2017 (12) TMI 1106 - HC - Insolvency and Bankruptcy

Challenging constitutional validity of the Sick Industrial Companies (Special Provisions) Repeal Act, 2003 (Repeal Act) and restricts his challenge to the amended provisions of Section 4(b) and Section 5(1)(d) of the Repeal Act as being violative of Article 14 of the Constitution of India - primary contention of the petitioner is that the aforesaid provisions, Section 4(b) and Section 5(1)(d) of the Repeal Act, are unconstitutional as they draw a distinction between sick companies where schemes have been sanctioned under Section 18 of the SIC Act and cases where draft schemes were pending consideration before the BIFR and had not been sanctioned, thus violates Article 14 and is discriminatory - Held that - We have confined to the two provisions enacted vide S.O. No. 1683(E) but do not find any merit in the contention. As noticed above, the aforesaid notification has been issued by the Central Government in exercise of power conferred under sub- Section (1) of Section 242 and 252 of the Code. A perusal of the impugned notification, extracted above, and Section 252 of the Code extracted below, clearly shows that the Eighth Schedule is a part of the Code and Section 4(b) of the Repeal Act as amended was incorporated in the Code vide the Schedule. As per Section 252 of the Code, the Repeal Act was amended in the manner specified in the Eighth Schedule. The Eighth Schedule of the Code as originally enacted had amended Section 4(b) of the Repeal Act, and has been already reproduced above. Thus amended clause (b) to Section 4 of the Repeal Act was specifically incorporated and included in the Eighth Schedule. In this manner, Section 4 clause (b) of the Repeal Act became part and parcel of the Code. Thus, the said order is not ultra vires as what has been done, in effect, is under the Code itself. This being the position, we do not think that the petitioner is correct in contending that the Central Government could not have issued the Removal of Difficulties Order, to rectify and correct anomalies noticed while implementing the Code. The petitioner, we may notice, has not challenged Section 252 of the Code which had the effect of amending, in the manner as specified in the Eighth Schedule, the provisions of the Repeal Act. In view of the above discussion, it is held that the Central Government, in exercise of power conferred under Section 242 of the Code could have removed the difficulties which came to its notice upon enforcement of the Code and its implementation. Clause (b) to Section 4 of the Repeal Act, in fact, was substituted in terms of Eighth Schedule inserted by Section 252 of the Code. To summarise - (i) the classification of cases where draft schemes for reconstruction have been sanctioned and those cases where schemes are pending is nondiscriminatory and is based on intelligible differentia as also has nexus to the object sought to be achieved by enacting the Code; (ii) the inclusion of the Eighth Schedule to the Code is in exercise of powers under Section 242 and Section 252 and is thus not ultra vires; (iii) the prescribing of a cut-off date by way of notifications i.e. 1st December, 2016 is not contrary to law; The Petitioner, if it is so advised may avail of the remedy provided under the Code. As the time period of 180 days has already lapsed, if the Petitioner approaches the NCLT, the request for condonation of delay, if any, be considered if permissible in law.

Summary

Issues Involved:
1. Constitutional validity of Section 4(b) and Section 5(1)(d) of the Sick Industrial Companies (Special Provisions) Repeal Act, 2003.
2. Quashing of specific notifications dated 25th November 2016 and 24th May 2017.
3. Alleged discrimination under Article 14 of the Constitution of India.
4. Powers of the Central Government under Section 242 and Section 252 of the Insolvency and Bankruptcy Code, 2016.

Analysis:

1. Constitutional Validity of Section 4(b) and Section 5(1)(d) of the Repeal Act:
The petitioner challenged the constitutionality of Section 4(b) and Section 5(1)(d) of the Repeal Act, arguing that they violate Article 14 of the Constitution by discriminating between sick companies with sanctioned schemes and those with pending draft schemes. The court found no merit in this contention, emphasizing that the classification between companies with sanctioned schemes and those with pending schemes is valid and rational. The court noted that the purpose of the Insolvency and Bankruptcy Code, 2016 (the Code) was to replace ineffective laws like the Sick Industrial Companies (Special Provisions) Act, 1985 (SIC Act) with a more efficient framework. The court held that the distinction made by the Repeal Act is based on intelligible differentia and has a rational nexus to the objective of the Code.

2. Quashing of Specific Notifications:
The petitioner sought to quash Notification No. S.O. 3568(E) and S.O. 3569(E) dated 25th November 2016, and Notification No. S.O. 1683(E) dated 24th May 2017. The court upheld these notifications, explaining that they were issued in accordance with the legislative intent to enforce the Repeal Act and the Code. The notifications were part of the transitional provisions to ensure the smooth implementation of the Code. The court highlighted that the notifications were not arbitrary or discriminatory but were necessary to address the difficulties arising from the transition from the SIC Act to the Code.

3. Alleged Discrimination under Article 14:
The petitioner argued that the provisions of the Repeal Act and the Code discriminated against companies with pending draft schemes by not providing the same protections as those with sanctioned schemes. The court rejected this argument, stating that Article 14 allows for reasonable classification. The court explained that the classification between companies with sanctioned schemes and those with pending schemes is justified and based on rational grounds. The court emphasized that the legislative intent was to ensure that companies with sanctioned schemes continue under the new framework of the Code, while those with pending schemes would need to seek resolution under the Code.

4. Powers of the Central Government under Section 242 and Section 252 of the Code:
The petitioner challenged the vires of the Removal of Difficulties Order, 2017 (Notification S.O. 1683(E)) issued under Section 242 of the Code. The court upheld the validity of the notification, stating that it was within the powers conferred by Section 242 and Section 252 of the Code. The court noted that Section 252 specifically allowed for amendments to the Repeal Act as specified in the Eighth Schedule of the Code. The court found that the notification was a legitimate exercise of the Central Government's power to remove difficulties and ensure the effective implementation of the Code.

Conclusion:
The court dismissed the writ petition, holding that:
1. The classification under Section 4(b) and Section 5(1)(d) of the Repeal Act is valid and does not violate Article 14.
2. The contested notifications are lawful and necessary for the transition to the Code.
3. The Removal of Difficulties Order, 2017, is within the Central Government's powers under the Code.
4. The petitioner may seek remedies under the Code, subject to condonation of delay if applicable.

The court emphasized the legislative intent to create a more efficient insolvency framework and the necessity of the transitional provisions to achieve this objective.