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2019 (8) TMI 530 - Tri - Insolvency and BankruptcyMaintainability of CIRP application against the Government company - difference of opinion. As per the member judicial - The Respondent is a Government Company as defined under section 2 (45) of the Companies Act, 2013, wherein 100% of its shares are being held by the President of India. Therefore, if upon filing of an Application under Sections 7, 8 and 9, and the same were to be admitted, recovery proceedings then would be said to have been initiated against the President of India, which cannot be allowed under the procedure of IBC. The State has either tried treating Financially Sick Companies or made sure that dues of the all its Creditors are duly paid.In a Welfare State like India, allowing Insolvency proceedings against an Agency of the Stateis like proceeding against the state itself and the same will set out a wrong precedent - petition dismissed. As per member technical - If the contentions raised by the Ld. Senior Counsel on behalf of the Corporate Debtor is accepted, it tantamount to the situation where the Public Sector Companies can borrow money left, right and centre or create liabilities and the creditors have to be left in lurch compelling them to approach the civil courts or the writ court for getting relief, where the system is already suffering from docket explosion, which will ultimately hurt the economic interest of the nation and the ease of doing business. The code is a major economic reform undertaken by the Government to overcome the bottleneck in the economic development of the country and the present situation is that the economic activity awaits at the doorsteps of the NCLTs, and hence the spirit of the Code shall not be spoiled by diluting and tinkering the Code. - Application admitted.
Issues Involved:
1. Whether CIRP can be initiated against a Government Company which is an instrumentality of the state under Article 12 of the Constitution of India. 2. Whether the IBC is applicable to the Government Company and serves the objective for which it is enacted. 3. Whether the preamble of the Constitution of India, which includes the word "socialistic," has any bearing on this petition. 4. Whether the admission of the Petition defeats the public purpose. Issue-wise Analysis: Issue 1 & 2: Applicability of CIRP to Government Company - The tribunal examined whether CIRP can be initiated against a Government Company, which is an instrumentality of the state. The judgment referenced the concept of instrumentality of the state as elaborated in "R.D. Shetty Vs. International Airport Authority of India (AIR 1979 SC 1628)," stating that government corporations, though distinct legal entities, are subject to the same limitations as the government. - It was concluded that initiating CIRP against the Corporate Debtor, a Government Company, is impermissible as it would effectively mean initiating CIRP against the Government of India, which is not envisaged under the IBC. The tribunal noted that the law does not explicitly exempt Government Companies from CIRP, but their status as instrumentalities of the state implies such an exemption. - The tribunal suggested that the petitioner could seek alternate remedies in civil court or under Articles 226 or 32 of the Constitution of India. Issue 3 & 4: Impact of Socialistic Principles and Public Purpose - The tribunal referenced the judgment in "Excel Wear and Ors Vs Union of India and Ors," which discussed the concept of socialism and the balance between state ownership and private interests. It emphasized that the survival of a government company serving public interest cannot be jeopardized by CIRP. - The tribunal argued that Government Companies are incorporated to serve public purposes, often at the cost of incurring losses, and the Government of India takes steps to revive such companies and pay dues to employees. - Admitting the petition would defeat the public purpose and contravene the Constitution's preamble, which includes the word "socialistic." The tribunal concluded that the public interest prevails over the provisions of IBC, and hence, the petition fails on these grounds. Separate Judgment by Member (Technical): - The dissenting opinion by Member (Technical) disagreed with the majority view, emphasizing that the debt and default are evident, and no dispute was raised by the Corporate Debtor. The dissenting opinion referenced the Supreme Court's decision in "Mobilox Innovations Private Limited Vs. Kirusa Software Private Limited," which outlined the conditions for admitting a Section 9 application. - The dissenting opinion argued that the provisions of the Code apply to the Corporate Debtor, a company incorporated under the Companies Act, and that the Code does not exclude public sector/government undertakings. - It was noted that other NCLT benches have entertained CIRP petitions against public sector undertakings, and the Code's provisions should not be diluted. - The dissenting opinion concluded that the petition should be admitted, as the debt and default were established, and the statutory remedy provided under the Code should be available to the petitioner. Conclusion: - The majority opinion dismissed the petition, holding that CIRP cannot be initiated against a Government Company, as it would contravene the Constitution and public interest. - The dissenting opinion favored admitting the petition, emphasizing the applicability of the Code to the Corporate Debtor and the established debt and default.
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