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2022 (8) TMI 709 - Tri - Insolvency and BankruptcyMaintainability of application - initiation of CIRP - debt due from proprietorship firm - Corporate Debtor is the proprietor company of the proprietorship firm - Financial Creditors - privity of contract between the applicant and the corporate debtor - existence of debt and dispute or not - time limitation. Whether the Corporate Debtor herein, being the proprietor company of the proprietorship firm being The Mining Engineering Corporation can be proceeded against for the liabilities incurred by the said proprietorship firm? HELD THAT - Hon'ble Supreme Court's decision in Amway India Enterprises Pvt. Ltd. vs. Ravindranath Rao Sindhia and Ors. 2021 (3) TMI 245 - SUPREME COURT , wherein, while making it clear that that the consortium could not be allowed to rely upon their status as independent entities while dealing with MMRDA, the Apex Court held that The provisions of Rule 4 of Order XXX have no application to such a suit as by virtue of Order XXX Rule 10 the other provisions of Order XXX are applicable to a suit against the proprietor of proprietary business insofar as the nature of such case permits . This means that only those provisions of Order XXX can be made applicable to proprietary concern which can be so made applicable keeping in view the nature of the case. Thus, the proprietor and the proprietorship firm herein cannot be deemed to be separate entities and the Corporate Debtor, being the proprietor will be liable to clear the dues of the proprietorship concern. Whether a petition under section 7 of the Code can be filed against the Corporate Debtor herein, for the debt due from a proprietorship concern? - HELD THAT - Sections 2(f) of the code which makes it clear that the Code, including Part II of the Code shall apply to proprietorship firms. Further, under section 3(8) of the Code, the Corporate Debtor means a corporate person who owes a debt to any person - In the instant case, the Corporate Debtor, in its role as a proprietor, owes the debt incurred by The Mining Engineering Corporation, towards the Financial Creditor. Further, while the definition of corporate person under section 3(7) of the Code does not include proprietorship firms, in the instant case, the Corporate Debtor is a company as defined under section 2(20) of the Companies Act, 2013. Therefore the instant petition against the Corporate Debtor is maintainable in this regard. Time Limitation - HELD THAT - The date of default mentioned in the petition is 30.09.2016. The instant petition has been filed on 27/09/2019. The Corporate Debtor has acknowledged the debt by means of confirmation of accounts till 1.04.2019. period. Further, the Corporate Debtor herein has deducted Tax deducted at Source (TDS) on the amounts payable to the Financial Creditor. As such, the instant petition is within limitation. Further, such acknowledgments on part of the Corporate Debtor will also be deemed to be admission of debt due on its part. Keeping in view that a default in the payment of a financial debt has occurred by the Corporate debtor, and there is an acknowledgment of Financial Debt and also that the said application is not barred by limitation, it is concluded that the instant application under section 7 of the Code is complete in all respects - application admitted - moratorium declared.
Issues Involved:
1. Whether the Corporate Debtor, as the proprietor of The Mining & Engineering Corporation, can be held liable for the liabilities of the proprietorship firm. 2. Whether a petition under section 7 of the Insolvency and Bankruptcy Code, 2016 (IBC) can be filed against the Corporate Debtor for the debt due from the proprietorship concern. 3. Whether the petition is barred by limitation. 4. Validity of the Memorandum of Understanding (MOU) dated 1/04/2009 in relation to the Financial Creditor. 5. Whether the instant petition is maintainable. Issue-wise Detailed Analysis: 1. Liability of the Corporate Debtor as Proprietor: The Tribunal examined whether the Corporate Debtor, being the proprietor of The Mining & Engineering Corporation, can be proceeded against for the liabilities of the proprietorship firm. Referring to the Supreme Court's decision in *Amway India Enterprises Pvt. Ltd. vs. Ravindranath Rao Sindhia and Ors.*, it was established that a sole proprietorship concern is equated with the proprietor of the business. The Tribunal concluded that the Corporate Debtor, as the proprietor, is liable for the debts of the proprietorship firm. 2. Petition under Section 7 of IBC: The Tribunal considered whether a petition under section 7 of the IBC can be filed against the Corporate Debtor for the debt due from a proprietorship concern. It was noted that section 2(f) of the IBC applies the Code to proprietorship firms, and section 3(8) defines "Corporate Debtor" as a corporate person who owes a debt. Since the Corporate Debtor, as a company, owes the debt incurred by the proprietorship concern, the petition was deemed maintainable. 3. Limitation: The Tribunal addressed the issue of whether the petition is barred by limitation. The date of default was mentioned as 30.09.2016, and the petition was filed on 27/09/2019. The Corporate Debtor had acknowledged the debt through confirmation of accounts till 1.04.2019 and had deducted Tax at Source (TDS) on the amounts payable to the Financial Creditor. Therefore, the petition was within the limitation period. 4. Validity of the MOU: The Tribunal examined the Memorandum of Understanding (MOU) dated 1/04/2009, which the Corporate Debtor claimed affected the Financial Creditor's claims. It was found that the Financial Creditor was not a party to the MOU, and the amount mentioned therein differed from the amount in the petition. Thus, the MOU was not applicable to the Financial Creditor. 5. Maintainability of the Petition: The Tribunal concluded that a default in the payment of a financial debt had occurred, and there was an acknowledgment of the financial debt by the Corporate Debtor. The petition was complete in all respects and was not barred by limitation. Order: The application under section 7 of the IBC filed by the Financial Creditor was admitted. A moratorium under section 14 of the IBC was declared, and Shri Bimal Kanti Choudhary was appointed as the Interim Resolution Professional (IRP). The IRP was directed to carry out his functions as per the Code, and the Financial Creditor was instructed to deposit Rs. 2,00,000 with the IRP for expenses. The Corporate Debtor's management was vested in the IRP during the CIRP period, and the IRP was required to submit periodical reports to the Tribunal. The next hearing for filing the periodical report was scheduled for 29 August 2022.
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