NCLT DELHI: AMALGAMATION OF 'SOLE PROPRIETORSHIP FIRM' WITH 'COMPANY' IS NOT PERMISSIBLE UNDER LAW

The National Company Law Tribunal, NCLT bench in the case M/s SVS Marketing Sanitaryware Private Limited vs M/s Kajaria Bathware Private Limited observed wherein the bench comprising of Judicial Member, Shri Ashok Kumar Bhardwaj and the Technical Member, Shri L.N. Gupta observed and has dismissed the application. 

The bench in the case observed and has held that amalgamation of ‘a Sole Proprietorship Firm’ with ‘a Company’ is not permissible under the law.

FACTS OF THE CASE:

The Respondent or Corporate Debtor, M/s. Kajaria Bathware Private Limited is a company incorporated under Companies Act, 1956 on May 22, 2023.

In the present case, the distribution agreement was executed between SVS Marketing i.e., the Proprietorship Firm, who being the Proprietorship Firm through Mr. Shibu M, and the Corporate Debtor.

Therefore, Mr. Shibu by terms of agreement prohibited from transferring or assigning part of the agreement to others. Mr. Shibu M was also a shareholder or member in another company i.e., M/s SVS Marketing Sanitaryware Pvt. Ltd. i.e., Applicant or Operational Creditor.

An Amalgamation Agreement was entered between Proprietorship Firm and the Applicant. Thus, the Proprietorship Firm assigned its actionable claims to a Private Limited Company i.e., the Applicant. Therefore, the Applicant was allowed to pursue debt on the behalf of the Proprietorship Firm.

The Respondent defaulted in payment for an amount of Rs.7.33 Crores to the Proprietorship Firm.

The Appellant in the case sent a demand notice under Section 8 of the Insolvency and Bankruptcy Code, 2016, IBS to the respondent on December 13, 2022.

An application was filed under Section 9 IBC for initiation of Corporate Insolvency Resolution Process, CIRP.