NCLAT: Section 9 IBC Application is Not Akin to Suit, Bar under Section 69(2) of Partnership Act is Not Applicable

NCLAT: Section 9 IBC Application is Not Akin to Suit, Bar under Section 69(2) of Partnership Act is Not Applicable

The National Company Law Appellate Tribunal (NCLAT), Principal Bench while hearing an appeal filed in the matter of Rourkela Steel Syndicate vs. Metistech Fabricators Pvt. Ltd, observed that an application under Section 9 of the Insolvency Bankruptcy Code, 2016 (IBC) is not a suit and hence, the bar under Section 69(2) of Indian Partnership Act, 1932 is not applicable to a Section 9 application.

Rourkela Steel Syndicate- Operational Creditor/Appellant, a partnership firm, filed an application under Section 9 of IBC, seeking initiation of Corporate Insolvency Resolution Process (CIRP) against Metistech Fabricators Pvt. Ltd- Corporate Debtor/Respondent.

The Adjudicating Authority (NCLT, Cuttack) on 9th June, 2022 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.

The division member bench comprising of Justice Ashok Bhushan (Chairperson) and Mr. Barun Mitra (Technical Member) observed, "IBC provides for filing of the Application under Sections 7 and 9 and it is now settled position of law that for limitation for filing Application under Sections 7,9 and 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."

The bench concurred with the decision relied by the Appellant passed by the Supreme Court in Gaurav Hargovindbhai Dave vs. Asset Reconstruction Company (India) Limited and Another (2019). The bench stated that an application under Section 9 of IBC cannot be said to be a suit and analogy of Supreme Court judgment in Hargovindbhai Dave's case, supra, was fully applicable to the application filed under Section 9 IBC also.

Further, the bench relied on the judgment passed by the Supreme Court in B.K. Educational Services (P) Ltd. vs. Parag Gupta and Associates, (2019) that provision of Section 5 Limitation Act is also fully applicable in Section 7 and 9 IBC applications. Section 5 Limitation Act is not applicable in a suit which is also a clear indication that Application under Section 7 and 9 are not a suit.

The NCLAT was of the considered view that, "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 NCLAT ruled that the Adjudicating Authority had erroneously rejected the Section 9 Application on the ground that it is barred by 69(2) of the Partnership Act. The Order dated 9th June, .2022 was set aside and Section 9 application was revived before the Adjudicating Authority, to be heard and decided in accordance with law.