2021 (8) TMI 17 - Tri - Insolvency and Bankruptcy

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 ... Maintainability of application - initiation of CIRP - Corporate Debtor failed to make repayment of its dues - Operational Creditors - existence of debt and dispute or not - petitioner submitted that even if the respondent is a Government company, CIRP can be initiated against it which is evident from a parallel reading of the definitions of Corporate Person and Government Company under IBC and Companies Act - HELD THAT:- Section 2(45) of the Companies Act, 2013 can be relied upon which defines ‘Government Company’ as any company in which not less than fifty-one per cent of the paid-up share capital is held by the Central Government, or by any State Government or Governments, or partly by the Central Government and partly by one or more State Governments, and includes a company which is a subsidiary company of such a Government company. Section 3(7) of the IBC defines ‘Corporate Person’ as a company as defined in clause (20) of section 2 of the Companies Act, 2013 (18 of 2013), a limited liability partnership, as defined in clause (n) of sub-section (1) of section 2 of the Limited Liability Partnership Act, 2008 (6 of 2009), or any other person incorporated with limited liability under any law for the time being in force but shall not include any financial service provider. Therefore, from a parallel reading of the definitions of Corporate Person and Government Company under IBC and Companies Act, it can be summarized that the applicability provision of IBC is clear on this issue. There is no specific exemption for Government Companies under the IBC. Section 2(1) categorically states that the Code applies to all Companies incorporated under Companies Act, 2013 or under any other previous Company Law. It is evident that the Corporate Debtor which has taken goods from the Operational Creditor and has admitted the rightful and just dues of the Operational Creditor in its reply to the Demand Notice, CIRP can be initiated against the Corporate Debtor despite being a government owned company. All the requisite conditions for admission of a petition under Section 9 have been found to be fulfilled and therefore, this petition deserves to be admitted - petition admitted - moratorium declared. 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.