Section 9 IBC Application Not A Suit, Hence Bar U/S 69(2) Of Partnership Act Not Attracted: NCLAT Delhi

Background Facts

Rourkela Steel Syndicate (“Operational Creditor”), a partnership firm, filed an application under Section 9 of the Insolvency and Bankruptcy Code, 2016 (“IBC”), seeking initiation of Corporate Insolvency Resolution Process (“CIRP”) against Metistech Fabricators Pvt. Ltd (“Corporate Debtor”).

On 09.06.2022 the Adjudicating Authority rejected the application while holding that the same is barred by Section 69(2) of the Indian Partnership Act, 1932. It was observed that Section 69(2) bars a suit instituted by an unregistered partnership, therefore, the application filed by Operational Creditor against the third party for enforcing a right arising out of contract is barred.

The Operational Creditor filed an appeal before NCLAT against the order of dismissal and contended that an application under Section 9 of IBC is not akin to a suit. Hence, the bar under Section 69(2) is not attracted.

Relevant Law

“Section 69(2) in Indian Partnership Act, 1932

69(2) 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”.

NCLAT Verdict

The Bench held that an application under Section 9 of IBC cannot be said to be a suit. The Supreme Court judgment in B.K. Educational Services (P) Ltd. v. Parag Gupta and Associates, (2019 11 SCC 633), has held that Section 5 of Limitation Act, 1963 is fully applicable to applications under Section 7 & 9 of IBC. Since Section 5 of Limitation Act is not applicable to a suit, this indicates that applications under Section 7 & 9 are not a suit.

“The Judgments of Hon’ble Supreme Court relied by the Adjudicating Authority regarding bar of Section 69(2) is not attracted in the present case since the application under Section 9 cannot be treated as suit.”

The Bench opined that the Adjudicating Authority erroneously rejected the Section 9 Application on the ground that it is barred by 69(2) of the Partnership Act. The Order dated 09.06.2022 has been set aside and Section 9 application has been revived before the Adjudicating Authority, to be heard and decided in accordance with law.

Case Title: Rourkela Steel Syndicate v Metistech Fabricators Pvt. Ltd.

Case No.: Company Appeal (AT)(Insolvency) No. 924 of 2022

Counsel For Appellant: Mr. Milan Negi and Mr. Nikhil Kumar, Advocates.

Counsel For Respondent: Mr. Sanchit Gawri, Advocate

ClickHere To Read/Download Order