2020 (6) TMI 280 - Tri - Insolvency and Bankruptcy

Maintainability of application - initiation of CIRP - Corporate Debtor failed to make repayment of its dues - pre-existing dispute or not - HELD THAT - In the case on hand, the petition is filed in the name of M/s. Wind Water System, a proprietary concern as operational creditor, 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. It is also a matter of record that the respondent had made complaints with regard to the quality of the machinery supplied by the petitioner and the respondent has placed on record copy of the e-mails exchanged between the two parties clearly establishes that there is/was pre-existing dispute before issuance of the demand notice. Thus the application is also not maintainable on account of pre-existing dispute which was raised prior to the issuance of demand notice. Application is not maintainable and is dismissed.

Summary

Issues:
Application under section 9 of The Insolvency and Bankruptcy Code, 2016 by M/s. Wind Water System as operational creditor against a company engaged in manufacturing fabrics, dispute over outstanding payments for supplied materials, objections raised by the corporate debtor regarding quality of goods supplied, legal issue of maintainability of the application filed by a proprietorship firm.

Detailed Analysis:
1. Application under Section 9 of the Code: M/s. Wind Water System, an operational creditor, filed an application under section 9 of The Insolvency and Bankruptcy Code, 2016 against a company engaged in manufacturing fabrics. The operational creditor supplied materials as per the requirement of the respondent company, and certain invoices remained outstanding and payable by the respondent. Despite assurances from the respondent, the outstanding amount was not cleared, leading to the demand notice being issued under section 8 of the Code.

2. Dispute over Outstanding Payments: The respondent raised objections regarding the quality of goods supplied, claiming they were defective and of inferior quality. Complaints and concerns were raised by the respondent about the machinery supplied, requesting repairs and replacements. The respondent contended that there was a pre-existing dispute before the demand notice was issued, as evidenced by emails and communications exchanged between the parties.

3. Legal Issue of Maintainability: The main legal issue addressed in the judgment was the maintainability of the application filed by M/s. Wind Water System, a proprietorship firm, as an operational creditor. The Tribunal highlighted that a proprietorship firm is not a legal entity, and any proceeding initiated by it would be considered a nullity. Citing legal precedents, the Tribunal emphasized that a proprietorship firm must sue through its proprietor, who is the legal entity. The application was deemed not maintainable as it was filed in the name of the proprietorship firm, not the proprietor.

4. Conclusion: The Tribunal dismissed the application on the grounds of maintainability, emphasizing that the application was not maintainable in law or in fact due to the legal entity status of the proprietorship firm. The judgment clarified that this dismissal did not prevent the petitioner from seeking recourse through the appropriate forum to enforce its claim against the respondent. The ruling was based on the provisions of the Insolvency and Bankruptcy Code, 2016, and did not express an opinion on the merits of the underlying controversy.