2024 (4) TMI 565 - HC - Insolvency and Bankruptcy

CIRP - Partnership Form - Maintainability of petition - Invocation of Section 95 of the Insolvency and Bankruptcy Code - Whether a petition against a partnership firm or its Directors is fileable and maintainable under Section 95 of the Insolvency and Bankruptcy Code, 2016 before the National Company Law Tribunal? - HELD THAT - The maintainability of the petition before the Tribunal cuts at the root of the matter, as it relates to jurisdiction, to entertain the petition by the Tribunal. The Code does not permit it. If that be so, even a speck of paper cannot move before a fora that has no jurisdiction. It is un-understandable as to how and why the petitioners have to go before the Tribunal and tell the Tribunal that it has no jurisdiction to entertain the petition. The very acceptance of filing by the Tribunal is contrary to law. It is declared that the e-filing by the 2nd respondent under Section 95 of the Insolvency and Bankruptcy Code, 2016 as non est and illegal and consequently, the proceedings at whatever stage they are, before the National Company Law Tribunal, stands quashed. Petition allowed.

Summary

Issues Involved:
1. Whether a petition against a partnership firm or its Directors is maintainable under Section 95 of the Insolvency and Bankruptcy Code, 2016 before the National Company Law Tribunal (NCLT).

Summary:

Issue 1: Maintainability of Petition under Section 95 of the Insolvency and Bankruptcy Code

The petitioner, a firm involved in infrastructure development, and its directors challenged the filing of a petition before the National Company Law Tribunal (NCLT) under Section 95 of the Insolvency and Bankruptcy Code (the Code). The dispute originated from a Joint Development Agreement with the respondent company, which led to arbitration proceedings. During these proceedings, the respondent company filed a petition under Section 95 of the Code, demanding payment from the petitioner firm and its partners. The petitioners contended that the Code does not cover insolvency resolution for individuals and partnership firms, and such matters should be addressed by the Debts Recovery Tribunal or Debts Recovery Appellate Tribunal.

The Court examined the definitions under Section 3 of the Code, noting that a "corporate person" refers to entities defined under the Companies Act, 2013, and does not include partnership firms or their directors. Part III of the Code, which deals with insolvency resolution for individuals and partnership firms, designates the Debts Recovery Tribunal as the adjudicating authority. The Court highlighted that the amendments brought by the notification dated 15-11-2019 only included personal guarantors to corporate debtors under the Code's ambit, not partnership firms or their directors.

The Court further analyzed Sections 95, 96, and 97 of the Code, emphasizing that the filing of a petition under Section 95 triggers immediate consequences such as interim moratorium and the appointment of a Resolution Professional. The Court concluded that the NCLT does not have jurisdiction to entertain petitions against partnership firms or their directors under Section 95 of the Code, as the Code explicitly excludes such entities.

The Court rejected the respondent company's argument that the petitioners' conduct implied personal guarantee, stating that the agreements did not support this claim. The Court also dismissed the relevance of the cited judgments, as they did not address the specific issue of jurisdiction under Section 95 of the Code.

In conclusion, the Court declared the e-filing of the petition under Section 95 as non est and illegal, quashing the proceedings before the NCLT. The petitioners were entitled to all consequential benefits from the setting aside of the proceedings, and any actions taken on the registration of the proceedings were obliterated. The Writ Petitions were allowed, and pending applications were disposed of.