2020 (1) TMI 1391 - Tri - Insolvency and Bankruptcy

Jurisdiction - rights of proprietorship firm - filing of proceeding/suit - whether any proprietorship firm 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 perusal of the records it is found that the instant application is filed in the name of M/s. D.K. Trading Company as operational creditor. Even in Part I of Form 5 name of the operational creditor is written as M/s. D.K. Trading Company - thus, 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. On perusal of the definition it is clear that person must fall on the above category(s) - In the case in hand, the petition is filed in the name of M/s. D.K. Trading Company, a proprietary concern who is not a person for the purpose of filing the application u/s 9 of the I B Code. Hence, on this ground itself the application is not maintainable. On perusal of the records it is found that the only document produced by the applicant in support of its claim is copy of six invoices (pages 19-24). On perusal of said invoices it is found that the address shown in all the aforesaid six invoices vary from the address which is shown in the petition filed by the operational creditor - the application so filed is not maintainable and hence stands dismissed.

Summary

Issues involved:
1. Maintainability of the application filed by M/s. D.K. Trading Company under section 9 of the Insolvency and Bankruptcy Code, 2016 as an operational creditor.
2. Validity of the claim made by the operational creditor regarding the supply of goods to the respondent company.
3. Rejection of the application by the Adjudicating Authority based on the legal grounds of maintainability and lack of substantiating documents.

Analysis:

Issue 1: Maintainability of the application
The Tribunal examined whether a proprietorship firm like M/s. D.K. Trading Company, lacking legal entity status, can file a proceeding under the Insolvency and Bankruptcy Code. It was established that a sole proprietorship firm is not a legal entity, and any proceeding initiated by it would be considered null and void. The Tribunal emphasized that the petition should have been filed by the sole proprietor in his name on behalf of the firm, as per established legal principles and precedents. The definition of "person" under section 3 of the Code was analyzed to determine that a proprietary concern does not fall under the category of a legal entity eligible to file an application under section 9 of the Insolvency and Bankruptcy Code. Therefore, the application was deemed not maintainable based on this ground.

Issue 2: Validity of the operational creditor's claim
The operational creditor, M/s. D.K. Trading Company, alleged that the respondent company had purchased goods from them but failed to make full payments, leading to outstanding dues. The respondent denied receiving the goods and raised objections regarding the lack of supporting documents such as delivery challans, lorry receipts, and E-way bills to validate the supply. The respondent contended that the invoices provided by the operational creditor did not match the address mentioned in the petition and highlighted discrepancies in the quantity and mode of transport of the goods claimed to be supplied. The Tribunal found the operational creditor's evidence insufficient and raised doubts about the physical transportation of the alleged goods due to missing essential documents and inconsistencies in the details provided. Consequently, the Tribunal concluded that the application was not maintainable and dismissed it.

Issue 3: Rejection of the application
In addition to the lack of maintainability due to the legal status of the applicant, the Tribunal also addressed objections raised by the respondent regarding the absence of crucial documents to substantiate the claim of goods delivery. The Tribunal noted that the operational creditor failed to provide essential details such as mode of transport, delivery notes, and buyer's order number to support their claim effectively. Considering the inadequacy of evidence presented, the Tribunal dismissed the application on the grounds of maintainability and insufficiency of supporting documents. The dismissal was without any costs, allowing the petitioner to seek alternative legal avenues to enforce their claim against the respondent. The Tribunal clarified that the dismissal was based on maintainability issues and did not reflect an opinion on the merits of the underlying controversy.