TMI Blog2017 (12) TMI 1106X X X X Extracts X X X X X X X X Extracts X X X X ..... cted 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 The Eighth Schedule of the Code as originally enacted had amended Section 4(b) of the Repeal Act, and has been already reproduced above.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, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sale, and export of minerals. 4. On 2nd June, 2011, the petitioner company made a reference before the Board of Industrial and Financial Reconstruction (BIFR or Board, for short), which, vide order dated 12th March, 2012 declared it to be a sick company under the provisions of the Sick Industrial Companies (Special Provisions) Act, 1985 (SIC Act for short). 5. The petitioner had submitted a Draft Rehabilitation Scheme, which was pending when vide Notification No. S.O. 3568(E) dated 25th November, 2016 the Repeal Act was enforced with effect from 1st December, 2016. Consequently, the SIC Act was repealed and ceased to be operative and proceedings under the SIC Act before the BIFR abated. 6. Repeal Act was enacted by the Parliament in 2004, but was not notified under Section 1(2), till Notification No. S.O. 3568(E) dated 25th November, 2016. 7. Section 4(b) of the Repeal Act as originally enacted was as under:- 4. Consequential provisions .- On the dissolution of the Appellate Authority and the Board,- ( a) XXXX ( b) any appeal preferred to the Appellate Authority or any reference made to the Board or any inquiry pending before the Board or any ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Appellate Authority or the Board under Sick Industrial Companies (special provisions) Act, 1985 (1 of 1986) shall stand abated: Provided that a company in respect of which such appeal or reference or inquiry stands abated under this clause may make reference to the National Company Law Tribunal under the Insolvency and Bankruptcy Code, 2016 within one hundred and eighty days from the commencement of the Insolvency and Bankruptcy Code, 2016 in accordance with the provisions of the Insolvency and Bankruptcy Code, 2016. Provided further that no fees shall be payable for making such reference under Insolvency and Bankruptcy Code, 2016 by a company whose appeal or reference or inquiry stands abated under this clause] The aforesaid amendment was made prior to 1st December, 2016 i.e. the date on which the Repeal Act was enforced. 9. Thereafter, vide Notification No. S.O. 1683 (E) dated 24th May, 2017, two provisos were added to Section 4(b) of the Repeal Act. Said Notification, also referred to as 'The Removal of Difficulty Order', 2017, reads as under:- S.O. 1683(E).- Whereas, the Insolvency and Bankruptcy Code, 2016 (31 of 2016 (hereinafter referred to a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ub-section (4) or any scheme under implementation under sub-section (12) of section 18 of the Sick Industrial Companies (Special Provisions) Act, 1985 (1 of 1986) in view of the repeal of the Sick Industrial Companies (Special Provisions) Repeal Act, 2003 and omission of sections 253 to 269 of the Companies Act, 2013; Now, therefore, in exercise of the powers conferred by the sub-section (1) of the section 242 of the insolvency and Bankruptcy Code, 2016 (31 of 2016), the Central Government hereby makes the following Order to remove the above said difficulties, namely:- 1. Short title and commencement. (1) This Order may be called the Insolvency and Bankruptcy Code (Removal of Difficulties) Order, 2017. 2. In the Insolvency and Bankruptcy Code, 2016, in the Eighth Schedule, relating to amendment to the Sick Industrial Companies (Special Provisions) Repeal Act, 2003, in section 4, in clause (b), after the second proviso, the following provisos shall be inserted, namely:- Provided also that any scheme sanctioned under sub-section (4) or any scheme under implementation under sub-section (12) of section 18 of the Sick Industrial Companies (Special Provisi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of sick companies and has now resiled from the same. Reliance is placed on the judgment of the Constitution Bench of the Supreme Court dated 14th May, 2015 in Madras Bar Association v. Union of India and others (2015) 8 SCC 583 , where challenge to the constitutional validity of creation of NCLT and the National Company Law Appellate Tribunal (NCLAT, for short) was rejected, yet in paragraph 31 it was observed that the draft rules regarding the manner of functioning of the NCLT and the NCLAT were being prepared. 14. We have considered the said contentions but do not find any merit in the same and are therefore not inclined to issue notice in the present writ petition. 15. The Parliament has enacted the Code. The object and purpose for enacting the Code was that the existing laws relating to insolvency and bankruptcy of companies, including SIC Act, 1985, Recovery of Debts Due to Banks and Financial Institutions Act, 1993, Violation and Reconstruction of Financial Provision and Security Interest Act, 2002, etc. had, as per the Legislature, proved to be ineffective and inefficacious, and were considered to be inadequate. Despite the aforesaid enactments there was a spiral in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... lt with under the Presidency Towns Insolvency Act, 1909, and the Provincial Insolvency Act, 1920 and is dealt with by the Courts. The existing framework for insolvency and bankruptcy is inadequate, ineffective and results in undue delays in resolution, therefore, the proposed legislation. 2. The objective of the Insolvency and Bankruptcy Code, 2015 is to consolidate and amend the laws relating to reorganization and insolvency resolution of corporate persons, partnership firms and individuals in a time bound manner for maximization of value of assets of such persons, to promote entrepreneurship, availability of credit and balance the interests of all the stakeholders including alteration in the priority of payment of government dues and to establish an Insolvency and Bankruptcy Fund, and matters connected therewith or incidental thereto. An effective legal framework for timely resolution of insolvency and bankruptcy would support development of credit markets and encourage entrepreneurship. It would also improve Ease of Doing Business, and facilitate more investments leading to higher economic growth and development. 3. The Code seeks to provide for designating the NCLT ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... oresaid Code and repeal the earlier enactments. To this extent, the petitioner has not challenged and questioned the Code or for that matter, Section 4(b) and 5(1)(d) of the Repeal Act. The Code has been enacted to replace the SIC Act. The enactment of the Code and its provisions reflect and relate to the realm of policy and legislative supremacy on such matters. The government in exercise of its legislative and executive functions and after due consideration, has enforced the provisions of the Repeal Act and has also made them applicable to sick companies where draft schemes were pending consideration before BIFR and had not been approved. 18. Section 4(b) of the Repeal Act in clear and categorical terms states that on dissolution of the BIFR/Board or the Appellate Authority under SIC Act, any appeal or reference made or inquiry pending under SIC Act shall abate on such date as notified by the Central Government in this behalf. Thus, all proceedings under SIC Act pending before the Appellate Authority or the BIFR/Board on the date notified by the Central Government in this behalf, after the dissolution of the aforesaid authorities, stood abated. This dictum applies uniformly. T ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... (4) or is under implementation under sub-section (12) of Section 18 of the SIC Act, it shall be deemed to be an approved resolution plan under sub-section (1) of Section 31 of the Code and shall be dealt with in accordance with the provisions of Part II of the Code. The fourth proviso added to clause (b) to Section 4 of the Repeal Act by the same notification provides that in cases where the statutory period within which an appeal was allowed under the SIC Act against an order of the BIFR had not expired, an appeal against any such deemed approved resolution plan can be preferred before NCLAT within 90 days of publication of the order. The expression deemed approved resolution plan used in the fourth proviso added to Clause (b) of Section 4 of the Repeal Act has to be understood by making reference to the third proviso and provisions of Section 31 (1) of the Code, which related to the resolution plan and its approval. By virtue of the third proviso to Section 4(b) of the Repeal Act a Scheme sanctioned under subsection (4) or (12) of Section 18 of SIC Act is deemed to be an approved resolution plan under sub-section (1) to Section 31 of the Code. Henceforth, the Code and its provi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... favour of constitutionality of an enactment, for it is assumed that the Legislature, as well as Executive, in case of a delegated legislation, understands and correctly appreciates the needs of its own people and enacts laws based upon experience and the distinction drawn thereunder. Discrimination made is based on adequate grounds. (see State of Bombay and Anr. Vs. F.N. Balsara , 1951 SCR 682 and R.K. Garg Vs. Union of India , AIR 1981 SC 2138.) 25. Article 14 does not empower the Court to don the role of Legislature or the Executive and decide which is the best alternative or the most equitable criteria. Thus, a better classification is not a ground to reject and quash the classification made by the Government, unless the classification is palpably arbitrary and results in hostile discrimination. Courts recognise that it is difficult to perceive a perfect classification for there could always be varied situations where defects could arise. 26. Equally, the court decisions have recognized that when classification deals with persons belonging to a well defined class, the said classification is not open to challenge and cannot be called to question on the ground that it ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... reason why it applies even to companies declared sick . However, an exception has been carved out in cases where draft schemes of rehabilitation were sanctioned or approved under Section 18 (4) or (12) of the SIC Act. The reason to carve the exception is obvious and does not require much elucidation. The sick companies where schemes had been sanctioned and approved, would obviously form a separate and different class. Any provision of the Code or the Repeal Act, nullifying sanctioned rehabilitation scheme could have fallen foul on the ground of arbitrariness, especially, when there was no challenge to the sanction or approval of the rehabilitation scheme had attained finality. The Code is made applicable even in such cases for future, with the sanctioned schemes being deemed to be approved resolution plans under Section 31(1) of the Code. 29. Resultantly, it has to be held that the classification made, differentiating between cases where schemes stand sanctioned under Section 18(4) and (12) of the SIC Act and where the draft scheme for rehabilitation were pending consideration, is a valid, germane and realistic classification. These cases form a well defined class by themselve ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... a law deals equally with members of a well defined class, it is not obnoxious and it is not open to the charge of denial of equal protection on the ground that it has no application to other persons. ( 7) While reasonable classification is permissible, such classification must be based upon some real and substantial distinction bearing a reasonable and just relation to the object sought to be attained, and the classification cannot be made arbitrarily and without any substantial basis. It was further held that Article 14, which guarantees equal protection, does not prohibit classification but prohibits classification, that does not rest upon the reasonable grounds of distinction with reference to the objects to which it is directed. It does not take away the Government s power to classify but they should do so on reasonable basis. Similarity and not identity of treatment is enough and meet the requirements of Equality. Mathematical nicety and perfect equality is not required. The said discussion was necessary in view of the exemptions provided in the Repeal Act. 32. In State of West Bengal Vs. Anwar Ali Sarkar , AIR 1952 SC 75, Patanjali Sastri, C.J., on the que ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... and Anr. , AIR 1954 SC 545, it was observed:- It is well settled that in its application to legal proceedings Article 14 assures to everyone the same rules of evidence and modes of procedure; in other words, the same rule must exist for all in similar circumstances. It is also well settled that this principle does not mean that every law must have universal application for all persons who are not by nature, attainment or circumstance, in the same position. The State can by classification determine who should be regarded as a class for purposes of legislation and in relation to a law enacted on a particular subject, but the classification permissible must be based on some real and substantial distinction bearing a just and reasonable relation to the objects sought to be attained and cannot be made arbitrarily and without any substantial basis. Classification means segregation in classes which have a systematic relation, usually found in common properties and characteristics. 36. In the Special Courts Bill, 1978, In Re (1979) 1 SCC 380 the majority judgment adverted to a large number of judicial decisions interpreting Article 14 and after referring to the exercise o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e constitutional command to the State to afford equal protection of its laws sets a goal not attainable by the invention and application of a precise formula. Therefore, classification need not be constituted by an exact or scientific exclusion or inclusion of persons or things. The courts should not insist on delusive exactness or apply doctrinaire tests for determining the validity of classification in any given case. Classification is justified if it is not palpably arbitrary. ( 4) The principle underlying the guarantee of Article 14 is not that the same rules of law should be applicable to all persons within the Indian territory or that the same remedies should be made available to them irrespective of differences of circumstances. It only means that all persons similarly circumstanced shall be treated alike both in privileges conferred and liabilities imposed. Equal laws would have to be applied to all in the same situation, and there should be no discrimination between one person and another if as regards the subject-matter of the legislation their position is substantially the same. ( 5) By the process of classification, the State has the power of determining w ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e law to certain classes or groups of persons, the statute itself cannot be condemned as a piece of discriminatory legislation. In such cases, the power given to the executive body would import a duty on it to classify the subject-matter of legislation in accordance with the objective indicated in the statute. If the administrative body proceeds to classify persons or things on a basis which has no rational relation to the objective of the legislature, its action can be annulled as offending against the equal protection clause. On the other hand, if the statute itself does not disclose a definite policy or objective and it confers authority on another to make selection at its pleasure, the statute would be held on the face of it to be discriminatory, irrespective of the way in which it is applied. ( 10) Whether a law conferring discretionary powers on an administrative authority is constitutionally valid or not should not be determined on the assumption that such authority will act in an arbitrary manner in exercising the discretion committed to it. Abuse of power given by law does occur; but the validity of the law cannot be contested because of such an apprehension. Discre ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... all sick companies and upon deliberation has decided in principle to withdraw and repeal SIC Act for it had not the desired effect and consequences, which were envisaged. The draw-back and failure in application and enforcement had outweighed the miniscule benefits secured by some. Adverse impact was apparent and therefore, legislature in its wisdom felt that in all cases where the draft schemes had not been sanctioned could apply under the Code and would be governed by the provisions of the Code. For this purpose they have differentiated between the classes of cases where draft schemes had been sanctioned and other cases where draft schemes had not been sanctioned. There is a clear differentiation between the two sets of cases. The difference between the two sets is too apparent and not blurred or make belief. Withdrawal or nullification of a sanctioned draft scheme would have created innumerable and monstrous difficulties and problems. Thus sanctioned rehabilitation schemes have been treated as schemes deemed to have been sanctioned under Section 31(1) of the Code. Their implementation is to be dealt with under the provisions of the Code and not as per the mandate of the repealed ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ned. Former cases have to be dealt with in accordance with the provisions of Part II of the Code. In effect thereof, a cut-off date was prescribed for the purpose of Section 4(b) to determine which proceedings were to abate and which were to continue before the NCLT. The petitioner cannot submit that it should be treated at par with those whose schemes were sanctioned. 42. Whenever any enactment is to be enforced, a cut-off date has to be prescribed. This is true also when an enactment which repeals an earlier enactment or when a section is omitted and replaced by a new provision. Sometimes, the legislature leaves it to the executive to prescribe the cut-off date. Fixing a cut off date for enforcement of an act or provision is an exercise of government function and power, be it legislative or executive. These would be largely matters relating to administration and policy. Fixing of cut-off date is normally not interfered and interjected with by the courts unless the date so fixed is blatantly discriminatory or arbitrary. Particular cut-off date is fixed keeping in mind the administrative and other conditions i.e. when alternative institutions and authorities and infrastructure a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... arbitrary even if no particular reason is given for the same in the counter-affidavit filed by the Government (unless it is shown to be totally capricious or whimsical), vide State of Bihar v. Ramjee Prasad, Union of India v. Sudhir Kumar Jaiswal, Ramrao v. All India Backward Class Bank Employees Welfare Association, University Grants Commission v. Sadhana Choudhary, etc. It follows, therefore, that even if no reason has been given in the counter-affidavit of the Government or the executive authority as to why a particular cut-off date has been chosen, the court must still not declare that date to be arbitrary and violative of Article 14 unless the said cut-off date leads to some blatantly capricious or outrageous result. 45. In Ramrao v. All India Backward Class Bank Employees Welfare Association 2004 2SCC 76, the Supreme Court held the fixation of a cutoff date would be valid so long as it had a nexus with the object it sought to achieve. Even if a section of society were to face hardship, that by itself would not be a ground to hold the fixation of a cut-off date as ultra vires . The settled principle, therefore, is that the fixation of a cut-off date by itself is no ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Removal of Difficulties Order 2017/Notification S.O. 1683(E) dated 24th May, 2017 on the ground that the same could not have been passed in exercise of power under Section 242 of the Code. It is submitted that Section 242 is a provision which merely confers the powers to remove difficulties in the Code and cannot be extended to amend the extant provisions of the Repeal Act, or other enactments like Recovery of Debts Due to Banks and Financial Institutions Act, 1993, Violation and Reconstruction of Financial Provision and Security Interest Act, 2002 and Companies Act, 201 3. 49. We have considered the said contention limited and 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. Section 252 of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... or extends the existing Indian laws to new territories or areas freshly merged in the Union of India. In order to obviate the necessity of approaching the Legislature for removal of every difficulty, however trivial, encountered in the enforcement of a statute, by going through the time-consuming amendatory process, the Legislature sometimes thinks it expedient to invest the Executive with a very limited power to make minor adaptations and peripheral adjustments in the statute, for making its implementation effective, without touching its substance. That is why the removal of difficulty clause , once frowned upon and nick-named as Henry VIII clause in scornful commemoration of the absolutist ways in which that English King got the difficulties in enforcing his autocratic will removed through the instrumentality of a servile Parliament, now finds acceptance as a practical necessity, in several Indian statutes of postindependence era. 51. 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. 52. In view of the above discussion, it is ..... X X X X Extracts X X X X X X X X Extracts X X X X
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