TMI Blog2019 (8) TMI 530X X X X Extracts X X X X X X X X Extracts X X X X ..... borrow money left, right and centre or create liabilities and the creditors have to be left in lurch compelling them to approach the civil courts or the writ court for getting relief, where the system is already suffering from docket explosion, which will ultimately hurt the economic interest of the nation and the ease of doing business. The code is a major economic reform undertaken by the Government to overcome the bottleneck in the economic development of the country and the present situation is that the economic activity awaits at the doorsteps of the NCLTs, and hence the spirit of the Code shall not be spoiled by diluting and tinkering the Code. - Application admitted. - C.P. (IB) 2482/2018 - - - Dated:- 16-7-2019 - Shri Bhaskara Pantula Mohan, Member (Judicial) And Shri V. Nallasenapathy, Member (Technical) For The Petitioner : Mr. Akshay Petkar, Advocate For The Respondent : Mr. D. Debabrata Ray Choudhari, Senior Counsel a/w Mr. D. G. Dhanure, Advocate ORDER Per: Bhaskara Pantula Mohan, Member (Judicial) 1. This Company Petition is filed by Harsh Pinge (hereinafter called Petitioner ) seeking to set in m ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 67640 Mar, 2015 67740 67740 Apr, 2015 67830 67830 May, 2015 67830 67830 Jun, 2015 69360 1652 67708 Jul, 2015 70140 248 69892 Aug, 2015 69890 69890 Sep, 2015 69890 69890 Oct, 2015 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... service increment from 01.08.2016 to 31.08.2016 ₹ 1450/-Dues as per NDC if any shall be recoverable from above pending payments. Sd/- DGM (Fin) 3. The Petitioner enclosed the letter received from the Authority under the Payment of Gratuity Act, 1972 and the Regional labour Commissioner (Central Pune) addressed to the General Manager of the Corporate Debtor on 31.01.2017, to show that the gratuity due is pending. Tel 020-26451461by REGD A. D. GOVERNMENT OF INDIA MINISTRY OF LABOUR EMPLYOYMENT OFFICE OF THE REGIONAL LABOUR COMMISSIONER (C) 1, Kaul Bldg. Gurunanak Nagar, Shankarseth Road, Pune 411002 No. RLCP/36/(78)/2016 Dated : 31.01.2017 FORM-'R' (See Rule (1) of Rule 11) Notice for payment o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 7; 17,16,442/-. 6. The Petitioner filed Bank Certificate as required u/s 9(3)(c) of the Code to say that the has not received the payment from the Corporate Debtor after 17.09.2016.The Petitioner also filed affidavit u/s 9(3)(b) of the Code stating that no dispute has been raised by the Corporate Debtor. 7. The Ld. Senior Counsel for the Corporate Debtor filed reply dated 04.12.2018 and made the following contentions: a. The Corporate Debtor was declared as a Sick Company within the meaning of Sick Industrial Company Special Protection Act, 1985 and a scheme for revival sanctioned with IDBI as the operating agency to prepare a rehabilitation scheme. After the repeal of SICA Act and the commencement of Insolvency and Bankruptcy Code all the creditors started taking various coercive measures like execution, attachment, etc. The Corporate Debtor could not pay the salary and wages of the workmen for about 30 months and the Government gave some loan which was utilized for payment of salary and wages but still salary dues for the last 19 months is pending. b. The Corporate Debtor is having vast land bank to the extent of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... o regulations framed under Act of 1959, Act of 1943 and Act of 1956 would enable employees to declaration against statutory corporation of continuance in service or would give rise to claim damages, it was held that rules and regulations framed by appellants have force of law and statutory bodies have no free hand in framing conditions and terms of services of their employees, and that they are bound to apply terms and conditions as laid down in regulations Furthermore, employees are entitled to declaration of being in employment when dismissal or removal is in contravention of statutory provisions. v. Shambhu Nath Goyal Vs Bank of Baroda (1978 2 SCC 353) vi. State of Punjab Vs State of Jalandhar Ors (AIR 1979 SC 1981) vii. RD ShettyVs The Indian International Airport Authority of India and others (AIR 1979 SC 1628) this judgment said that the Government which represents the executive authority of the State, may act through the instrumentality or agency of natural persons or it may employ the instrumentality or agency of juridical persons to carry out its functions. In the early days, when the Government had limited functions, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e Society Registration Act is an Authority described under Article 12 of the Constitution. xii. Western Coalfield Limited (BACL) Vs Special Area Development Authority, Korba (1981 DGLS SC 469)In this case the issue was raised that, whether the demand for Property-tax made by respondent 1 on the appellant Companies legal and justified? It was held that the agreement which was entered into between the appellant Companies and respondent 1, the respondent 1 had waived its power of taxation. The Chairman of respondent 1, had acted beyond the scope of his authority in entering into the agreement with the appellant Companies, under which respondent 1 bound itself not to impose any tax. Hence the imposition of property tax was invalid and appeal is dismissed. xiii. The Gujrat State Finance Corporation Vs M/s Lotus Hotel Pvt ltd (AIR 1982 Guj 198) xiv. SK Verma Vs Mahesh Chandra and Others (1983) 4 SCC214)this case talks about maintainability of reference should not be questioned especially by Public Sector Corporations on mere technical grounds. xv. The Gujrat State Finance Corporation Vs M/s Lotus Hotel Pvt ltd (AIR ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ndal Others (AIR 2004 SC 1559) xxviii. NGEF Limited Vs Chandra Developers and Others (2005) 8 SCC 219, this judgment says that Section 536 (2) ipso fact does not confer any power or jurisdiction to the Company Court for sale of assets of sick companies. xxix. Morgan Securities Credit ltd. VsModi Rubber Ltd. xxx. Jay Engineering Works Ltd. Vs Industry Facilitation Council and Others. (2006) 8 SCC 677 xxxi. Tata Motors Limited Vs PharmaceuticalsProducts of India Ltd and others (2008) 7 SCC 617 xxxii. Union of India Vs R. Gandhi, President, Madras Bar Association xxxiii. Raheja Universal Limited Vs NRC Limited and Others (2012) 4 SCC 148 xxxiv. M/s Salem Textiles limited Vs Phoenix ARC Ltd (2013 Madras 229) xxxv. KSL and Industries Limited Vs Arihant Threads Limited Others (2015) 1 SCC 166 9. I have heard the contentions raised by both the sides. In fact on various occasions I have requested the Sr. Counsel appearing for the Corporate Debtor to throw light on the character/nature of the Company against which this Petitio ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ( iv) Whether the admission of the Petition defeats the public purpose. After listening to the arguments of the both the sides and on perusal of all the documents placed on record, following are answers to the above QUESTION 1 2: 10. The concept of instrumentality of state has been very elaborately explained in the judgment of the Hon ble Apex Court titled as R.D. Shetty Vs. International Airport Authority of India (AIR 1979 SC 1628)in the following lines: 13. Now, it is obvious that the Government which represents the executive authority of the State, may act through the instrumentality or agency of natural persons or it may employ the instrumentality or agency of juridical persons to carry out its functions. In the early days, when the Government had limited functions, it could operate effectively through natural persons constituting its civil service and they were found adequate to discharge governmental functions, which were of traditional vintage. But as the tasks of the Government multiplied with the advent of the welfare State, it began to be increasingly felt that the frame ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... limitations, it must follow a fortiori that Government acting through the instrumentality or agency of corporations should equally be subject to the same limitations. But the question is how to determine whether a corporation is acting as instrumentality or agency of Government. It is a question not entirely free from difficulty. 14. A corporation may be created in one of two ways. It may be either established by statute or incorporated under a law such as the Companies Act 1956 or the Societies Registration Act 1860. Where a Corporation is wholly controlled by Government not only in its policy making but also in carrying out the functions entrusted to it by the law establishing it or by the Charter of its incorporation, there can be no doubt that it would be an instrumentality or agency of Government. But ordinarily where a corporation is established by statute, it is autonomous in its working, subject only to a provision, often times made, that it shall be bound by any directions that may be issued from time to time by Government in respect of policy matters. So also a corporation incorporated under law is managed by a board of directors or committee of manage ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e Constitution of India in an appropriate forum if so advised. QUESTION (iii) (iv) 11. It is also important to note that the preamble of the constitution included the word socialistic at the time of 42nd Amendment to the Constitution. The Hon ble Apex Court in its judgment titled Excel Wear and Ors Vs Union of India and Ors said the following: 24. We now proceed to deal with the rival contentions. But before we do so, we may make some general observations. Concept of socialism or a socialist state has undergone changes from time to tune from country to country and from thinkers tothinkers. But some basic concept still holds the field. In the case of Akadasi Padhan v. State of Orissa the question forconsideration was whether a law creating a State monopoly is valid under the latter part of Article 19(6) which was introduced by the (first Amendment) Act, 1951. While considering that question, it was pointed out by Gajendragadkar J., as he then was, at page 704: With the rise of the philosophy of Socialism, the doctrine of State ownership has been often discussed by political ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... But in a private sector obviously the two matters involved in running it are not on the same footing. One part is the management of the business done by the owners or their representatives and the other is running the business for return to the owner not only for the purpose of meeting his livelihood orexpenses but also for the purpose of the growth of the national economy by formation of more and more capital. Does it stand to reason that by such rigorous provisions like those contained in the impugned sections all these interests should be completely or substantially ignored ? The questions posed are suggestive of the answers. ( Emphasis Supplied) From the above it is clear that irrespective of the fact whether a company is earning profits or not and has the ability to pay debts or not, the survival of the company cannot be put in jeopardy and in view of the fact that the CIRP process virtually creates a situation where the activities of the company goes into the hands of a Resolution Professional. Here is a case merely because an employee who served the company for several years and had grown from the bottom to the top level not w ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ings then would be said to have been initiated against the President of India, which cannot be allowed under the procedure of IBC. 13. The State, we have seen on various occasions, has either tried treating Financially Sick Companies or made sure that dues of the all its Creditors are duly paid.In a Welfare State like India, allowing Insolvency proceedings against an Agency of the Stateis like proceeding against the state itself and the same will set out a wrong precedent. 14. Hence the Petition is dismissed. SD/- Bhaskara Pantula Mohan Member (Judicial) Per: V. Nallasenapathy, Member (T) I have gone through the order of my Ld. Brother and I respectfully disagree with his views for the following reasons: 1. The contentions of the Corporate Debtor referred in para 7 supra cannot come in the way of admission of the Petition in view of the fact that debt and default is writ large in the Petition and the Corporate Debtor has not raised any dispute with regard to the liability. The Hon ble Supreme Court in the case of Mobilox Innovations Priva ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the State includes the Government and Parliament of India and the Government and the Legislature of each of the States and all local or other authorities within the territory of India or under the control of the Government of India. d. under the doctrine of immunity of instrumentalities of the State, provided under the constitution of India, the properties of Union of India are exempted even from taxation and other charges. Applying the same analogy the properties of the Corporate Debtor cannot be interfered as provided under the Code. e. though it is a Government Company incorporated under the Companies Act but the status and Statute are different, all government companies are financed by government, Government Company is audited by the agencies appointed by the government etc., the Corporate Debtor is a state and hence the provisions of the Code cannot be applied to this Corporate Debtor. f. the Corporate Debtor is trying to sell the land owned by it for payment of unpaid salary of employees and the Hon ble Bombay High Court directed the company to sell the access land for payment of salary dues and the same is an assistanc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... at corporate person means a company as defined in clause (20) of section 2 of the Companies Act, 2013, a limited liability partnership, as defined in clause (n) of sub-section (1) of section 2 of the Limited Liability Partnership Act, 2008, or any other person incorporated with limited liability under any law for the time being in force but shall not include any financial service provider; Section 3(8) of the Code provides that corporate debtor means a corporate person who owes a debt to any person; , Section 2(20) of the Companies Act, 2013 provides that Company means a company incorporated under this Act or under any previous company law Section 4 of the Code provides that This Part shall apply to matters relating to the insolvency and liquidation of corporate debtors where the minimum amount of the default is one lakh rupees: Provided that the Central Government may, by notification, specify the minimum amount of default of higher value which shall not be more than one crore rupees. , Section 5(20) of the Code pr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... btor has been delivered by the operational creditor; (d) no notice of dispute has been received by the operational creditor or there is no record of dispute in the information utility; and (e) there is no disciplinary proceeding pending against any resolution professional proposed under subsection (4), if any. Application for initiation of corporate insolvency resolution process by operational creditor. (ii) reject the application and communicate such decision to the operational creditor and the corporate debtor, if- (a) the application made under sub-section (2) is incomplete; (b) there has been repayment of the unpaid operational debt; (c) the creditor has not delivered the invoice or notice for payment to the corporate debtor; (d) notice of dispute has been received by the operational creditor or there is a record of dispute in the information utility; or (e) any disciplinary proceeding is pending against any proposed resolution professional: Provided that Adjudicating Authority, shall before rejecting an application under sub-clause (a) of clause (ii) give a notice to the applicant to rectify the defect in his application within seven days of the date of receipt of such notice ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Government Company. (In fact this case has travelled up to the Hon ble Supreme Court). iii. It is to be noted that the Hon ble NCLAT by an order dated 29.05.2019 approved the liquidation order passed by the New Delhi Bench of NCLAT in the case of Hindustan Paper Corporation Officers Supervisor Association Ors. Vs Hindustan Paper Corporation Ltd. Ors (Company Appeal (AT) (Insolvency) No. 585 of 2019) , wherein the Corporate Debtor is a public sector undertaking/ Govt. Company. iv. The Hon ble NCLAT in the case of Industrial Services vs Burn Standard Company Ltd. Anr. (Company Appeal (AT) (Insolvency) No. 141 of 2018) set aside the order of closure of the Company and the order of retrenchment dated 6th March, 2018 and remitted back the matter to NCLT, Kolkata for fresh consideration in accordance with law. Here also the Corporate Debtor is a public sector/Government undertaking. Hence there is no rhyme or reason to exclude the public sector/Government undertaking. d. The Adjudicating Authority under the Code is given a limited power to decide whether the Corporate Debtor is liable to pay the debt and defaulted in making ..... X X X X Extracts X X X X X X X X Extracts X X X X
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