WHETHER A SOLE PROPRIETOR FIRM ENTITLED TO INITIATE IBC PROCEEDINGS, NCLT ANSWERS IN NEGATIVE

NCLT

The Adjudicating Authority i.e., National Company Law Tribunal, New Delhi while deciding an Application under Section 9 of the I & B Code has held that a ‘Sole Proprietary Concern’ is not a person within the meaning of Section 3(23) of the Insolvency and Bankruptcy Code, 2016 (I&B Code). Hence, the Adjudicating Authority held that the Proprietary Concern is not entitled to initiate insolvency proceedings before the Adjudicating Authority under the I&B Code.

 

FACTS

An Operational Creditor, M/S RG Steels had moved an application under Section 9 of the I&B Code for initiation of corporate insolvency resolution process against the Corporate Debtor i.e., M/S Berrys Auto Ancillaries Pvt Ltd.

The application was preferred for an unpaid amount and default of Rs 15,16,753/-. The alleged default arose out of two invoices dated February 21, 2017, and February 24, 2017. In addition to this, the interest of Rs 4,02,411/- @ 18% per annum was also being claimed from the date of the default.

A Demand Notice was sent by the Operational Creditor to the Corporate Debtor on September 9, 2018. In its reply to the Demand Notice, the Corporate Debtor disputed the liability as claimed by the Operational creditor.

 

OBSERVATION OF THE ADJUDICATING AUTHORITY

After hearing the parties and perusing the record, the Adjudicating Authority i.e., NCLT observed that prima facie, RG Steels was a Sole Proprietary Concern.

However, by virtue of definition, as contained in Section 3(23) of IBC, 2016, a person even though includes an individual it does not include within its ambit a Sole Proprietary Concern.”

 

The Adjudicating Authority further noted that the documents filed along with the petition represented that the rate as charged by Operational Creditor to the Corporate Debtor was a matter of dispute even prior to the issue of Demand Notice.

The Adjudicating Authority while deciding the Application also recorded that “the communication dated 15.9.2017 wherein it has been clearly stated in the absence of terms and conditions of Purchase orders containing terms of payment, Discounts rate etc. rate difference etc. reconciliation of the accounts is required for clarity and this has also been followed by at the time of sending reply by way computational chart as given in page 60 of the petition itself. Thus we find that there seems to be a pre-existence of dispute..”

 

CONCLUSION

In view of the above, the Adjudicating Authority concluded that the since Sole Proprietary Firm was not a person within Section 3(23) of the I&B Code and since there exist a dispute, the Adjudicating Authority dismissed the Application filed by RG Steel under Section 9 of the I&B Code.

 

Disclaimer: - This article is for the general information and awareness of its readers, In-case of any legal matter in relation with readers, they are expected to have legal opinion before placing reliance on it. Further it contains completely author's views on the subject and completely unbiased based on authors own experience, study and understanding. 

By:- EasyLegalTax Team

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