Resolution Professional At S.94/95 Stage Cannot Decide On Maintainability Of Petition By Entering Into Merits: Karnataka High Court

The Karnataka High Court Bench of Justice N.V. Anjaria and K.V. Aravind, held that the role of the Registrar while registering the application under Section 95 of the Insolvency and Bankruptcy Code (IBC) is not adjudicatory in nature and this duty of the Registrar, NCLT was in no way adjudicatory trapping. Application of judicial mind towards merits has no place in discharge of a ministerial or clerical function. Brief Facts A petition under section 95 of the IBC was filed by Boyount Technology Constellation Pvt. Ltd. (appellant) against M/s Manyata Reallty (respondent), a registered partnership firm. The petition was filed to initiate the insolvency proceedings against the respondent for the debt amount of Rs. 8,11,49,54,687. This petition was challenged by the respondent on the ground that a petition under section 95 could not be maintained against a partnership firm. Parties had entered into an agreement on December 23, 2009 and an addendum on July 20,2012 for real estate development for 103 acres land. Separate Joint Development Agreement (JDAs) were signed between 2010 and 2015. The respondent claimed that the appellant failed to complete the work on time due to which losses were incurred by the respondent. Due to failure to complete the work, 6 six JDAs were terminated by the respondent on December 7, 2019 and three others were terminated partially. When further dispute arose between them, another notice of termination was issued on July 16, 2022. Thereafter, an arbitration clause in the agreement was invoked leading the constitution of the arbitral tribunal. Arbitration proceedings had started and reached at an advanced stage. The appellant tried to obstruct the arbitration proceedings by filing multiple legal proceedings. A demand notice under section 95 of the IBC was issued against the respondent by the appellant claiming the amount of Rs. 8.11 crores. The respondent claimed that this amount had already been claimed in the form of a counter claim in the ongoing arbitral proceedings. The Single Judge observed that since the respondent was a partnership firm against which no petition under section 95 could be maintained in light of MCA notification issued on November 25, 2019. The court further held that registrar could decide the jurisdictional aspect at the filing stage itself so that frivolous petitions could be dismissed at that stage itself. This decision of the Single Judge was challenged before the division bench. Contentions The appellant argued that registrar was not empowered to adjudicate on the maintainability of the petition under section 95 of the IBC. It was further contended that adjudication begins by the NCLT only when a report under section 100 of the IBC is submitted by the registrar. It was further argued that interim moratorium under section 96 of the IBC is a statutory fallout and the petition under section 95 cannot be rejected on this ground. Per Contra, the respondent submitted that insolvency proceedings under section 95 could not be initiated against a partnership firm as it was applicable only to personal corporate guarantors. It was further contended that the partnership firm could neither be considered a corporate person nor a corporate debtor under the IBC. It was further argued that insolvency proceeding were initiated just to stall the ongoing arbitral proceedings. Once a petition under section 95 is filed, interim moratorium under section 96 of the IBC will come into operation that is why it had been filed. It was further contended that since the petition under section 95 of the IBC could not be filed against the partnership firm, no subsequent actions could have been taken by the NCLT like registration and scrutiny of the petition. Court's Analysis The court referred to the Supreme Court judgment in Jamal Uddin Ahmad vs. Abu Saleh Najmuddin (2003) wherein a distinction between ministerial and judicial functions were discussed. A judicial function involves interpretation of a law and applying the same on the facts presented before the court by both parties. This application of law affects the right and liabilities of the parties. On the other hand, ministerial function involves performance of a duty in accordance with a framework already laid down without any discretionary power. The ministerial acts like receiving insolvency petitions are administrative in nature which are performed to ensure procedural compliance. The court observed that in the present case also, when registrar was receiving the petition under section 95 of the IBC, the ministerial act was being performed to ensure procedural compliance. Therefore, the registrar was not entitled to assess the merits or maintainability of the petition at that stage which should be left to be decided by the NCLT. The Supreme Court judgment in Dilip B Jiwrajka v. Union of India (2024) was referred in which the court held...

Resolution Professional At S.94/95 Stage Cannot Decide On Maintainability Of Petition By Entering Into Merits: Karnataka High Court

Mohd Malik Chauhan

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