Karnataka HC: Petition Against Partnership Firm/Directors Not Maintainable U/S 95 of IBC Before NCLT


Published on: April 15, 2024 at 12:08 IST

Karnataka High Court has deemed a petition against a partnership firm or its Directors as not maintainable under Section 95 of the Insolvency and Bankruptcy Code, 2016 before the National Company Law Tribunal (NCLT).

The bench, led by Justice M Nagaprasanna, emphasized that the very acceptance of such filings by the Tribunal is contrary to law, as the Code does not permit it. The case stemmed from petitions filed by a firm and its directors challenging the invocation of Section 95 of the IBC before the NCLT.

The dispute originated from a Joint Development Agreement between the firm and a company, leading to arbitration proceedings. However, the company issued a notice under Section 95 of the IBC, prompting the firm to contest its jurisdiction over non-corporate debtors.

The firm argued that the IBC did not cover insolvency resolution for individuals or partnership firms, while the company asserted that the firm’s conduct equated its directors to personal guarantors, justifying NCLT jurisdiction. Both sides presented arguments regarding the tribunal’s jurisdiction, with the firm seeking dismissal of the petition and continuation of arbitration proceedings.

In its ruling, the Court highlighted the immediate consequences of filing a petition under Sections 94 or 95 of the Code, including interim moratorium and the appointment of a Resolution Professional. Ultimately, the Court declared the petitioners’ filing under Section 95 of the IBC as illegal, quashing the proceedings before the NCLT.

Appearances in the case included Senior Counsels Om Prakash and CK Nandakumar, along with Counsel Vishwas N for the petitioners, and DSGI H Shanthi Bhushan, CGC Anupama Hegde, Senior Counsel MS Shyam Sundar, and Counsel Anish Acharya for the respondents.

This ruling underscores the importance of clarity regarding the jurisdiction of the NCLT in matters involving partnership firms under the IBC. Stay tuned for further updates on this evolving legal precedent.

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