11 January 2022
Matter: ATE Projects Pvt. Ltd. v. Rajasthan Drugs and Pharmaceuticals Ltd. and Ors.
Order dated: 11 November 2021
Summary:
Between 2015 to 2017, ATE Projects Pvt. Ltd. (ATE Projects) had provided services to Rajasthan Drugs and Pharmaceuticals Ltd. (RDPL), a Government of India enterprise, payments for which were outstanding. In 2017, the Government of India ordered the shutting down of RDPL and consequently, ATE Projects was directed to stop the work at site and informed that the outstanding liabilities shall be cleared in accordance with the concerned authority’s decision. As payments were still outstanding, ATE Projects filed a petition before NCLT, Jaipur Bench in 2019 seeking CIRP of RDPL.
The issues before the NCLT, Jaipur bench were:
• Whether an application to initiate CIRP is maintainable against a Government Company; and
• Whether existence of an arbitration clause in the agreement executed between the parties bars initiation of CIRP
NCLT observed that a “Government Company” is covered under the definition of a “Company” under Companies Act, 2013 (Act). Since RDPL has not been performing any governmental functions or the functions of state, it cannot be immune to insolvency proceedings merely on the ground of being a Government Company.
The NCLT also held that the Code has overriding effect over the Arbitration and Conciliation Act, 1996 and therefore, the objection taken by RDPL that ATE Projects’ application is not maintainable in view of the arbitration clause in the agreements between the parties was without any merit. Accordingly, CIRP was initiated against RDPL
For further information, please contact:
Souvik Ganguly, Partner, Acuity Law
al@acuitylaw.co.in
