Fipola Retail (India) Pvt. Ltd. Vs. M2N Interiors. - Insolvency application under section 7 & 9 by a sole proprietorship firm is maintainable.

NCLAT (01.09.2021) in Fipola Retail (India) Pvt. Ltd. Vs. M2N Interiors. [Company Appeal (AT) (CH) (INS) No. 89 of 2021] the Ld. Adjudicating Authority permitted filing of section 9 application by a sole-proprietorship  firm. Appellate Authority upholding the orders of AA observed as under;

• Therefore, relying upon the decision of this Tribunal there is no error apparent in the Impugned Order, this Tribunal in Neeta Saha Vs Mr. Ram Niwas Gupta held at Para 14 which reads as under.

• “14. Even the judgment shows the name of Respondent No.1 as the Operational Creditor in his personal name. The Adjudicating Authority in effect has allowed the defects to be cured. The objection on this count does not survive. We also note that Section 2 of IBC provides that the provisions of the Code apply, inter alia, to “proprietorship firms”. Further the definition of “person” in Section 3(23) of IBC is inclusive definition.”

Excerpts of the order;
Brief facts :-

# 1. The present Appeal arises against the Common Order dated 01.02.2021 passed by the Adjudicating Authority (National Company Law Tribunal, Division Bench, Court-I, Chennai) in IBA/54/2020 and IBA/59/2020 whereby the Adjudicating Authority by the said Order taken the petition on record with a direction to the Corporate Debtor (the Appellant herein) to file its Reply to the petition within the period of three weeks’ from 01.02.2021. Aggrieved by the said Order, the Appellant preferred the present Appeal on the ground that the Adjudicating Authority has traversed beyond its powers and jurisdiction by reviewing its own Order dated 25.02.2020.

 

Appellant’s Submissions :-

# 2. The Learned Counsel for the Appellant also raised the ground that the Adjudicating Authority had noticed that the cause title of the petition filed by the Respondent (Operational Creditor) had mentioned the name of the Proprietorship Concern instead the name of Proprietor. The Learned Adjudicating Authority returned the Application for amending the cause title and removal of defects and refiling the same within seven days from 25.02.2020 in terms of proviso to Section 9(5)(ii) of the Insolvency and Bankruptcy Code 2016 (“I & B Code 2016”).

 

# 3. The Learned Counsel for the Appellant submitted that the matter was not Listed thereafter due to Covid 19 Lockdown. Thereafter, the Ld. Adjudicating Authority had granted time for compliance and the matter was posted to 07.10.2020. Having accepted the Order of the Ld. Adjudicating Authority dated 25.02.2020 and sought additional time for compliance, the Respondent is estopped from taking a contradictory stand and thereafter claiming that compliance of Order dated 25.02.2020 was not necessary. If the Respondent was aggrieved by the Order dated 25.02.2020 his only remedy would have been by way of an Appeal under Section 61(1) of the I & B Code 2016 and not by seeking review of the Order dated 25.02.2020 by merely filing a Memo dated 05.10.2020 and praying for dispensing with the compliance as ordered vide Order dated 25.02.2020.

 

Respondent’s Submissions :-

# 4. The Learned Counsel for the Respondent filed his Reply to this Appeal and submitted that the hearings held on 25.02.2020 and 17.09.2020, the Hon’ble Adjudicating Authority observed that the Impugned Application was filed in the name of Sole Proprietorship Concern and in view of Section 3(23) of the IBC 2016 only a person as defined therein can approach the Adjudicating Authority. In view of the above, the Hon’ble Adjudicating Authority pleased to grant an opportunity to the Respondent herein to amend the cause title suitably.

 

# 5. The Learned Counsel for the Respondent submitted that this Tribunal in the matter of Neeta Saha Vs Mr. Ram Niwas Gupta in Company Appeal (AT) (Insolvency) No. 321 of 2020, the Hon’ble NCLAT observed that Section 2 of IBC provides that the provisions of the Code apply, inter-alia to Proprietorship Firms and further the definition of person in Section 3(23) of IBC is an inclusive definition.

 

# 6. The Learned Counsel for the Respondent submitted that relying upon the Judgment of this Hon’ble Tribunal supra, the Application filed by the Sole Proprietorship Firms under the provisions of Section 7 and 9 of the I & B Code to initiate CIRP against the Corporate Debtor are flawlessly maintainable and relying on the said Order, the Respondent herein has filed a Memo dated 05.10.2020 before the Hon’ble Adjudicating Authority stating that the Application does not require any correction or amendment in view of the Judgment of the Hon’ble Appellate Tribunal. Accordingly, the Hon’ble Adjudicating Authority passed the Order dated 01.02.2021 which is impugned in this Appeal. The Learned Counsel submitted that the Appeal is devoid of merits and requested the Bench to dismiss the same.

 

Appraisal/Analysis :-

# 7. Heard the Learned Counsels appeared for the parties, perused the pleadings, documents and the judgment relied upon by the parties. It is an admitted fact that the Respondent i.e., M/s. M2N Interiors represented by its Sole Proprietor Mr. M. Murali filed an Application under Section 9 before the Adjudicating Authority (NCLT, Chennai Bench, Chennai). The Adjudicating Authority vide its Order dated 25.02.2020 passed the following Order.

• “Learned Counsel for the Petitioner is present. It is seen from the cause title that the Petitioner seems to be a sole proprietory concern. However, in view of the section 3(23) of the IBC, 2016 only a person as defined therein can approach this Tribunal and hence an opportunity is given to the sole proprietor as a petitioner to approach before this Tribunal afresh. For this purpose an opportunity is given to the Petitioner to amend the cause title by a week to cure the defect. Post the matter on 23.03.2020.”

 

# 8. The Ld. Adjudicating Authority was of the view that as per Section 3(23) of the IBC 2016 only a person as defined therein can approach the NCLT and an opportunity was given to the Sole Proprietor as a Petitioner/Applicant as the case may be to approach the Adjudicating Authority. The Adjudicating Authority also directed the Applicant therein to amend the cause title to cure the defect. Further, vide Order dated 17.09.2020, the Ld. Adjudicating Authority granted ten days’ time for compliance of the Order dated 25.02.2020 in view of the Pandemic due to Covid- 19.

 

# 9. The Respondent herein filed a Memo dated 05.10.2020 [enclosed at page 48 of Appeal Paper Book(s)] relying upon the Judgment of this Tribunal in-re “Neeta Saha” and prayed the NCLT to dispense with the compliance of amendment in the cause title as directed by the Adjudicating Authority vide Order dated 25.02.2020.

 

# 10. The Ld. Adjudicating Authority taking into consideration the decision of this ‘Tribunal’ passed the Order on 01.02.2021 enclosed at Page 29 of the Appeal Paper Book(s). The Ld. Adjudicating Authority observed as under-

• “In so far as this Petition is concerned, the Petitioner as reflected in the cause title contains both the name of the Sole Proprietor as well as the name of the Sole Proprietary concern and hence the Petition can be taken on record.”

 

# 11. The ‘Adjudicating Authority’ further directed the ‘Appellant’ to file its Reply to the Application. From the perusal of the Application it is seen that the Proprietorship name i.e., M/s. M2N Interiors is represented by its Sole Proprietor Mr. M. Murali as depicted in cause title, therefore, taking into consideration that the Proprietorship Firm represented by its Sole Proprietor by reflecting the name of sole proprietor itself would show that the Application is being represented by the Proprietorship Firm as well as the Proprietor, duly represented by its Sole Proprietor Mr. M. Murali. In this regard, as decided by this Tribunal Section 2 of I & B Code 2016 applies to Partnership Firms and Proprietorship Firms. As per Sub Clause (f) of Section 2, the person defines in Sub Section 23 of Section 3 includes a Partnership Firm. Therefore, relying upon the decision of this Tribunal there is no error apparent in the Impugned Order, this Tribunal in Neeta Saha supra held at Para 14 which reads as under.

• “14. Even the judgment shows the name of Respondent No.1 as the Operational Creditor in his personal name. The Adjudicating Authority in effect has allowed the defects to be cured. The objection on this count does not survive. We also note that Section 2 of IBC provides that the provisions of the Code apply, inter alia, to “proprietorship firms”. Further the definition of “person” in Section 3(23) of IBC is inclusive definition.”

 

# 12. Taking into consideration of the aspects and relying upon the decision this Tribunal is of the view that the Application filed by the Respondent i.e., M/s. M2N Interiors, a Proprietorship Firm is maintainable and accordingly this Tribunal does not find any illegality in the Common Order passed by the Adjudicating Authority dated 01.02.2021.

 

# 13. The Appeal is devoid of merits and liable to be dismissed. Accordingly, the same is dismissed. No Orders as to costs.

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Pradeep Kumar,(Sole Proprietor, Pradeep Kumar & Co.) Vs. Apace Builders and Contractors Pvt. Ltd. - Section 9 application filed by Sole Proprietorship Concern.

NCLT New Delhi (05.02.2021) in Pradeep Kumar,(Sole Proprietor, Pradeep Kumar & Co.) Vs. Apace Builders and Contractors Pvt. Ltd.[Company Petition No. IB 2339/ND/2019] Held that;

• in the case of M/s Khera Enterprise Vs. M/s Talwar Agencies Pvt. Ltd., wherein it has been stated “in case the application is filed by the proprietorship concern then steps be taken by the petitioner to amend the memo of parties” submitted that they shall amend the memo of parties, hence stated that the technical objection raised by the corporate debtor shall be removed.

• -further relying on the judgments of Hon’ble NCLAT in Neeta Saha Vs. Ram Niwas Gupta, “wherein it was held that the application filed by the sole proprietorship firm under I& B code are maintainable.”

• Therefore, in the given facts and circumstances, the present application is complete and the Applicant has established its claim which is payable and due by the corporate debtor. In the light of above facts and records, the present application is admitted.

 

Excerpts of the order;

# 1. The Present Application is filed under Section 9 of the Insolvency and Bankruptcy Code, 2016 (for brevity ‘code’) read with Rules 6 of the Insolvency and Bankruptcy (Application to Adjudicating Authority), 2016 (for brevity ‘the Rules’) through Mr. Pradeep Kumar (for brevity ‘Applicant’) being the sole proprietor of Pradeep Kumar & Co., with a prayer to initiate the Corporate Insolvency process against Apace Builder Contractors Pvt. Ltd. for brevity (‘Corporate Debtor’).

# 2. The Applicant is a sole proprietor of Pradeep Kumar & Company, being the proprietorship firm having date of commencement on 03/03/2015 formed under the provision of Micro, Small and Medium Enterprise Development Act, 2006 bearing Udhyog Adhaar Memorandum No. DL07A0001519 and having its office at 3rd Flat NO. C89X3, Pocket C, Dilshad Garden Shahdara, New Delhi – 110095 and registered email id pradeepkumarcompany2012@gmail.com. The applicant is involved in the business of manufacture of wooden products such as Veener Sheets, Plywood, Ribs, door frames, lamination board and wooden containers.

# 7. Pursuant to the defaults, the applicant issued a demand notice dated 27.06.2019 under Section 8 of the code calling upon the corporate debtor to pay the total outstanding amount of Rs.16,72,339/- including interest calculated up to 26.06.2019. The notice was served upon the registered as well as corporate address office of the corporate debtor via speed post. The demand notice was also sent at the registered Email ID, as mentioned in the master data vide email dated 23.07.2019. The copies of proof of delivery and tracking report of email have been annexed.

# 8. The corporate debtor has not replied to the said demand notice. Consequently, the applicant filed the present application under section 9 of IBC, 2016 and served the copy of this application, which was duly delivered to the Corporate Debtor as per service affidavit. As per Form V, the total debt outstanding is Rs.16,72,339/- including interest upto 26.06.2019. The applicant submits that interest will be calculated up to date of final payment.

# 9. The Corporate debtor filed reply to the said application and raised the following objections:

• a) The corporate debtor raised preliminary objection with regards the maintainability of the said application that in present case the proprietorship firm is not an entity established under law. Hence is not eligible to initiate the insolvency process. The corporate debtor for this submission has relied upon the judgment of NCLT New Delhi Bench in case titled as R G Steel Vs. Berry Auto Ancillaries (P) Ltd., the said petition was dismissed and it was held that “a sole proprietary concern taking into consideration the definition of person is not entitled to approach this tribunal on its own” 

• b) The corporate debtor has raised an issue that supply with respect to first purchase order was not complete. Further raised issue with respect to the quality of goods and rejection of the goods against which credit notes were issued, as reflected in the ledger of applicant. Corporate debtor has denied the rate of interest charged by the applicant.

• No documents in support of the contention raised by the corporate debtor are field.

# 10. The applicant filed a rejoinder contravening the averments made in the reply and relied upon the following:

a) The applicant has relied on following cases in support of contention that the sole proprietorship concern can through its proprietor file an application under Section 9 of the code.

• i. M/S Vani Biochem Vs. M/s Vaayucom Private Limited, NCLT Amravati bench.

• ii. M/s Rahul Engineers Vs. Ferrox Chemicals Private Limited, NCLT Mumbai Bench 

• iii. M/s Wasmake Industries Vs. M/s Utkal Builders, NCLT Cuttack Bench

• iv. BG Textile Vs. H Sakhiya Fashion Private Limited, NCLT Ahmadabad bench

Further the applicant relying upon the judgment of NCLT, New Delhi Bench – II in the case of M/s Khera Enterprise Vs. M/s Talwar Agencies Pvt. Ltd., wherein it has been stated “in case the application is filed by the proprietorship concern then steps be taken by the petitioner to amend the memo of parties” submitted that they shall amend the memo of parties, hence stated that the technical objection raised by the corporate debtor shall be removed.

# 11. The applicant submits that in pursuance of the liberty granted by the Tribunal on 21.12.2020 an amended memo of parties was filed vide application on 28.12.2020, and further relying on the judgments of Hon’ble NCLAT in Neeta Saha Vs. Ram Niwas Gupta, “wherein it was held that the application filed by the sole proprietorship firm under I& B code are maintainable.”

# 13. The date of default is 26.06.2019 and the present application is filed on 18.09.2019. Hence the application is not time barred and filed within the period of limitation.

# 14. The registered office of corporate debtor is situated in Delhi and therefore this Tribunal has jurisdiction to entertain and try this application.

# 15. The Applicant has filed its bank statement stating that the amount claimed or any part thereof, has not been received by the applicant nor had any person, on its behalf had received in any manner the amount due to them as required u/s. 9(3)(c) of I & B Code. The Applicant has filed an affidavit in compliance of section 9(3)(b) affirming that no notice of dispute has been given by the corporate debtor relating to dispute of the unpaid operational debt.

# 16. The present application is filed on the Performa prescribed under Rule 6 of the Insolvency and Bankruptcy Code, 2016 of the Insolvency and Bankruptcy (Application to Adjudicating Authority) Rules, 2016 r/w Section 9 of the code and is complete.

# 17. Having heard and the Ld. counsels for the parties and documents on records, it is clearly established that the default in payment of the Operational debt has occurred by the corporate debtor. Though the corporate debtor has raised dispute with regards the payments of invoices on grounds of substandard quality of goods but has not placed on record any document which proves the pre-existing dispute between the parties. There is no merit in the so-called dispute raised by the corporate debtor as mere reply filed by the corporate debtor to the present application, is unable to establish any pre-existing dispute of genuine nature. This leaves no doubt that the default has occurred for the payment of the operational debt to the applicant and the so called dispute raised by the corporate debtor is merely a moonshine dispute as laid down in “Mobilox Innovative Private Limited vs. Kirusa Software Private Limited”, the Hon’ble Supreme Court observed 

• “It is clear , therefore that once the Operational creditor has filed an application, which is otherwise complete , the adjudicating authority must reject the application under Section 9(5)(2(d) if notice of dispute has been received by the operational creditor or there is a record of dispute in the information utility . It is clear that such notice must bring to the notice of operational creditor the “existence” of a dispute or the fact that a suit or arbitration proceeding relating to a dispute is pending between the parties. Therefore, all that the adjudicating authority is to see at this stage is whether there is a plausible contention which required further investigation and that the “dispute” is not a patently feeble legal argument or an assertion of fact unsupported by evidence .It is important to separate the grain from the chaff and to reject a spurious defence which is mere bluster.”

Therefore, in the given facts and circumstances, the present application is complete and the Applicant has established its claim which is payable and due by the corporate debtor. In the light of above facts and records, the present application is admitted.

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