Rourkela Steel Syndicate Vs Metistech Fabricators Pvt. Ltd. (NCLAT Delhi)
Summary: The National Company Law Appellate Tribunal (NCLAT) considered an appeal against the order dated 9 June 2022 passed by the NCLT, Cuttack Bench, rejecting an operational creditor’s application under Section 9 of the Insolvency and Bankruptcy Code, 2016. The Adjudicating Authority had held that Section 69(2) of the Indian Partnership Act, 1932 barred the application because the operational creditor was an unregistered partnership firm seeking enforcement of a contractual right against a third party. Although the Adjudicating Authority accepted that the application was not barred by limitation, it treated the insolvency application as equivalent to a civil suit for the purpose of applying Section 69(2).
The appellant argued that the statutory prohibition under Section 69(2) applies to suits instituted by unregistered partnership firms and does not extend to applications filed under Section 9 of the IBC. The respondent supported the impugned order by relying on Supreme Court decisions concerning the restriction on suits by unregistered firms. The NCLAT examined the distinction between a suit and an insolvency application with reference to the Limitation Act, 1963. Relying on Gaurav Hargovindbhai Dave v. Asset Reconstruction Company (India) Limited, it noted that applications under Section 7 of the IBC are governed by the residuary Article 137 rather than Article 62, which applies to suits. The Tribunal also referred to B.K. Educational Services (P) Ltd. v. Parag Gupta and Associates regarding the applicability of Section 5 of the Limitation Act to IBC applications.
The NCLAT held that an application under Section 9 of the IBC cannot be treated as a suit. Consequently, the bar imposed by Section 69(2) of the Partnership Act was inapplicable. The Tribunal found that the Adjudicating Authority had erred in rejecting the operational creditor’s application on that ground. It allowed the appeal, set aside the order dated 9 June 2022 and revived CP(IB) No. 14/CB/2021 before the NCLT, Cuttack, for hearing and determination in accordance with law. The decision addressed maintainability under Section 69(2) and did not constitute an adjudication of the operational creditor’s underlying claim on its merits.
Cases Discussed:
- Gaurav Hargovindbhai Dave v. Asset Reconstruction Company (India) Limited and Another — (2019) 10 SCC 572 (Supreme Court of India). Held that an application under Section 7 of the IBC is governed by Article 137 of the Limitation Act rather than Article 62, which applies to suits.
- B.K. Educational Services (P) Ltd. v. Parag Gupta and Associates — (2019) 11 SCC 633 (Supreme Court of India). Relied upon for the applicability of the Limitation Act, including Section 5, to applications under Sections 7 and 9 of the IBC.
FULL TEXT OF THE JUDGMENT/ORDER OF NCLAT
Heard learned Counsel for the parties.
2. This appeal has been filed against the order dated 09.06.2022 passed by the Adjudicating Authority (NCLT, Cuttack) by which order the Application filed by the Appellant under Section 9 of IBC, the Operational Creditor has been rejected on the ground that the application is barred by Section 69(2) of the Partnership Act. The Adjudicating Authority took the view that Section 69(2) of the Partnership Act bars a suit by an unregistered partnership, hence the present Application which was filed by the Appellant against the third party for enforcing a right arising out of contract is barred. Section 69(2) of the Partnership Act provides as under:
“Section 69(2) in The Indian Partnership Act, 1932
(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”.
3. Learned Counsel for the Appellant challenging the order of the Adjudicating Authority submits that although the Adjudicating Authority accepted the submission of the Appellant, that the Application is not barred by Limitation, however, on interpretation of Section 69(2) of the Partnership act, 1932, error has been committed in treating the Application akin to a Suit. It is submitted that Section 69(2) of Partnership Act is not attracted where an Application under Section 9 IBC is filed since Section 9 Application is not a suit so as to apply Section 69(2) of the Partnership Act.
4. Learned Counsel for the Respondent refuting the submissions, contends that there are judgments of the Hon’ble Supreme Court, which has been referred by the Adjudicating Authority holding that a suit by unregistered partnership is barred filed against the third party. Learned Counsel for the Respondent supports the impugned order.
5. We have considered the submissions of the Counsel of the parties and perused the records. The IBC provides for filing of the Application under Sections 7 & 9 and it is now settled position of law that for limitation for filing Application under Sections 7,9 & 10 are Article 137 of the Limitation Act, 1963 which is attracted. Article 137 of the Limitation Act provides for filing of Application, where no period of limitation is provided. Learned Counsel for the Appellant relied on a judgment of the Hon’ble Supreme Court- (2019) 10 SCC 572 titled “Gaurav Hargovindbhai Dave Vs. Asset Reconstruction Company (India) Limited and Anr.’ where Hon’ble Supreme Court had occasion to consider the provision of Limitation Act, 1963 as well as Application under Section 7 of IBC. In paragraph-6 of the Judgment, following have been laid down:..
“6. Having heard the learned counsel for both sides, what is apparent is that Article 62 is out of the way on the ground that it would only apply to suits. The present case being ‘an application’ which is filed under Section 7, would fall only within the residuary Article 137. As rightly pointed out by the learned counsel appearing on behalf of the appellant, time, therefore, begins to run on 21-7-2011, as a result of which the application filed under Section 7 would clearly be time-barred. So far as Mr Banerjee’s reliance on para 11 of B.K. Educational Services (P) Ltd., suffice it to say that the Report of the Insolvency Law Committee itself stated that the intent of the Code could not have been to give a new lease of life to debts which are already time-barred.” ..
6. An application under Section 9 of IBC cannot be said to be a suit and analogy of Hon’ble Supreme Court judgment in Hargovindbhai Dave’s case, supra, is fully applicable to the application filed under Section 9 IBC also. Further, also it is well settled by the judgment of the Hon’ble Supreme Court in B.K. Educational Services (P) Ltd. v. Parag Gupta and Associates, (2019) 11 SCC 633 that provision of Section 5 Limitation Act are also fully applicable in Section 7 & 9 IBC applications. Section 5 Limitation Act is not applicable in a suit which is also a clear indication that Application under Section 7 & 9 are not a suit.
7. 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.
8. We are thus of the view that the Adjudicating Authority has committed error in rejecting Section 7 Application on the ground that it is barred by 69(2) of the Partnership Act. We are thus in view that the order impugned cannot be sustained and deserves to the set aside.
9. In result, the present appeal is allowed and the impugned order dated 09.06.2022 is set aside. Application under Section 9 of IBC CP(IB) No. 14/CB/2021 is revived before the Adjudicating Authority to be heard and decided in accordance with law. The Appeal is allowed accordingly.
