Sole proprietary concerns cannot file insolvency petitions

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1973
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The National Company Law Tribunal (NCLT), Delhi in a recent judgment held that insolvency proceedings cannot be initiated by sole proprietary concern as the “sole proprietary concern” is not a person within the meaning of section 3(23) of the Insolvency and Bankruptcy Code (IBC), 2016.

In RG Steels v Berrys Auto Ancillaries (P) Ltd, a sole proprietorship concern, namely RG Steels (operational creditor), filed a section 9 application under the IBC, before the NCLT, against M/s Berrys Auto Ancillaries (corporate debtor) seeking initiation of Corporate Insolvency Resolution Process (CIRP) as the corporate debtor defaulted in making a payment of more than ₹1.5 million (US$21,000). The operational creditor furnished documents, ledger accounts and copies of pending invoices in support of its claim. It also furnished a demand notice that was sent in reply by the corporate debtor disputing the claim amount.

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The dispute digest is compiled by Bhasin & Co, a corporate law firm based in New Delhi. The authors can be contacted at lbhasin@bhasinco.in. Readers should not act on the basis of this information without seeking professional legal advice.

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