Unregistered Partnership Firm Cannot Initiate Insolvency Proceedings Under IBC: NCLT Kochi


Status as on- 5/01/2023

Case Title: The Bangalore Sales Corporation v Sark Spice Products Pvt Ltd.
Case No.: CP (IBC)/37/KOB/2022.

While adjudicating an application filed in The Bangalore Sales Corporation v Sark Spice Products Pvt. Ltd., the National Company Law Tribunal (“NCLT”), Kochi Bench, comprised of Shri. P. Mohan Raj (Judicial Member) and Shri. Satya Ranjan Prasad (Technical Member), held that an unregistered Partnership Firm cannot institute insolvency proceedings under IBC.

Background Facts

Bangalore Sales Corporation (“Operational Creditor“) is a partnership in the spice business. M/s. Sark Spice Products Pvt. Ltd. (“Corporate Debtor”) acquired spices from the Operational Creditor but did not pay in full. On 13.05.2021, the Operational Creditor sent a Demand Notice to the Corporate Debtor under Section 8 of the Insolvency and Bankruptcy Code, 2016 (“IBC”), to which the latter answered denying the claims.

The Operational Creditor has filed a petition under Section 9 of the IBC, requesting the start of the Corporate Insolvency Resolution Process against the Corporate Debtor for a default amount of Rs. 1,72,15,532/-.

The Bench noted that the status of the partnership firm was not disclosed in the petition. There is no certificate of registration on file, nor is it specified whether the firm is registered with the registrar of firms or not. Furthermore, the petition was filed in relation to the sum owed by the Corporate Debtor under a business contract. The Parties had made no statement about the maintainability of a petition by a partnership firm without registration or without filing a certificate of registration.

The Bench noted that Section 69(2) of the Partnership Act of 1932 prohibits the unregistered partnership business or any of its participants from bringing any claim against third parties. Section 3 of the Indian Evidence Act 1872 defines the term “court,” and it covers all Judges and Magistrates, as well as any persons, save arbitrators, who are legally allowed to take evidence. According to this concept, the Tribunal is also subject to the jurisdiction of the court. Section 69(2) of the Partnership Act of 1932 applies to the proceedings before the Tribunal. As a result, under IBC, an unregistered Partnership Firm cannot initiate insolvency procedures.

Disclaimer: The above article is based on the personal interpretation of the related orders and laws. The readers are expected to take expert opinions before relying upon the article. For more information, please contact us at ibc@centrik.in

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