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2019 (7) TMI 1130 - Tri - Insolvency and BankruptcyAdmissibility of application - initiation of Corporate Insolvency Resolution Process (CIRP) - Section 7 of I B Code, 2016 - Whether the claim of the Applicant firm to the tune of ₹ 17,07,99,230/- arising out of contract dated 31.01.2005 entered with the Corporate Debtor, when the Applicant firm was unregistered, is admissible? HELD THAT - The object of the section appears to be to protect public against a firm carrying on business under a name which does not disclose to the public the names of the actual partners. In other words an unregistered firm has no legal basis to enter into the contract with third party, because such agreement cannot create legal relationship between the parties, and even registration of the firm subsequent to the signing of the contract will not cure the initial defect, as registration per se shall not validate the agreement. Therefore, a contract entered into by the unregistered firm with the third party is hit by the provisions of Section 69(2) of The Indian Partnership Act, 1932. On this score alone the claim of the Applicant firm is not admissible. The claim submitted by the Applicant firm is not substantiated with any documentary evidence. In spite of the request of the Respondent/Resolution Professional made vide email communication dated 07.05.2018, for production of document in support of claim, no proof has been submitted by the Applicant firm till the rejection of the claim. Application dismissed.
Issues Involved:
1. Admissibility of the Applicant firm's claim of ?17,07,99,270/- against the Corporate Debtor. 2. Request for a forensic audit of the Corporate Debtor's accounts. 3. Request for an ad interim injunction against the Committee of Creditors from approving any resolution plan or liquidation. 4. Consideration of the claim as a contingent liability in the resolution plan. Issue-wise Detailed Analysis: 1. Admissibility of the Applicant firm's claim of ?17,07,99,270/- against the Corporate Debtor: The Applicant firm, M/s. Sri Krishna Constructions, filed a claim as an Operational Creditor for ?17,07,99,270/- under Form B of the IBBI Regulations, 2016. This claim was rejected by the Respondent/Resolution Professional, who did not verify the claim properly or provide an opportunity for the Applicant to be heard. The Applicant firm argued that the rejection was based on a misconception of facts and requested a de novo enquiry. The Tribunal examined whether the claim arising from the contract dated 31.01.2005, entered when the Applicant firm was unregistered, was admissible. According to Section 69(2) of The Indian Partnership Act, 1932, no suit to enforce a right arising from a contract shall be instituted by or on behalf of a firm against any third party unless the firm is registered. The contract in question was entered into on 31.01.2005, when the Applicant firm was unregistered (registered on 01.04.2005). The Tribunal referenced several judgments, including Krishna Motor Service v. H.B. Vittala Kamath, which held that subsequent registration cannot cure the initial defect of an unregistered firm entering into a contract. Therefore, the claim was deemed inadmissible as the contract was void ab initio due to the firm's unregistered status at the time of the agreement. Additionally, the Tribunal noted that the Applicant firm failed to substantiate its claim with relevant documentary evidence. The firm relied on contracts entered into by Mr. C. Satyanarayana, which were personal and predated the firm's constitution. There was no proof of an oral agreement or bills from December 2003 to January 2005, and no records substantiating the claim for the years 2005-2010. The Applicant firm did not provide the requested documents to the Respondent/Resolution Professional, leading to the claim's rejection. 2. Request for a forensic audit of the Corporate Debtor's accounts: The Applicant firm requested a forensic audit of the Corporate Debtor's accounts. However, the Tribunal did not find sufficient grounds to order such an audit. The focus was on the admissibility and substantiation of the Applicant's claim, which was found lacking. The Tribunal did not address the request for a forensic audit in detail, as the primary issue was the claim's validity. 3. Request for an ad interim injunction against the Committee of Creditors from approving any resolution plan or liquidation: The Applicant firm sought an ad interim injunction to restrain the Committee of Creditors from approving any resolution plan or liquidation pending the disposal of their application. The Tribunal, having found the Applicant's claim inadmissible and unsubstantiated, did not grant this injunction. The rejection of the primary claim rendered this request moot. 4. Consideration of the claim as a contingent liability in the resolution plan: The Applicant firm alternatively requested that their claim be treated as a contingent liability in the resolution plan. Given the Tribunal's findings on the inadmissibility and lack of substantiation of the claim, this request was also denied. The Tribunal upheld the Respondent/Resolution Professional's decision to reject the claim. Conclusion: The Tribunal concluded that the Applicant firm's claim was inadmissible due to the contract being entered into when the firm was unregistered, as per Section 69(2) of The Indian Partnership Act, 1932. The claim was also unsubstantiated by documentary evidence. Consequently, the requests for a forensic audit, ad interim injunction, and consideration of the claim as a contingent liability were denied. The application of the Applicant firm was rejected, and the order was pronounced in open court.
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