Operational Creditor's Failure To Comply With S.69(2) Of Indian Partnership Act Leads To Rejection Of CIRP Petition: NCLT Hyderabad

NCLT Hyderabad in its judgement of Amogh Industrial Products Vs. Mirchi Developers Pvt. Ltd dismissed a Section 9 application filed under the Insolvency and Bankruptcy Code, 2016 by Amogh Industrial Products (Operational Creditors) praying to initiate a Corporate Insolvency Resolution Process (CIRP) against Mirchi Developers Pvt ltd, due to the failure in compliance with Section 69(2) of Indian Partnership Act, 1932.

Facts of the Case

The application of Section 9 under the Insolvency and Bankruptcy Code, 2016 was filed by Amogh Industrial Products as Operational Creditors, against the Corporate Debtor, who is Mirchi Developers Pvt Ltd. in this case.

On 11th November, 2020, Mirchi Developers ordered Amogh Industrial Products for labour and civil construction services. Amogh Industrial Products performed the services rendered and gave several raising invoices, which were duly accepted by Mirchi Developers.

Operational Creditor further submitted that amount was payable on 17th February, 2022, and Mirchi Developers did not respond to the payment of that amount of Rs 1,15,29,288/- which was also carrying an interest of Rs 25,51,742/- and after adding the total amount was Rs 1,40,81,130/-

On 31st October, 2023, Amogh Industrial Products mailed a demand notice which reached Mirchi Developers on 1st November, 2023 and was not paid. The petitioner invoked corporate insolvency resolution process (CIRP) after no response.Whereas an electronic mail response was received from the debtor, on 3 July 2024, a postal notice issued by the petitioner was returned. It was asserted that the NCLT, at the 11th September hearing, held the following points and sent a memorandum of comments asking the petitioner to explain the same: Firstly, that the petitioner fails to prove its registration as a partnership firm; secondly, the demand notice has not been served correctly on the debtor; thirdly, there is no evidence that the invoices have been certified by an engineer as mandated by the work order.

Arguments Advanced by Parties

The Petitioner, that is Amogh Industrial Products, submits that it had rendered labour and civil construction services to the corporate debtor, that is Mirchi Developers, pursuant to the work order dated 11th November 2020. It submitted that on different points of time, so raised various invoices the acknowledgment that was made by Mirchi Developers.

However, Mirchi Developers defaulted on payments on 17th February, 2022, with an amount of Rs 1,15,29,388/- outstanding along with interest of Rs 25,51,742/-. In total, this comes down to Rs 1,40,81,130. Due to this reason, on 31st October, 2023, Amogh Industrial Products sent across a demand notice that was received by Mirchi Developers on 1st November, 2023, yet the payment was not made. Pursuant to which the instant application under Section 7, CIRP was filed by the petitioner claiming that operational debt exceeds one crore rupees.

The Respondent, Mirchi Developers Pvt. Ltd., did not appear before the Tribunal and neither does any specific counterarguments were taken on the record by it. Though postal notice returned undelivered, the respondent admits email notice and insists that copy of petition may be sent to it through e-mail but as no other appearance was made by side of respondent so, respondent is placed ex parte.

Observations of the Tribunal

The tribunal here highlighted the following inadequacies in the petition filed by the Amogh Industrial Products. The tribunal observed that petitioner had not produced evidence to demonstrate that it was a registered partnership firm.

A firm shall be registered under Section 69(2) of the Indian Partnership Act, 1932, to file a petition for the enforcement of rights under contract. In addition, the petitioners did not produce the register of firms showing the names of its partners. In the absence of the register of firms, it becomes impossible to confirm the status of the authorized signatory Mr. Amar Das as a partner. As such, it was held that the notice under demand was not properly served upon the corporate debtor. The registered post notice was returned unserved along with an email notice that was received at an inappropriate email address.

For this reason, the Tribunal held that notice under Rule 5(2) of the Insolvency and Bankruptcy (Application to Adjudicating Authority) Rules, 2016 was not served properly. The tribunal observed that there was no proof of debt from the petitioner. While the petitioner proffered tax invoices, it could not avail original invoices which were received and sighted by the respondent. The petitioner did not present documentation that would reveal an engineer has verified the invoices. In such a scenario, the respondent had in its work order provided. In this regard, there was no appropriate proof of acknowledgment or default regarding the debt established. The tribunal further reasoned that the notice sent to Mirchi Developers is received by one Rajesh Kumar whose identity was not known. This again raised a question about whether the demand notice was served properly.

Conclusion

In the backdrop of these observations, the Tribunal held that the petition was not maintainable in view of the violation of Section 69(2) Indian Partnership Act, improper service of notice, and lack of proof of debt and default. Consequent to such finding the petition was dismissed.

Case Title: Amogh Industrial Products Vs. Mirchi Developers Pvt. Ltd

Case Number: CP(IB) No. 103/9/HDB/2024 u/s. 9 of IBC, 2016

Tribunal: NCLT, Hyderabad

Judge: Dr. Venkata Ramakrishna Badrinath Nandula, Hon'ble Member (Judicial) and Shri Charan Singh, Hon'ble Member (Technical)

Advocate for Petitioner: Mr. Harsh Chowdary, Counsel

Advocate For Respondent: None

Date of Judgement: 11th September, 2024

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