Introduction
In insolvency proceedings under the Insolvency and Bankruptcy Code, 2016 (IBC), the Resolution Professional (RP) plays a vital yet limited role, particularly during the initial stages of filing an application. Sections 94 and 95 of the IBC govern insolvency applications against individuals and personal guarantors. The RP’s role at this stage is to ensure procedural compliance, without making decisions on the merits or maintainability of the case, which is reserved for the Adjudicating Authority (NCLT). This issue was recently addressed in the case Buoyant Technology Constellations Pvt. Ltd. vs. Manyata Realty & Ors.[i], where the Karnataka High Court examined the scope of the RP’s powers under Section 95.
Facts of the Case:
The appellant filed a petition under Section 95 of the Insolvency and Bankruptcy Code (IBC) against the respondent, a partnership firm, seeking insolvency for a debt of Rs. 8.11 crores. The respondent contested, citing a 2019 MCA notification that bars insolvency proceedings under Section 95 against partnership firms.
The dispute stemmed from real estate development agreements, where the respondent claimed the appellant failed to complete the work on time, leading to losses and the termination of several Joint Development Agreements (JDAs). Arbitration proceedings had already begun, but the appellant attempted to disrupt them with the IBC petition.
The Single Judge ruled that the petition was not maintainable and that jurisdictional issues should be addressed at the filing stage. This decision was then appealed.
Analysis of the Judgement:
In the present petition under Section 95 of the IBC, the appellant argued that the registrar’s role was purely ministerial and that the merits of the petition should be decided by the NCLT (National Company Law Tribunal), not during the initial filing. The appellant also contended that the interim moratorium under Section 96, which automatically follows a petition under Section 95, cannot be grounds to reject the petition. The court supported this argument, referencing the Supreme Court judgment that distinguishes between ministerial and judicial functions, emphasizing that the registrar’s role is limited to ensuring procedural compliance.
The respondent made a counterargument contending that insolvency proceedings under Section 95 cannot be initiated against a partnership firm, as the provision applies only to personal or corporate guarantors. The Respondent also claimed the petition was filed to delay ongoing arbitration proceedings, taking advantage of the interim moratorium.
The high court concluded that the RP’s role is administrative, and the merits of the petition should be adjudicated by the NCLT. The appeal was allowed, and the order pronounced by the single bench judge was set aside, affirming that the right to file a petition under Section 95 cannot be dismissed solely because it may affect other legal proceedings.
Author: Hiteashi Rajan Desai, Associate at R&D Law Chambers LLP
Email: info@rdlawchambers.com
*The content of this article is intended to provide general information. No reader or user should act or refrain from acting on the basis of the information written above without first seeking legal advice from a qualified law practitioner.