2021 (2) TMI 440 - Tri - IBC

Maintainability of application - initiation of CIRP - Corporate Debtor failed to make repayment of its dues - Operational Debt - allegation is that the petitioner herein does not fall under the definition of Person - existence of debt and dispute or not - HELD THAT - A look at the definition of 'Person' as per Section 3(23) of the IBC, specifies that it is an inclusive definition and hence the categories mentioned in the definition are only illustrative and there can be others also which can be covered under the definition. Thus to restrict the definition to those categories which have been enumerated in the definition is not the correct interpretation of the law. The Hon'ble National Company Appellate Tribunal ('NCLAT') in the case of Neeta Saha v. Ram Niwas Gupta 2020 (2) TMI 1442 - NATIONAL COMPANY LAW APPELLATE TRIBUNAL, NEW DELHI has addressed the issue of the maintainability of an application filed under Section 9 by a sole proprietorship and clarified that Section 2 of IBC amongst other entities, applies to proprietorship firms. Moreover, it also noted that the definition of 'person' in Section 3(23) of IBC is an inclusive definition. Thereafter, Hon'ble NCLAT has approved the initiation of CIRP against the CD after the sole proprietor filed the amended memo of parties by including his name. Thus, the operational creditor is a sole proprietorship firm and would fall within the definition of a person. An Operational Creditor means a person to whom an operational debt is owed/due. From the above, it is clear that the petitioner is an operational creditor of the respondent. Accordingly, the petition filed by a proprietary concern under Section 9 of the Code was held to be maintainable. The operational creditor has clearly established the existence of debt and default on the part of the corporate debtor - CIRP started - application admitted - moratorium declared.

Summary

Issues:
- Maintainability of the petition filed by the operational creditor as a sole proprietorship firm under Section 9 of the IBC.
- Existence of debt and default on the part of the corporate debtor.
- Imposition of moratorium under Section 14 of the Code.
- Appointment of an Interim Resolution Professional (IRP) and related directions.

Issue 1: Maintainability of the petition filed by the operational creditor as a sole proprietorship firm under Section 9 of the IBC:

The petitioner, an operational creditor, filed a petition seeking to initiate Corporate Insolvency Resolution Process (CIRP) against the respondent corporate debtor for alleged default in settling the outstanding amount. The respondent contended that the petitioner, being a proprietorship firm, did not fall under the definition of "Person" as per Section 5(20) and Section 3(23) of the IBC, thus lacking the locus to file the petition. However, the Tribunal referred to the inclusive definition of "Person" under Section 3(23) of the IBC, which includes entities beyond those explicitly mentioned. Citing a precedent by the National Company Appellate Tribunal (NCLAT) in a similar case, it clarified that proprietorship firms are covered under the definition of "person" in the IBC. Consequently, the petition filed by the proprietary concern was deemed maintainable.

Issue 2: Existence of debt and default on the part of the corporate debtor:

The operational creditor substantiated the debt and default by providing details of transactions, including non-payment by the corporate debtor since April 2018 despite multiple reminders and a demand notice issued in August 2019. The Tribunal acknowledged the established debt and default, leading to the initiation of CIRP against the corporate debtor.

Issue 3: Imposition of moratorium under Section 14 of the Code:

Upon initiating the CIRP, the Tribunal imposed a moratorium under Section 14 of the Code. The moratorium included restrictions on legal proceedings against the corporate debtor, alienation of assets, enforcement of security interests, and recovery actions during the insolvency resolution process. Essential services to the corporate debtor were to continue, and specific transactions exempted from the moratorium were outlined.

Issue 4: Appointment of an Interim Resolution Professional (IRP) and related directions:

As the operational creditor did not propose an IRP, the Tribunal appointed Mr. Satya Prakash as the IRP, directing him to fulfill statutory requirements and submit a report within 30 days. The operational creditor was instructed to deposit a sum to cover immediate IRP expenses, to be reimbursed as part of the CIRP costs. The order was to be served to all relevant parties, including the IRP and the Insolvency and Bankruptcy Board of India (IBBI).

This comprehensive analysis of the judgment highlights the key legal aspects, including the maintainability of the petition, debt and default establishment, moratorium imposition, and IRP appointment, providing a detailed understanding of the Tribunal's decision in the matter.