Service Of Notice On One Partner Deemed Service On All Under Presidency Towns Insolvency Act: Bombay HC

The Bombay High Court has held that service of an insolvency notice on a firm or any one of its partners amounts to valid service on all partners under the Presidency Towns Insolvency Act, 1909.

The court rejected the argument that limitation should be counted from the last date of service on each partner.

A single-judge bench of Justice Jitendra Jain was hearing an insolvency petition where the judgment debtors challenged its maintainability under Section 12(1)(c) of the Presidency Towns Insolvency Act, 1909 (the Insolvency Act).

The case arises under the pre-IBC insolvency regime applicable to presidency towns

The petitioning creditor had filed a suit for specific performance against MA Castle Infrastructure Company, which was decreed in 2019 on consent terms requiring the firm to either hand over four flats or pay Rs. 7.45 crore with interest.

Upon failure to comply, insolvency notices were issued in April 2021 to the firm and one of its partners, with a 35-day period for payment, which expired without compliance. Another partner was served in November 2021 and challenged the notice, though the Insolvency Court later held that the challenge was only by that partner.

The creditor thereafter filed an insolvency petition in January 2022 against the firm and its partners, followed by a subsequent petition in 2024. The judgment debtors raised a preliminary objection to the maintainability of the petition on the ground that it was filed beyond three months from the act of insolvency.

The judgment debtors contended that Section 12(1)(c) of the Insolvency Act is a condition precedent and not a limitation provision and that the petition was filed beyond the prescribed three-month period and was premature in respect of certain parties.

On the issue of service, the court observed that Rule 152 of the Bombay (Presidency Towns) Insolvency Rules, 1910 provides that service on any one partner constitutes good service on the firm, and therefore once notice is served on the firm or any partner, it is deemed to have been served on all.

“On an analysis of all the above provisions of the Indian Partnership Act, 1932, Insolvency Act and Insolvency Rules, I am of the view that the contention raised by the petitioning creditor that for the purpose of Section 12(1)(c) of the Insolvency Act, in case of firm, last of the service on firm/partner should be considered to determine whether the petition has been filed within three months from the act of insolvency cannot be accepted. Once it is served on firm and/or any of partner, it is deemed to have been served on all and petition can thereafter be filed against any one or all the partners.” it held

On limitation, the court observed that even if Section 12(1)(c) of the Insolvency Act is construed as a condition precedent and not a limitation provision, it indicates a reasonable time of three months within which the petition should be filed.

“In the instant case, Section 12(1)(c) of the Insolvency Act states that the act of insolvency should have occurred within three months before the presentation of the insolvency petition. If that be so, then this provision gives a clue that the reasonable period within which a creditor should file insolvency petition would be three months.” it observed

Relying on the Supreme Court's decision in Cognizance for Extension of Limitation, the Court held that the exclusion of time during the COVID-19 period applies not only to limitation periods but also to time-bound pre-conditions for instituting proceedings.

“In my view, on a reading of paragraph 5.4, the Hon'ble Supreme Court has construed the time required for satisfying the pre- condition as a period of limitation for instituting proceedings. The Insolvency Act will fall within the phrase “any other laws” and the time provided by Section 12(1)(c) of the Insolvency Act, that the act of insolvency, on which the insolvency petition is grounded has occurred within three months before the presentation of the petition if construed as pre-condition for instituting proceedings as contended by judgment debtors, then by applying the ratio of paragraph 5.4 of the Hon'ble Supreme Court, the period of three months would also get extended.”

Accordingly, the Court held that the petition was maintainable and rejected the preliminary objection raised by the judgment debtors.

For Judgment Debtors: Advocates Darshit Jain and Dhwani Desai

For Petitioning Creditor: Advocates Neeta Jain, Simeen Shaikh Gayatri Sharma and Anamika Singh

For Insolvency Registrar: C.J Bhatt and D.B Iswalkar