Government company faces insolvency proceedings under CIRP with validated interest claim

The tribunal allowed the Company Petition and ordered the initiation of Corporate Insolvency Resolution Process (CIRP) against The Maharashtra Agro Industries Development Corporation Limited, a government-owned company. The tribunal appointed an Interim Resolution Professional and imposed a moratorium during the CIRP period. The tribunal held that the Insolvency and Bankruptcy Code applies to government companies unless they perform sovereign functions, and validated the claim for interest under the MSME Act. The tribunal found the debt and default established, rejecting arguments on limitation period and non-payment reasons.

---

---

Issues Involved:
1. Initiation of Corporate Insolvency Resolution Process (CIRP) against a government-owned company.
2. Validity of the claim for interest under the MSME Act.
3. Dispute over the outstanding dues and payments made.
4. Applicability of the Insolvency and Bankruptcy Code (IBC) to government companies.
5. Limitation period for the invoices claimed.

Detailed Analysis:

1. Initiation of CIRP against a Government-Owned Company:
The petitioner, Satish Agro Industries, sought to initiate CIRP against The Maharashtra Agro Industries Development Corporation Limited, a government-owned company, under Sections 8 and 9 of the Insolvency and Bankruptcy Code (IBC). The petitioner claimed that the respondent defaulted on payments for the supplied agricultural implements and equipment, raising invoices amounting to Rs. 1,18,96,237/-. The respondent argued that the petition was malicious and non-maintainable, emphasizing its status as a government undertaking. However, the tribunal noted that the IBC applies to all companies, including government-owned entities, unless they perform sovereign functions. The tribunal concluded that the CIRP could be initiated against the respondent despite its government ownership.

2. Validity of the Claim for Interest under the MSME Act:
The petitioner claimed interest on the outstanding dues as per the provisions of the MSME Act, amounting to Rs. 1,25,06,107/-. The tribunal acknowledged that the petitioner, being an MSME, is entitled to claim interest for delayed payments under Section 16 of the MSME Act. The tribunal referred to the Hyderabad Bench's order in Shri Shrikrishna Rail Engineers Private Limited Vs Madhucon Projects Limited, which supports the claim for interest under the MSME Act. The tribunal found the claim for interest sustainable.

3. Dispute over the Outstanding Dues and Payments Made:
The respondent contended that out of the claimed amount of Rs. 1,18,96,237/-, it had already paid Rs. 35,27,009/-. The balance amount of Rs. 83,69,228/- was disputed due to various reasons, including pending inspection reports, back-to-back payments, rate differences, penalties for late supply, short supply, and sales tax disputes. However, the tribunal observed that the respondent had admitted its liability to the tune of Rs. 91,89,253/- in its reply to the demand notice and made part payments, confirming its liability. The tribunal concluded that the respondent's reasons for non-payment were after-thoughts and that the debt and default were established.

4. Applicability of the IBC to Government Companies:
The tribunal emphasized that government companies are not exempt from the IBC. Section 2(1) of the IBC applies to all companies incorporated under the Companies Act, 2013, or any previous company law. The tribunal referred to the Insolvency Law Committee's 2018 report and the Supreme Court's judgment in Hindustan Construction Company Limited vs Union of India, which affirmed the applicability of the IBC to government companies unless they perform sovereign functions. The tribunal concluded that the respondent, being a government-owned company, could be subjected to CIRP under the IBC.

5. Limitation Period for the Invoices Claimed:
The respondent argued that the invoices listed in the petition were barred by the law of limitation and hence not payable. However, the tribunal did not find this argument persuasive, as the respondent had admitted part of the liability and made part payments, which reaffirmed the debt's existence and validity.

Order:
The tribunal admitted the Company Petition No. (IB)-3270(MB)/2018 and ordered the initiation of CIRP against The Maharashtra Agro Industries Development Corporation Limited. Mr. Ashish Vyas was appointed as the Interim Resolution Professional (IRP). The tribunal also directed the financial creditor to deposit Rs. 2 Lakh towards the initial CIRP cost and imposed a moratorium prohibiting suits, asset transfers, and other actions against the corporate debtor during the CIRP period. The petition was allowed, and the registry was directed to communicate the order to both parties and the IRP.

---