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TMI Blog2021 (9) TMI 89X X X X Extracts X X X X X X X X Extracts X X X X ..... relating to the Insolvency Code was not before the Court, is not correct. The petitioners then argued that Government Bodies other than Government Companies are exempted from the Insolvency Code as they are statutory authorities of the Government Department and, therefore, they cannot be taken before the adjudicating body under the Insolvency Code. On the other hand, the petitioners, who also owes large amount of dues to its Operational Creditors can be taken to the adjudicating authority under the Insolvency Code. Therefore, apart from a challenge to Section 87 of the Arbitration and Conciliation Act, 1996, there was also constitutional challenge to the Insolvency Code. It is not an arm of the State. It is usually performing a commercial or/and business functions. A Government Company cannot be equated with a State authority, like National Highway Authority of India (NHAI), which is performing statutory functions or like other Departments, like Postal, Telegraph or the Railways or Public Works Department. This distinction has been clearly made by the Hon ble Apex Court in the case of Hindustan Construction Company Limited, [ 2019 (12) TMI 5 - SUPREME COURT] which is binding ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y was registered with the Registrar of Companies on 29.05.1970 and 100% of the share are owned by the Government of India in the name of the Hon ble President of India. Since its inception, the Paper Mill was manufacturing writing and printing papers and was in fact running in profit for a great many years. Thereafter, it started incurring losses and it is an admitted case of the petitioners that the production of the Mill is suspended since 13.03.2017. The Members of the petitioner No.1 Association, who are employees and workers in the Company, have not received their salary since March, 2017. This Company is presently facing insolvency proceedings before the National Company Law Tribunal (NCLT). 4. In Mobilox Innovations Private Limited -Vs- Kirusa Software Private Limited, reported in (2018) 1 SCC 353, the whole purpose of bringing the Insolvency Code was discussed. The Apex Court held the Code to be a path breaking legislation and then traced its history to United Nations General Assembly Resolution of 02.12.2004, which had resolved where the Member Nations come out with a Legislative Guide , which would be useful both to States who do not have an effective and efficien ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... onal creditors of the Company, namely, M/s Alloys and Metals (India), initiated this proceeding by giving a notice under Section 8 to the Company demanding its dues. Since these dues were not paid, an application was moved before the adjudicating authority under Section 9 of the Act. On 13.06.2018, the NCLT (the judicial authority under the Insolvency Code) admitted the application for initiation of Corporate Insolvency Resolution Process. Thereafter, on 10.07.2018, the present petitioners before this Court, i.e. the Association of Employees and Workers of the Company, filed its claim for salary and other dues before the Resolution Professional pursuant to the public announcement dated 28.06.2018 issued under Section 15 of the Insolvency Code. 8. At this stage, we may also mention that against the order of admission dated 13.06.2018, an appeal was filed before the appellate authority, i.e. National Company Law Appellate Tribunal (NCLAT), which was dismissed by the appellate authority on 18.01.2019. 9. Thereafter, efforts were made to get a resolution plan for the Company in terms of the Insolvency Code and the Regulations made therein, however, no positive results came out an ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... de a public announcement for e-auction non-core of the assets of the Corporate Debtor. 12. Meanwhile, this writ petition has been filed by the petitioners, who have all along participated in the proceedings before the adjudicating authority by raising a plea that a Government Company is neither a Corporate Person or Corporate Debtor as defined under Sections 3(7) and 3(8) of the Insolvency Code, and, therefore, proceeding cannot be initiated under Section 9 of the Insolvency Code against the Company as it is not a Corporate Person or Corporate Debtor and therefore, the entire proceedings under the Insolvency Code before the adjudicating authority are without jurisdiction. 13. In the present case, the petitioners would contend that the Operational Creditor, i.e. M/s Alloys and Metals (India), who allegedly owes ₹ 98,00,000/- (Rupees Ninety Eight Lakhs) from HPCL, Nagaon Paper Mill instituted the proceedings under Section 8 of the Insolvency Code by giving a demand notice to the Company and later an application before the NCLT under Section 9. The learned senior counsel for the writ petitioners would argue that under the Insolvency Code, Corporate Debtor is defi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... IR 1986 SC 1541; Hindustan Construction Company Limited Anr. - Vs- Union of India Ors., reported in 2019 SCC Online 1520; Hindustan Antibiotics Limited Anr. -Vs- Union of India Ors. in WP(C) No.11366/2019; Madhav Rao Jivaji Rao Scindia Bahadur Ors. -Vs- Union of India Ors., reported in AIR 1971 SC 530 and Director of Settlements, Andhra Pradesh Ors. -Vs- M.R. Apparao Ors., reported in AIR 2002 SC 1598. On the strength of these decisions of the Hon ble Apex Court, he would argue that a Government Company forms a different class as in fact it is performing the functions of the State and, therefore, it is an instrumentality of the State, which cannot be brought to under the Insolvency Code. 18. Mr. V. Sibal, learned senior counsel, appearing for the respondent Nos.2 7, would, on the other hand would submit that the matter is no more res integra as it has been held in a recent judgment of the Hon ble Supreme Court (Hindustan Construction Company Limited Anr. -Vs- Union of India Ors., reported in 2019 SCC Online SC 1520), that the Insolvency Code covers Government Companies though an exception has been carved out in that case for an authority of the Govern ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 77; 1,00,000/- owed to a financial and Operational Creditor, which remains unpaid would attract the provisions of the Insolvency Code against the petitioner No.1 making these provisions arbitrary, discretionary and violative of Article 14 and 19(1)(g) of the Constitution of India. Therefore, a suggestion was made on behalf of the petitioners such as the definition of Corporate Person contained in Section 3(7) of the Insolvency Code should either be read without the words with limited liability contained in the third part of the definition or have Section 3(23)(g) of the Insolvency Code, which defines Person read into the aforesaid provisions (Paragraph 62 of Hindustan Construction Company Limited). This suggestion was, however, turned down by the Court. 21. The Hon ble Supreme Court then read the definition of Company as well as Government Company given under Section 2(20) and Section 2(45) of the Companies Act, 2013. It was then submitted by the learned Solicitor General of India, who appeared for Union of India, that out of the four Companies, three are Government Companies and, therefore, they are covered under the definition 2(20), i.e. under the Notification of Co ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he Arbitration and Conciliation Act, 1996 but a challenge was also there to various provisions of the Insolvency Code. Therefore, the contention of the learned senior counsel for the petitioners that the matter relating to the Insolvency Code was not before the Court, is not correct. The Company before the Hon ble Apex Court was an Infrastructure Construction Company, which does construction works, such as a public utilities and projects like roads, bridges, hydro power, nuclear plants, etc., and it works as a contractor for Government Bodies, such as National Highway Authority of India (NHAI), Government Companies like, National Hydroelectric Power Corporation (NHPC), National Thermal Power Corporation Limited (NTPC), etc. Its grievance was that many a times, disputes arise between the petitioners and these Companies, which arise are resolved through arbitration, which takes a long time, i.e. at an average of about six years. But the moment an award is made in favour of the Company, it is challenged under Section 34 and there is automatic stay to the award. The petitioners then argued that Government Bodies other than Government Companies are exempted from the Insolvency Code as t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed liability under any law for the time being in force but shall not include any financial service provider; (8) corporate debtor means a corporate person who owes a debt to any person; (23) person includes- (a) an individual; (b) a Hindu Undivided Family; (c) a company; (d) a trust; (e) a partnership; (f) a limited liability partnership; (g) any other entity established under a statute; and includes a person resident outside India. 25. At this stage, we must note that the learned Solicitor General of India, who was defending the constitutional validity of the provisions had submitted before the Court that three of the five entities, which were respondents in the case and who have arbitral award against them, such as NTPC, NHPC and IRCON are Government Companies and, therefore, they would come within the definition of Corporate Person and Corporate Debtor under Sections 3(7) and 3(8) of the Insolvency Code. It was then argued on behalf of the Union of India that what is left here is National Highway Authority of India. As far as NHAI is concerned, it is a statutory body, which functions as an extended arm of the Central Go ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tral Government. Under this provision, the function of execution of activities relatable to national highways was earlier delegated to the State Governments under an agency system . Though the system worked through the State Public Works Departments for a period of 40 years, as difficulties were experienced, the Centre itself decided to take over development and maintenance of the national highways system through the creation of a national highways authority. 27. The Hon ble Apex Court thereafter went on to describe in detail about the constitution of the NHAI, its statutory functions and how it is different from a ordinary Government Company, etc. and then it said at Paragraph 69 as under:- 69. From a conspectus of the above provisions, what is clear is that NHAI is a statutory body which functions as an extended limb of the Central Government, and performs governmental functions which obviously cannot be taken over by a resolution professional under the Insolvency Code, or by any other corporate body. Nor can such Authority ultimately be wound-up under the Insolvency Code. For all these reasons, it is not possible to accede to Dr. Singhvi's argument to either read i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on what it decides. In Hindustan Construction Company Limited case, the Apex Court has given a clear finding that Insolvency Code is applicable to Government Companies though not applicable to such Government Authorities or bodies, which are performing statutory functions as they would be different from Government Companies, and that is a ratio decidendi in the judgment, yet even if that was not the central aspect of the said judgment, it would be still binding upon this Court, as held by the Hon ble Apex Court in the case of Peerless General Finance and Investment Company Limited -Vs- Commissioner of Income Tax, reported in 2019 SCC Online SC 851. The Hon ble Apex Court held as under:- We reiterate that though the Court s focus was not directly on this, yet, a pronouncement by this Court, even if it cannot be strictly called the ratio decidendi of the judgment, would certainly be binding on the High Court. 32. A Company which is defined under Section 2(20) of the Companies Act makes no distinction between a Government Company and a Private Company. Any Company, which is incorporated under the Companies Act, is a Company. True, Section 2(45) of the Companies Act ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... a separate identity and existence recognised under the law, as a juristic person . [ Heavy Engineering Mazdoor Union vs- State of Bihar Ors., (1969) 1 SCC 765 ]. The Hon ble Supreme Court in Para 4 of the said judgment held as under: 4. ....................The company so incorporated derives its powers and functions from and by virtue of its memorandum of association and its articles of association. Therefore, the mere fact that the entire share capital of the respondent- company was contributed by the Central Government and the fact that all its shares are held by the President and certain officers of the Central Government does not make any difference. The company and the shareholders being, as aforesaid, distinct entities the fact that the President of India and certain officers hold all its shares does not make the company an agent either of the President or the Central Government. 36. This was reiterated by the Hon ble Supreme Court in the case of A.K. Bindal -Vs- Union of India, reported in (2003) 5 SCC 163, wherein at Para 17 it was held as under: 17. The legal position is that identity of the government company remains distinct from the Government. ..... X X X X Extracts X X X X X X X X Extracts X X X X
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