The Delhi bench of the National Company Law Appellate Tribunal (NCLAT), held that the assets held in the name of the partnership firm is not the personal property of the personal guarantor.Further viewed that it cannot be subjected to the provisions of interim moratorium merely because a Section 95 application has been filed against a partner of the firm in respect of a personal guarantee given for a party other than the partnership firm.
A petition under section 95 was filed by White Line Exterprises , operational creditor against Mr. Ramesh Kumar Chugh , personal guarantor for the debt of M/s. Sahil Home Loomtex Pvt. Ltd (corporate debtor). This petition was filed on December 22, 2023 which led to interim moratorium under section 96 of the IBC. An Interim Resolution Professional (IRP) was also appointed by the Adjudicating Authority on February 12, 2024. The personal guarantor was also a partner in a partnership firm with 25 % shares. The firm had also taken loan from HSBC and Citi Bank.
Get a Complete Kit of Essential Books for Daily Practice, Click Here
The respondent issued an auction notice on December 15, 2023 when loan payment was not made. Thereafter properties of the M/s. Sheena Exports and ST were auctioned on January 22, 2024. The property of the STL was also auctioned through second notice issued on February 1, 2024.
Partnership firm was dissolved by the personal guarantor through a notice issued on February 6, 2024. Consequently, the personal guarantor contended that since the partnership firm had been dissolved, all liabilities of the firm should be settled as per section 45 of the partnership act. An application was filed by the personal guarantor in which the respondent was sought to be restrained from auctioning the properties due to interim moratorium under section 96 of the IBC.
The appellant contended that since interim moratorium under section 96 was in operation, any action could not be taken under the Security Interest (Enforcement) Rules, 2002. After the dissolution of a partnership firm, all liabilities of the firm should be settled as per section 45 of the partnership act which gives preference to firm’s debts over personal debts.
Get a Complete Kit of Essential Books for Daily Practice, Click Here
Per contra, the respondent submitted that since the respondent was a secured creditor, it was entitled to auction the properties of the firm under SARFAESI Act. It was argued that dissolution of the firm was an attempt to defeat the legitimate rights of the secured creditors under the Act.
The NCLAT noted that section 96 of the IBC covers the debts included in the personal guarantee and not the debts related to the partnership firm. Tribunal further noted the terminologies used in the section and observed that they point towards a particular debt and not cover the entire liability of the debtor. Based on this, the tribunal held that interim moratorium is directed at the particular debt for which a petition under section 95 was filed and not at the properties of the partnership firm.
The Allahabad High Court in Onkar Rice Mill vs State of U.P. & Ors.(2003) held that no part of the assets of the partnership could be regarded as belonging to any individual partner and no individual partner can predicate his share in a particular property belonging to the Firm.
Get a Complete Kit of Essential Books for Daily Practice, Click Here
The tribunal noted that just because a notice of dissolution of the firm was issued, it does not mean that the liabilities of the personal guarantor shifted onto the partnership firm. It was viewed that debt for which the personal guarantee was given was separate from the liabilities of the partnership firm.
The bench comprising Mr. Justice Ashok Bhushan (Chairperson), Mr. Barun Mitra (Technical Member) and Mr. Arun Baroka (Technical Member) viewed that the scope of section 96 is confined to the debt for which a personal guarantee was given and it does not cover debts of the partnership firm. The tribunal held that the moratorium imposed under Section 96 of IBC would apply only to the security interest created by the Appellant under the personal guarantee in his capacity as a personal guarantor with respect to default of operational debt qua White Line Enterprises.. While viewing that the debts of the partnership firm were outside of the scope of section 96, the bench dismissed the appeal
Subscribe Taxscan Premium to view the JudgmentSupport our journalism by subscribing to Taxscan premium. Follow us on Telegram for quick updates
