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Jurisdictional limit of the IBC, restricting its application only to legally incorporated corporate entities, thus excluding informal or unincorporated associations like joint ventures or partnership firms (unless they are registered as LLPs).

November 12, 2025

In the matter Gagan Chhabra-Appellant vs SMS Vishwa JV -Respondent at Supreme Court dated 30 June 2025

Facts of the Case:

  • This case involves a dispute between Gagan Chhabra the Appellant, a lawyer who provided professional legal services and SMS Vishwa JV – the Respondent a joint venture.
  • The appellant provided legal services to the respondent in an arbitration proceeding between the respondent and Thane Municipal Corporation.
  • The respondent was formed as a joint venture on 20 August, 2008, through an agreement between three companies –  M/s. SMS Paryavaran Limited (the lead member), M/s. Vishwa Infrastructures & Services Private Limited, and M/s. GSJ Envo Limited. The respondent was not an unincorporated entity.
  • The appellant issued a demand notice on 12 June, 2023, to the respondent, claiming an operational debt of ₹2,49,00,000/- (Rupees Two Crore Forty-Nine Lakhs). This claim arose from professional services and was based on the Memorandum of Understanding (MoU) dated 9 June, 2018, which outlined the payment method for one of the bills.
  • The respondent refuted the claim via a letter dated 11 July, 2023, stating it was frivolous and malicious. Crucially, the respondent raised the objection that the demand notice was issued to an unincorporated joint venture and not to companies registered under the Companies Act 2013, thus not tenable under the Insolvency & Bankruptcy Code, 2016 (IBC/code).
  • The reply also highlighted that two of its member companies, SMS Paryavaran Limited and M/s. Vishwa Infrastructures & Services Private Limited, had undergone Corporate Insolvency Resolution Processes (CIRP). In the CIRP of SMS Paryavaran Limited, the appellant had previously filed a claim for the same amount (₹2,49,00,000/-) as a financial creditor, which was not admitted by the Resolution Professional (RP) and not further agitated by the appellant. A separate claim for ₹13,07,060/- as an operational creditor was admitted and dealt with in the resolution plan.
  • Following the demand notice and reply, the appellant filed a Section 9 application under the IBC before the National Company Law Tribunal (NCLT), New Delhi, on 18 July , 2023.The NCLT heard arguments on maintainability and ultimately rejected the Section 9 application as non-maintainable via an order dated 14 May , 2024.
  • Aggrieved by the NCLT’s order, the appellant  filed an Appeal before the National Company Law Appellate Tribunal (NCLAT), Principal Bench, New Delhi.
  • The NCLAT heard the appeal, specifically addressing the maintainability objection raised by the respondent regarding respondent not being a “corporate person”. On 30 June, 2025, the NCLAT dismissed the appeal, upholding the NCLT’s order, but specifically on the ground that the Section 9 application was not maintainable against respondent because it is not a corporate person. The NCLAT noted that the NCLT had rejected the application on “different grounds”.
  • The appellant then filed a Civil Appeal No(s). 10218/2025 in the Supreme Court of India. The Supreme Court heard the matter on 25 August, 2025.
  • The Supreme Court, having considered the provisions of Sections 3(7), 3(8), and 9 of the IBC, found no error in the view taken by the National Company Law Appellate Tribunal, New Delhi. The appeal was, accordingly, dismissed on 25 August , 2025.

Arguments of the Appellant:

  • The appellant argued that the NCLT erred in rejecting the Section 9 application by holding that the outstanding debt was not an operational debt simply because it was governed by a Memorandum of Understanding (MoU) dated 9 June , 2018.
  • The MoU was merely an agreement for the manner of payment for one bill of ₹2.5 crore, and therefore, the nature of the debt (arising from invoices for professional services) remained an operational debt.
  • Rendering legal services falls within the meaning of “operational debt” under Section 5(21) of the IBC.
  • The appellant contended that the objection regarding the joint venture being an un-incorporated entity was “against the settled principles of law” and liable to be rejected.
  • The appellant relied on NCLAT judgments holding that Section 69(2) of the Partnership Act (which bars suits by unregistered firms) was not applicable to Section 9 applications under the IBC, as these are “proceedings” and not “suits”.
  • Additionally, the appellant cited a Delhi High Court judgment stating that an aggrieved party is entitled to proceed against respondents jointly and severally.
  • The appellant argued that having an MoU with the Corporate Debtor/Respondent, which made part payment, negated the need to implead all three companies separately.

Arguments of the Respondent:

  • The primary argument was that the Section 9 application was not maintainable against the respondent because it is a joint venture and was never incorporated as a corporate entity.
  • Proceedings under Section 9 of the IBC can only be initiated against a “corporate debtor,” which, by definition under Sections 3(7) and 3(8) of the IBC, must be a “corporate person” (i.e., a company, LLP, or other limited liability entity). Since respondent is not a corporate person, no application under Section 9 was maintainable.
  • This objection was raised from the outset in the reply to the demand notice, and the NCLT had indeed directed the appellant to file an affidavit on this maintainability issue.
  • The respondent highlighted that CIRP had already been completed against two of the joint venture’s members, SMS Paryavaran Limited and M/s. Vishwa Infrastructures and Services Private Limited.
  • In the CIRP of SMS Paryavaran Limited (the lead member of the JV), the appellant had filed a claim for the same amount of ₹2,49,00,000/- as a financial creditor, which was not admitted by the Resolution Professional (RP) on 26 September, 2020. The appellant did not further agitate this rejection. A separate claim for ₹13,07,060/- as an operational creditor was admitted and a resolution plan approved, proposing payments to the appellant.
  • The demand notice and the subsequent Section 9 application were “without jurisdiction and contrary to the IBC”. The claim itself was stated to be “frivolous and malicious”

Held:

  • A Section 9 application under IBC is not maintainable against an unincorporated joint venture. The respondent was formed by an agreement between three companies and is not an incorporated entity. The IBC defines a “corporate person” in Section 3(7) as a company (under the Companies Act, 2013), a Limited Liability Partnership (LLP), or any other person incorporated with limited liability under any law. Since the respondent does not fall under these definitions, it is not a “corporate person”.
  • Section 9 proceedings can only be initiated against a “corporate debtor”. Section 3(8) of the IBC defines a “corporate debtor” as a “corporate person” who owes a debt. As the respondent is not a corporate person, it cannot be a corporate debtor under the IBC.

Ms Esha Tandon- Deputy Manager –eshatandon@mmjc.in

Ms Arti Ahuja Jewani- Partner-artiahuja@mmjc.in