Sole Proprietary Concern Cannot Initiate Insolvency Proceedings Under Section 3 (23) Of IBC Code, 2016: NCLT

A sole proprietary concern is not a person under Section 3(23) of the Insolvency and Bankruptcy Code, 2016, and hence it cannot initiate insolvency proceedings, the Delhi bench of the National Company Law Tribunal (NCLT) has ruled.

Earlier, RG Steels had approached the NCLT as an operational creditor seeking initiation of corporate insolvency resolution process against corporate debtor M/s Berrys Auto Ancillaries Pvt Ltd, through a an application under Section 9.

RG Steel had contended that Berry Auto had defaulted in making payment of more than Rs 15 lakh and it submitted documents, including ledger accounts, along with copies of invoices remaining unpaid, in support of its claim.

However, Berrys Auro replied to RG Steel’s demand notice dated December 8, 2018, disputing any liability as claimed by RG Steel.

The NCLT bench stated that though the definition of a 'person' under Section 3(23) of the IBC included an 'individual', it could not be stretched to refer to a sole proprietary concern.

The NCLT bench also found a pre-existing dispute in relation to rates charged and the total debt claimed by RG Steels against Berry Auto Pvt Ltd, which was shown in the detailed reply sent by Berry Auto by way of a computational chart.

Thus, taking into account the definition of 'person' not including a 'sole proprietary concern', as well as the pre-existing dispute, the NCLT bench held that the petition by RG Steels to initiate insolvency proceedings was not maintainable.

Hence the NCLT bench dismissed the petition.