Partnership Firm Assets Can Be Brought Within CIRP Where Corporate Debtor Holds Substantial Economic Interest: NCLT Approves Resolution Plan [Read Order]

The National Company Law Tribunal [NCLT] MumbaiBench has approved a resolution plan holding that assets and development rights of a partnership firm can be treated as part of the Corporate InsolvencyResolution Process (CIRP) estate where the corporate debtor holds an overwhelming economic stake in the partnership business.

The Tribunal approved the resolution plan submitted by Mantra Properties and Developers Private Limited for revival of Nirmal Lifestyle (Mulund) Private Limited.

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The CIRP was initiated under Section 7 of the Insolvency and Bankruptcy Code, 2016 on the application filed by Beacon Trusteeship Limited. In the CIRP process the Project Olympia was incorporated in the Information Memorandum by the Resolution Professional as the corporate debtor being a partner of Nirmal Developers was entitled to receive almost all the profits and loss of it.

Initial valuation disputes arose as one valuer excluded the project due to insufficient documentation, but subsequent valuations included it significantly enhancing the corporate debtor’s fair value to over ₹284.87 crore and liquidation value to ₹214.03 crore.

Further, multiple objections were raised by homebuyers, the suspended director and landowners contending that Project Olympia belonged to the partnership firm and not the corporate debtor and therefore could not be dealt with under the resolution plan. It was argued that inclusion of such assets violated provisions of the Insolvency Code 2016 and the Indian Partnership Act 1932.

However, the Tribunal noted that most objections were either withdrawn or resolved through consent terms. The promoter entered into a settlement with the successful resolution applicant agreeing to transfer development rights and facilitate implementation of the plan. Homebuyers also withdrew their objections after being assured of either delivery of flats or refunds under the plan.

The Bench comprising Lakshmi Gurung [Judicial Member] and Hariharan Neelakanta Iyer [Technical Member] held that the corporate debtor’s 99.98% profit entitlement in the partnership firm Nirmal Developers constituted a substantial economic interest sufficient to justify inclusion of the firm’s development project, “Project Olympia”, in the insolvency resolution framework.

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