Judicial Analysis Court Copy Headnote Facts Arguments Court observation

2024 Supreme(Online)(NCLAT) 853

NATIONAL COMPANY LAW APPELLATE TRIBUNAL
Justice Ashok Bhushan (Chairperson) , Hon'ble Mr. Arun Baroka (Member (Technical)) , Hon'ble Mr. Barun Mitra (Member (Technical)) ,
RAMESH KUMAR CHUGH – Appellant
Versus
ASSETS CARE & CONSTRUCTION ENTERPRISES LIMITED – Respondent
1726/ND/2024 COMPANY APPEAL(AT)(INS)

Mr. Mohit Chaudhary and Prakhar Mithal, Advocates. Mr. Neeraj Malhotra, Mr. R.P. Agrawal, Ms. Reema and Mr. Nimish Kumar, Advocates.

The interim moratorium under Section 96 of the IBC applies only to personal debts and does not extend to partnership assets, as established in the context of personal guarantees.

Headnote:(A) Insolvency and Bankruptcy Code, 2016 - Sections 61, 95, 96, and 178 - Appeal against dismissal of application seeking restraint on auction of properties under SARFAESI Act - Interim moratorium under Section 96 applies only to personal debts and not to partnership assets - The Appellant, a personal guarantor, contended that the partnership firm’s dissolution shifted liability to partners, invoking Section 45 of the Partnership Act - The Respondent, as a secured creditor, argued that the properties belonged to the partnership firm, not the Appellant personally - The court found that the interim moratorium does not extend to partnership assets, as the Section 95 application was against the Appellant personally and not the firm - The appeal was dismissed as lacking merit. (Paras 1, 12, 25, and 26)

(B) Partnership Act - Section 45 - Liability of partners post-dissolution - The court reiterated that partners do not have rights over partnership assets until debts are settled. (Paras 24 and 25)

(C) SARFAESI Act - The Respondent's actions were deemed lawful as they pertained to the partnership firm’s assets, not the Appellant's personal property. (Paras 14 and 25)

O R D E R

(Hybrid Mode)

Per: Barun Mitra, Member (Technical)

The present appeal filed under Section 61 of Insolvency and Bankruptcy Code 2016 (‘IBC’ in short) by the Appellant arises out of the Order dated 03.07.2024 (hereinafter referred to as ‘Impugned Order’) passed by the Adjudicating Authority (National Company Law Tribunal, New Delhi Bench-VI) in I.A. No. 317/2024 in C.P. (IB) No. 10/ND/2024. By the impugned order, the Adjudicating Authority has dismissed I.A. No 317 of 2024 filed by the Appellant seeking restraint on the Respondent in the conduct of auction of sale notices dated 15.12.2023 under SARFAESI Act. Aggrieved by the impugned order, the present appeal has been preferred by the Appellant.

2. We have heard Shri Mohit Chaudhary, Ld. Counsel appearing for the Appellant and Shri Neeraj Malhotra, Ld. Senior Counsel representing the Respondent.

3. The Ld. Counsel for the Appellant outlining the facts of the case submitted that a Company Petition under Section 95 of the IBC was filed by Operational Creditor-White Line Enterprises against Mr. Ramesh Kumar Chugh-Appellant who stood as a Personal Guarantor for repayment of the operational debt owed by M/s Sahil Home Loomtex Pvt. Ltd. With the filing of Section 95 petition on 22.12.2023, interim moratorium under Section 96 of IBC commenced and an Interim Resolution Professional was appointed in the Section 95 proceedings vide order dated 12.02.2024 of the Adjudicating Authority. The Appellant-Mr.

Ramesh Kumar Chugh (“RKC” in short) was also a partner in a partnership firm named M/s Sheena Exports which firm had availed of loan facilities from HSBC and Citi Bank. The Appellant was also a Guarantor to loan facilities given by PNB and IDBI to M/s Sheena Textile Ltd. (“STL” in short). Subsequently, HSBC, Citi Bank, PNB and IDBI had assigned the loans given to M/s Sheena Exports and STL along with underlying securities in favour of Respondent-Assets Care & Construction Enterprises Ltd. (“ACRE” in short). Due to non-repayment of debt, the Respondent had put up three properties for auction on 22.01.2024 in respect of M/s Sheena Exports for which sale notices were issued on 15.12.2023. In respect of STL, one property was put on auction on 22.01.2024 by the Respondent vide sale notice dated 15.12.2023. The Second sale notice was issued on 01.02.2024. For convenience, we propose to collectively call these properties as ‘subject property’.

4. It was submitted that the partnership firm, named M/s Sheena Exports, comprised of four partners including RKC-Appellant who enjoyed 25% share in the profits in terms of their Partnership Deed dated 01.04.2023. The Appellant had given a notice on 06.02.2024 to the remaining three partners regarding dissolution of the partnership firm. It was contended by the Appellant that the Adjudicating Authority has failed to appreciate that the partnership firm has been dissolved by virtue of notice dated 06.02.2024 and post dissolution, the liability of the partnership firm shifted on to the partners of the partnership firm by virtue of Section 45 of the Partnership Act . Submission was therefore pressed by the Ld. Counsel of the Appellant that the notice for auction of the aforementioned properties issued by ACRE under Rule 8(6) of the Security Interest (Enforcement Rules), 2002 was in conflict with interim moratorium operating under Section 96 of the IBC.

5. It was canvassed by the Ld. Counsel of the Appellant that though Section 48 of the Partnership Act provides the mode of settlement post dissolution of the partnership firm which mode gives priority to repayment of the debts of the partnership firm, however, since interim moratorium under Section 96 had come into operation qua the Appellant, in such a scenario, Section 178 of IBC would prevail. Section 178 of the IBC gives priority to the payment of debts of the partnership firm over personal debts. Since IBC is a special legislation, by virtue of Section 238 of IBC it would prevail over the Partnership Ac

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