code 2016, for initiating a Corporate Insolvency Resolution Process of a Corporate Debtor are entirely different, and is a special remedy provided under the statute which is a complete Code by itself. The petition for winding up filed by the unregistered firm is not a suit within meaning of section 69(1) (2) of the Indian Partnership Act. All steps taken in winding up proceedings are in public interest and cannot be construed as right arising from a contract between petitioner/creditor and the company. The objections raised by the Corporate Debtor for rejection of the petition on grounds of having been filed by an unregistered firm is not sustainable. Outstanding operational debt or not - the debit note was for more than the amount demanded had been issued by the Corporate Debtor - HELD THAT - As this debit note was denied by the Operational Creditor, opportunity was granted to the Corporate Debtor to substantiate whether the said debit note was accepted by the Operational Creditor. No document was produced to corroborate the same. The alleged debit note is also not counter signed on behalf of the Operational Creditor as having been received. Reliance has only been placed on the Visitor's register showing that the Operational Creditor had duly visited their office on the date when the alleged Debit note was executed. The Corporate Debtor has annexed a debit note raised on them by their own customers, who returned the assignments being defective goods, but the same cannot be attributed to the goods supplied to the Operational Creditor. Had the material been sub-standard, concerns would have been raised while using the material at the manufacturing stage - the petitioner's submission that no Debit Note had been issued has to be accepted. Mere entry by the Corporate Debtor in its own record, reflecting an amount under a debit note cannot form the basis of repudiating the claim of the Operational Creditor without any acknowledgement in. this respect. Territorial Jurisdiction - allegation that the petition is flawed as the affidavit supporting the petition is on a non-judicial stamp paper, issued in Uttar Pradesh, but notarized in Gurgaon, Haryana - HELD THAT - The only requirement could be that in case of difference in the denomination of the stamp paper, the deficiency should be made by reference to the Collector Stamps. In this case the stamp paper is of adequate value. In any event a defect in the affidavit, if any, is a curable defect and cannot culminate in rejection of the proceedings on merit. In the absence of a pre-existing dispute, the prayer made by the petitioner for initiating the CIR process merits consideration. The petition is therefore Admitted. Corporate Insolvency Resolution Process is directed to be initiated. Application admitted - moratorium declared.

Summary

Issues:
1. Whether an unregistered partnership firm can initiate a petition under section 9 of the Code for Corporate Insolvency Resolution Process.
2. Whether the existence of an outstanding operational debt is a prerequisite for maintaining a petition under section 9 of the Code.
3. Whether technical flaws in the petition, such as the notarization of an affidavit on a non-judicial stamp paper from a different state, warrant rejection of the petition.

Issue 1: Unregistered Partnership Firm Filing Petition:
The petitioner, an unregistered partnership firm, sought initiation of Corporate Insolvency Resolution Process against the Corporate Debtor. The Corporate Debtor objected, citing the Partnership Act's section 69, which they claimed barred unregistered firms from initiating such petitions. The Tribunal analyzed previous judgments, including the Calcutta High Court's decision, emphasizing that the bar under the Partnership Act does not apply to statutory rights enforcement. The Tribunal concluded that the objections based on the firm's registration status were not sustainable, allowing the petition's admission.

Issue 2: Existence of Outstanding Operational Debt:
The Corporate Debtor contended that no outstanding operational debt existed, as a debit note had been issued for a higher amount than demanded. However, the Operational Creditor denied the existence of such a debit note. The Tribunal examined the evidence and found that the Corporate Debtor failed to substantiate the alleged debit note with any correspondence or proof of substandard goods return. Consequently, the Tribunal accepted the Operational Creditor's submission that no debit note had been issued, supporting the petition's merit.

Issue 3: Technical Flaws in the Petition:
The Corporate Debtor raised objections regarding technical flaws in the petition, specifically the notarization of an affidavit on a non-judicial stamp paper from a different state. The Operational Creditor defended this, stating the stamp paper's purchase location did not affect notarization validity. The Tribunal agreed, considering the defect as curable and not a basis for petition rejection. Consequently, the objections related to technical flaws were dismissed.

In conclusion, the Tribunal admitted the petition for initiating the Corporate Insolvency Resolution Process, rejecting objections regarding the unregistered partnership firm's eligibility, the existence of outstanding operational debt, and technical flaws in the petition. The Tribunal directed the initiation of the resolution process, imposed a moratorium, appointed an Interim Resolution Professional, and set deadlines for further proceedings, ensuring compliance with statutory requirements. The case was scheduled for further consideration on a specified date.