Amalgamation of Sole Proprietorship Firm with Company is not Permissible under Law: NCLT
Amalgamation of Sole Proprietorship Firm with Company is not Permissible under Law, rules NCLT
Amalgamation – Sole Proprietorship Firm – NCLT – Amalgamation of Sole Proprietorship Firm – Company – taxscan
Amalgamation – Sole Proprietorship Firm – NCLT – Amalgamation of Sole Proprietorship Firm – Company – taxscan
The Delhi Bench of the National Company Law Tribunal (NCLT) observed that the amalgamation of sole proprietorship firm with company is not permissible under law.
M/s SVS Marketing Sanitaryware Private Limited (‘Applicant’/ ‘Operational Creditor’) has filed the present petition under Section 9 of the Insolvency and Bankruptcy Code, 2016 (‘IBC, 2016’) read with Rule 6 of the Insolvency and Bankruptcy (Application to Adjudicating Authority) Rules, 2016 with a prayer to initiate the Corporate Insolvency Resolution Process against M/s. KajariaBathware Private Limited (‘Respondent’).
The Applicant has claimed the alleged debt on account of the accumulated stock due to discontinuance/prevention of the supply of goods to the dealers of the Applicant, which it had been doing pursuant to the Distributorship Agreement dated 15.07.2016 executed between the Respondent and SVS Marketing (through its proprietor Mr. Shibu M).
As per the Respondent, the said Distributorship Agreement clearly prohibited Mr. Shibu M (SVS Marketing) from transferring or assigning the same or any part thereof without the prior written consent in terms of Clause 8(III) of the Agreement.
The Applicant in its rejoinder has admitted that the proprietorship was transferred into a Private Limited Company by virtue of an “Amalgamation Agreement” entered between M/s SVS Marketing (Proprietorship Concern) and M/s SVS Marketing Sanitaryware Pvt. Ltd. and the aforesaid Distributorship Agreement never prohibited the transfer of business or assigning of actionable claims.
A Two-Member Bench of the Tribunal comprising LN Gupta, Technical Member and Ashok Kumar Bhardwaj, Judicial Member observed that “Since the Sole Proprietorship Firm has no separate legal entity of its own, and it is known only through its Proprietor Mr. Shibu M, who (as we have seen in the table given in Para 12 above) is a member/shareholder in the Applicant Company, the provision of Section 230 of the Companies Act 2013 can be resorted to by Mr. Shibu M and the Applicant Company namely, M/s SVS Marketing Sanitaryware Pvt. Ltd. for the purpose of “Compromise and Arrangement” by filing an appropriate Petition before NCLT by following the due procedure prescribed by law.”
“Neither the “Sole Proprietorship Firm” nor “its individual Proprietor” is a “Company” in terms of Section 2(20) of the Companies Act 2013. Hence, the Merger and Amalgamation of a “Sole Proprietorship Firm” and “a Company” is not possible under Section 232 of the Companies Act 2013. Hence, we find that an amalgamation of “a Sole Proprietorship Firm” with “a Company” is not permissible under the law” the Tribunal noted.
To Read the full text of the Order CLICK HERE
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