"IBC Does Not Protect The Interest Or Claim Of A Partner Against Another Partner Or The Firm": NCLT Mumbai

Background Facts

On 12.10.2009, Parul A Vora ("Petitioner") had disbursed via RTGS an amount of Rs.5,25,000/- in favor of M/s Kavya Construction Co. ("Borrower Firm"), of which Kavya Buildcon Pvt. Ltd. ("Respondent") was a partner. The Petitioner contended that the Respondent being a Partner, was personally and jointly liable for repayment of the amount borrowed by the Borrower Firm and was obligated to pay the Petitioner a total amount of Rs.9,72,876/- (inclusive of interest @12%p.a.) as on 31.03.2019.

The Petitioner had filed a petition under Section 7 of the IBC before NCLT Mumbai Bench, seeking initiation of Corporate Insolvency Resolution Process ("CIRP") against the Respondent, when the latter declined to repay the amount borrowed by the Borrower Firm.

Contentions Of The Respondent

The Respondent argued that Petitioner had neither provided any loan to it and nor had produced any document to show that the Respondent owed any financial debt to the Petitioner. It was submitted that the provisions with respect to proceedings to be initiated against the Partnership Firms have not been notified in the IBC yet.

Decision Of The NCLT Bench

The Bench observed that the Borrower Firm owed money to the Petitioner and had committed default in its repayment. However, the default was committed by the Borrower Firm and not the Respondent. Reliance was placed on the NCLAT judgment in Gammon India Ltd. v Neelkanth Mansions and Infrastructure Pvt. Ltd., Company Appeal (AT) (Ins) No. 698 of 2018, wherein it was held that:

"It is not in dispute that the amount due to Appellant is from 'Gammon Neelkanth Realty Corporation.' The bill was raised against the said partnership firm namely-- 'Gammon Neelkanth Realty Corporation'. 'Neelkanth Realtors Pvt. Ltd.', 'Gammon Housing and Estates Developers Ltd.' And 'Neelkanth Mansions and Infrastructure Pvt. Ltd.' are the partners, therefore, even if one of the partners or more than one partner is the 'Corporate Debtor' as the amount is due from the partnership firm, the application under Section 9 of the 'I&B Code' against one of the partners of such partnership firm will not be maintainable."

The Bench observed that even though the above judgment was under Section 9 of the IBC, but the ratio laid therein would also apply to petitions under Section 7 of the IBC.

The Bench further observed that there was no evidence of any agreement between the Petitioner and Respondent. Reliance was also placed on the Supreme Court judgment in Transmission Corporation of Andhra Pradesh Ltd. v. Equipment Conductors and Cables Ltd., C.A No. 9597/2018, wherein it was held that "IBC is not intended to be substitute to a recovery forum. It is also laid down that whenever there is existence of real dispute, the IBC provisions cannot be invoked…".

The Bench held that "IBC does not protect the interest or claim of a Partner against another Partner or the Firm as such though, the Petitioner may be entitled to the claims against the Respondent under any other law in force which may provide the legal recourse to the Financial Creditor." The petition was dismissed.

Case Title: Parul A Vora v Kavya Buildcon Private Limited, CP (IB) 2832/MB/2019

Counsel For the Financial Creditor: Mr. Dhruva Gandhi, Advocate.

Counsel For the Corporate Debtor: Mr. Shanay Shah, Advocate.

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