Insolvency & BankruptcyUnregistered Partnership Firm’s Petition and Bar of Limitation under Section 9 of the Code

September 25, 20200
National Company Law Tribunal, Mumbai Bench
M/s Shree Dev Chemicals Corporation v. Gammon India Limited
 CP (IB) No.3637/MB.IV/2018 | Date: 16.07.2020
In the present case, Operational Creditor i.e. M/s Shree Dev Chemicals Corporation filed an application under Section 9 of the Insolvency and Bankruptcy Code, 2016 (I&B Code) to initiate Corporate Insolvency Resolution Process (CIRP) against Gammon India Limited i.e. the Corporate Debtor.
The Corporate Debtor placed purchase orders for the supply of construction chemicals against which the Operational Creditor issued various invoices. The Corporate Debtor consumed the supplies without raising any dispute with respect to the quality.
Out of the total amount of Rs. 81,18,833.68/- for the supplies, the Corporate Debtor had already paid Rs. 73,32,596/-.
However, a sum of Rs. 7,86,237.68/- to be paid by the Corporate Debtor was still outstanding as on 23.06.2015. Further, the invoice provided for an interest rate of 18% per annum.
The Operational Creditor had served a Demand Notice under Section 8 of the I&B Code to the Corporate Debtor on 18.06.2018 to which the Corporate Debtor did not reply.
1. Whether an unregistered partnership firm can file application under Section 9 of the Insolvency and Bankruptcy Code, 2016?
2. Whether the Corporate Creditor’s claim is barred by limitation?
With regards to the first issue,
The Tribunal held that applications filed under the Code are not suits but only proceedings. On a reading of Section 69(2) of the Indian Partnership Act, 1932, which only allows registered partnership firms to file a suit against third parties to enforce their rights, the Tribunal held that the section only applies to suits and not proceedings.
Therefore, the Tribunal held that the bar in terms of Section 69(2) of the Indian Partnership Act, 1932 does not apply to applications filed under the I&B Code.
With regards to the second issue,
While deciding on whether Article 137 of the Limitation Act, 1963 applies to applications filed under Section 9 of the Code, the Tribunal relied on the Supreme Tribunal judgement in BK Educational Services v. Parag Gupta & Associates (2019) 11 SCC 633, wherein it was held that Article 137 of the Limitation Act, which bars applications if filed after three years of default, is applicable to applications under Sections 7 and 9 of the Code except when Section 5 of the Limitation Act, which may be applied to condone delay, is applied.
Further the Tribunal observed that:
“In Sagar Sharma & another v Phoenix ARC Private Limited & another (2019) 10 SCC 353 the Hon’ble Supreme Tribunal emphasised that the date of coming into force of the IBC does not and cannot form a trigger point of limitation for applications filed under the Code. It further reiterated that since “applications” are petitions which are filed under the Code, it is Article 137 of the Limitation Act which will apply to such applications.”
The Tribunal held that since the date of default was 23.06.2015 and the petition was filed on 25.09.2018, the three year period had been exhausted. Further, since there was no acknowledgement of liability in terms of Section 18 of the Limitation Act, the petition was barred by limitation.
The petition was, therefore, dismissed.
The Tribunal decided upon the maintainability of a petition filed under Section 9 of the I&B Code by an unregistered partnership firm. An unregistered firm is barred from filing a suit to enforce its rights in a contract against third parties.
However, the Tribunal observed that a suit is different from proceedings issued under the Code and therefore made way for unregistered partnership firms who are operational creditors to file an application under Section 9 of the Code to institute CIRP against the Corporate Debtor.
However, after referring to various Supreme Court judgements, that such petition is still governed by Article 137 of the Limitation Act, 1963 according to which no application can be brought after a period of three years from the date of default. The Tribunal, however, were of the view that if a delay was justified under Section 5 of the Limitation Act, then such application may be considered by the Tribunal.
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