NCLT Hyderabad Rejects CIRP Petition Due To Operational Creditor's Non-Compliance With Section 69(2) Of The Indian Partnership Act

NCLT Hyderabad Rejects CIRP Petition Due To Operational Creditor's Non-Compliance With Section 69(2) Of The Indian Partnership Act

In a significant ruling, the National Company Law Tribunal (NCLT) Hyderabad has dismissed a Section 9 application filed by Amogh Industrial Products (Operational Creditors) seeking to initiate a Corporate Insolvency Resolution Process (CIRP) against Mirchi Developers Pvt. Ltd. The dismissal was based on the company's failure to comply with Section 69(2) of the Indian Partnership Act, 1932.

Amogh Industrial Products filed the application against Mirchi Developers Pvt. Ltd. after the latter failed to pay for labour and civil construction services ordered on November 11, 2020. The services were rendered by Amogh, who submitted several invoices that were duly accepted by Mirchi Developers.

The operational creditor claimed that an amount of ₹1,15,29,288 was due on February 17, 2022, along with interest of ₹25,51,742, totaling ₹1,40,81,130. After sending a demand notice on October 31, 2023, which was received by Mirchi Developers on November 1, 2023, and receiving no response, Amogh invoked the Corporate Insolvency Resolution Process (CIRP). However, an email response from the debtor was received on July 3, 2024, and a postal notice issued by Amogh was returned.

During the hearing on September 11, 2023, the NCLT raised several points, including the petitioner’s failure to prove its registration as a partnership firm, improper service of the demand notice, and lack of evidence that the invoices had been certified by an engineer as mandated by the work order.

Amogh Industrial Products asserted that it had rendered services to Mirchi Developers under the work order dated November 11, 2020, and had raised various invoices, which were acknowledged by the debtor. The operational creditor argued that Mirchi Developers defaulted on payments due on February 17, 2022, leading to the outstanding amount of ₹1,40,81,130. Following the demand notice, which went unanswered, Amogh sought to initiate CIRP, claiming that the operational debt exceeded ₹1 crore.

Conversely, Mirchi Developers Pvt. Ltd. did not appear before the Tribunal and did not provide specific counterarguments. Although the postal notice returned undelivered, the respondent acknowledged receipt of the email notice and requested a copy of the petition be sent via email, but no other appearance was made, placing Mirchi Developers ex parte.

The Tribunal noted several inadequacies in the petition submitted by Amogh Industrial Products. Specifically, the Tribunal highlighted the lack of evidence proving that the petitioner was a registered partnership firm. According to Section 69(2) of the Indian Partnership Act, 1932, a firm must be registered to file a petition for enforcing contractual rights. The petitioners also failed to provide the register of firms, which would identify the names of its partners. Without this documentation, confirming the status of the authorized signatory, Mr. Amar Das, as a partner was impossible.

Additionally, the Tribunal found that the demand notice was not properly served upon the corporate debtor. The registered post notice was returned unserved, and the email notice was sent to an incorrect email address. Consequently, the Tribunal concluded that the notice was not served according to Rule 5(2) of the Insolvency and Bankruptcy (Application to Adjudicating Authority) Rules, 2016.

The Tribunal further observed that there was no proof of debt from the petitioner. Although tax invoices were provided, the original invoices, which should have been acknowledged by the respondent, were missing. Furthermore, the petitioner did not present documentation indicating that an engineer had verified the invoices, as required by the work order. The Tribunal questioned the validity of the identity of Rajesh Kumar, who received the notice at Mirchi Developers, further raising doubts about proper service of the demand notice.

In light of these findings, the Tribunal ruled that the petition was not maintainable due to violations of Section 69(2) of the Indian Partnership Act, improper service of notice, and lack of proof of debt and default. Consequently, the petition was dismissed.