The National Company Law Tribunal (NCLT) in Hyderabad ruled that partnership firms are not subject to section 95 of the Insolvency and Bankruptcy Code (IBC), dismissing a petition from Union Bank of India against KMR Enterprises under this section.
The case involved KMR Enterprises acting as a personal guarantor for a loan to Smaat India Pvt. Ltd. The financial creditor claimed the firm was liable for Rs. 71.84 crores after the corporate debtor defaulted on the loan, classifying the account as a Non-Performing Asset (NPA) and initiating the Corporate Insolvency Resolution Process (CIRP). The corporate debtor was liquidated on June 6, 2019, with the process completed by August 13, 2020.
In his report IA No. 1234/2024, the Resolution Professional (RP) recommended admitting the insolvency petition against KMR Enterprises. However, the respondent argued that section 95 applies only to individual personal guarantors, not partnership firms, making the petition unsustainable.
The NCLT analyzed sections 79 and 5(22) of the IBC, concluding that the Debt Recovery Tribunal (DRT) is the appropriate authority for partnership firms. It noted that section 5(22) defines a personal guarantor as an individual and that a Ministry of Corporate Affairs notification from November 15, 2019, also excluded partnership firms from section 95.
Ultimately, the NCLT declared the petition not maintainable and dismissed it, affirming that section 95 cannot be applied to partnership firms and directing that such cases should be handled by the DRT as outlined in section 79 of the IBC.
Union Bank of India v. M/s. K M R Enterprises and Anr.
CP (IB) No. 66/95/HDB/2024
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