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Rajasthan Mines And Minerals Ltd. Challenges Provisions Of IBC Regarding Govt. Companies, HC Stays Proceedings Against Company

Shreya Agarwal
8 Nov 2020 5:58 AM GMT
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Rajasthan High Court

The Rajasthan High Court while hearing a plea by Rajasthan State Mines and Minerals Ltd (RSMML) challenging Sections 3(8), 2(23), 238, 7, 8 and 9 of the Insolvency and Bankruptcy Code, 2016 with respect to government companies incorporated under Section 617 of the Companies Act, has granted an interim stay on insolvency proceedings against the company ongoing before the National Company Law Tribunal, Jaipur.

The court also gave time to RRB Energy Ltd and the Centre through the Ministry of Corporate Affairs and Ministry of Law and Justice, to respond to the matter by 22.01.2021.

Arguing against the application of the impugned provisions on Government companies, Rajasthan State Mines submitted in its petition that the company falls within the ambit of 'State' under Article 12 of the Constitution and more than 51% stake in the company was held by the Governor of Rajasthan, therefore, the initiation of insolvency against the company amounted to initiation of insolvency against the Governor himself.

It further stated that the Rajasthan High Court itself through its power under Article 226 of the Constitution had been "mandating all public and employees' grievances" and ensures that fair play is ensured in every respect for running of the company.

The company further stated that the impugned provisions were in direct conflict with the statutory provisions of the Companies Act, 2013 and the writ power of the Rajasthan High Court and therefore were violative of Article 14 insofar as Government companies were concerned.

The brief facts of the case were that Rajasthan State Mines is a Government of Rajasthan enterprise working under the control of the state of Rajasthan, primarily engaged in mining and marketing of industrial minerals in the state, with ancillary engagement in the wind energy sector as well.

On 21st April, 2006, RSMML had floated a tender for installation of 15 MW Wind Electric Generators & Associated Equipments for Wind Power Project (Phase V) in Rajasthan of a 15 MW windfarm on turnkey basis, including an Operation & Maintenance contract for 20 years.

The said wind farm was commissioned in 2007 in Jaisalmer, and since then was under the O&M Contract with RRB Energy Ltd for 20 years. Thereafter, RRB Energy filed a petition before NCLT, Jaipur claiming withholding of amount by RSMML against O&M charges on a yearly basis, stating that there was no prior dispute between the parties.

RSMML claimed the existence of a prior dispute on the other hand, and that certain claims were in fact time barred.

Against Section 2 and 3(7) of IBC, 2016 RSMML argues that the Code ignores the distinction between other companies and Government companies in which the Government has a majority stake, and insofar as provisions of the IBC 2016 apply to any company incorporated under the Companies Act, including a Government company under S.617 of the Companies Act, the provision is ultra vires, null and void.

RSMML has also stated that "the Insolvency and Bankruptcy Code, 2016 has been liberally adopted from the lnsolvency Act of the United Kingdom (UK). Howevet the Insolvency Act of UK did not make any provision to declare Government owed Companies to come under Banlruptcy Laws."

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