IBC Versus Rights Of Unregistered Partnerships
The Insolvency and Bankruptcy Code of 2016 (subsequently alluded to as IBC or
Code) was adopted to bring together India's bankruptcy and restructuring rules.
Its goal is to optimize the valuation of the commercial borrower's capital in a
time-bound method, which may be a corporation, a collaboration company, or an
entity. In addition, Section 6 of the Code specifies who can activate the IBC's
CIRP that is, Corporate Insolvency Resolution Process. It specifies that when a
situation arises, the accounting creditors functional lender or commercial
lender themselves will submit an appeal with the National Company Law Tribunal (NCLT)
within Section 7, 9, and 10. However, there seems to be a crucial issue: Can an
unregistered firm file an application under Section 9?
It is necessary to address a particular section that is present within the
Indian Partnership Act of 1932, that is, section 69(2), prior to digging
deeper into the aforementioned issue. The segment is structured as follows:
No suit to enforce a right arising from a contract shall be instituted in any
Court by or on behalf of a firm against any third party unless the firm is
registered and the persons suing are or have been shown in the Register of Firms
as partners in the firm.
The provision prevents the relationship company and its members from exercising
their contractual privileges via a lawsuit. This ensures that if a lawsuit
emerges out of the corporate dealings of an unauthorized joint venture, it would
be dismissed. Coming over to the analytical issue could it be said that an
unauthorized collaboration company (Functional Issuer) can submit an appeal for
privileges emerging out of agreements within Section 9 of the IBC?
Like in context of M/s Shree Dev Chemicals Corporation v. Gammon India Limited,
[CP (IB) No. 3637/MB.IV/2018], the NCLT replied substantively to the
aforementioned issue, stating that an unauthorized collaboration business would
be eligible to process a provision of Section 9 of the Code. It responded by
saying that Section 69(2) of the Act of Indian Partnership (1932), merely refers
to lawsuits, not trials.
As a result, the law would not extend to proceedings submitted underneath the
IBC because they are cases rather than lawsuits.
With this said, the NCLT tribunal in Mumbai even found such a problem in the
context of M/s NN Enterprise v. Relcon Infra Projects Limited. The
Commercial Lender objected on various bases: one, that because the phrase
partnership firm within Section 3(23) of the Code, that specifies person,
basically involves licensed collaboration firms, the Functional Issuer’s request
within Section 9 cannot be approved, and two, that perhaps the request by the
unauthorized collaboration company would’ve been prohibited under Section 69(2)
within the Act of Indian Partnership of 1932.
The Functional Lender, on the other side argued that a request within Section 9
would not be considered a lawsuit because of the jury’s verdict in Shree
Balaji Steels v. Gonterman-Peipers (India) Limited, [(2002) SCC OnLine Cal
821], referring to the judgment and verdicts of the Honourable Kolkata state
high judiciary the court in the aforementioned case context, including that a
request within Section 9 would not be considered a suit because of the jury’s
ruling in the above-mentioned event.
The NCLT also cited the Honourable Judicial Branch of India's verdict in the
dispute Gaurav Hargovindbhai Dave v. Asset Reconstruction Company,
wherein the tribunal basically ruled that a request within Section 7 of the Code
must come within the Limitation Act of 1963, particularly within the article
137, instead of Article 62, since it was clear by the fact that it was an
application and not a lawsuit.
Throughout this situation, the Judicial Branch addressed the same evidence and
ruled that an attempt to meet the criteria as a Section 7 or Section 9 request
underneath the IBC would cause a three-year statute of limitations from the day
of the appeal, and that just an application, not lawsuits can be lodged
underneath the IBC. It moreover cited the Supreme court ruling in Sagar
Sharma v. Phoenix ARC Private Limited, of the the year 2019, in which the
Honourable Supreme Court ruled that requests filed underneath the IBC are
grievances, not lawsuits.
Therefore, having taken the preceding instances into consideration, the NCLT
determined that unauthorized collaboration companies can submit an appeal within
Section 9 of the IBC, and therefore are not prohibited by the restriction set
forth in the Indian Partnership Act of 1932, particularly in section 69(2).
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