Gauhati High Court
WP(C)/575/2020 on 26 August, 2021
GAHC010019432020
Judgment reserved on : 24th August, 2021.
Judgment delivered on : 26th August, 2021.
IN THE GAUHATI HIGH COURT
(HIGH COURT OF ASSAM, NAGALAND, MIZORAM & ARUNACHAL PRADESH)
WP(C) NO.575 OF 2020
1. Hindustan Paper Corporation
Limited Officers' and Supervisors'
Association, having its registered
office at Kagaj Nagar, Jagiroad,
District: Morigaon, Assam,
represented by its General Secretary,
Sri Krishna Kanta Sutradhar.
2. Shri Hemanta Kumar Kakati,
Son of Late Keshob Chandra Kakati,
Resident of HPC Township, C 18/4,
Kagaj Nagar, Assam, Jagiroad,
District: Morigaon, Assam, PIN -
782413.
3. Shri Krishna Kanta Sutradhar,
Son of Amulya Sutradhar,
Resident of HPC Township, B 9/4,
Kagaj Nagar, Assam, Jagiroad,
District: Morigaon, Assam, PIN -
782413.
........Petitioners
-2-
-Versus-
1. The Union of India, represented
by the Secretary to the Government
of India, Ministry of Heavy Industries
and Public Enterprises, Government
of India, Udyog Bhawan, new Delhi -
110011.
2. Hindustan Paper Corporation
Limited, represented by its Chairman
cum Managing Director, having its
Corporate Headquarter at Kolkata,
75-C, Park Street, West Bengal and
registered office at New Delhi, 4th
Floor, South Tower, Scope Minar,
Laxmi Nagar, District Centre, New
Delhi - 110092.
3. Hindustan Paper Corporation
Limited Employees Contributory
Provident Fund Trust, represented by
Chairman of Board of Trustees,
Kolkata, 75-C, Park Street, West
Bengal.
4. The Regional Provident Fund
Commissioner, EPFO, Regional Office
at Park Street, Kolkata.
5. The Employees Provident Fund,
represented by the Additional Central
Provident Fund Commissioner, having
its office at Bhavishya Nidhi Bhawan,
G.S. Road, Bhangagarh, Guwahati -
781005.
6. Income Tax Department,
represented by the Chief
Commissioner of Income Tax, North
Eastern Region, having its office at
Aaykar Bhawan, G.S. Road, Christian
Basti, Guwahati - 781005.
-3-
7. Mr. Kuldeep Verma, the Official
Liquidator, 46, BB Ganguly Street, 5th
Floor, Room No.501, Kolkata -
700021.
8. The State of Assam, represented
by the Commissioner & Secretary to
the Government of Assam,
Department of Commerce &
Industries, Guwahati, Dispur, PIN -
781006, Assam.
........Respondents
-BEFORE-
HON'BLE THE CHIEF JUSTICE MR. SUDHANSHU DHULIA
HON'BLE MR. JUSTICE MANASH RANJAN PATHAK
For the Writ Petitioners : Mr. K.N. Choudhury,
Sr. Advocate.
For the Respondent No.1 : Mr. R.K.D. Choudhury, Asstt.
Solicitor General of India.
For the Respondent Nos.2 & 7 : Mr. V. Sibal, Sr. Advocate.
For the Respondent Nos.4 & 5 : Mr. P.K. Roy, Advocate.
For the Respondent No.6 : Mr. S. Sharma, Standing
Counsel, Income Tax.
For the Respondent Nos.8 : Ms. M. Bhattacharjee, Addl.
Sr. Govt. Advocate, Assam.
JUDGMENT & ORDER
(Sudhanshu Dhulia, CJ)
Heard Mr. K.N. Choudhury, learned senior counsel
for the petitioners. Also heard Mr. R.K.D. Choudhury,
learned Assistant Solicitor General of India, appearing for
the respondent No.1; Mr. V. Sibal, learned senior counsel,
appearing for the respondent Nos.2 & 7; Mr. P.K. Roy,
learned counsel, appearing for the respondent Nos.4 & 5;
Mr. S. Sharma, learned standing counsel, Income Tax
Department, appearing for the respondent No.6 and Ms. M.
Bhattacharjee, learned Additional Senior Government,
Assam, appearing for the respondent No.8.
2. This writ petition was filed by the petitioners, inter
alia, challenging the constitutional validity of some of the
provisions of the Insolvency and Bankruptcy Code, 2016
(hereinafter referred to as "Insolvency Code"). In addition,
it also sought a writ in the nature of a mandamus for
declaring the provisions of the Insolvency Code as not
applicable for Government Companies. During the course
of his arguments, however, Mr. K.N. Choudhury, learned
senior counsel for the petitioners has limited his arguments
to the second prayer as referred above. i.e. a declaration
that a Government Company is not amenable to the
Insolvency Code.
3. The concerned Company here is a Government
Company, which is called Hindustan Paper Corporation
Limited, and petitioner No.1 is an Association of the
employees serving in the Paper Mill of the Company at
Nagaon, Assam, and the petitioner Nos.2 & 3 are the
President and General Secretary of the said Association,
respectively. According to the petitioners, the Nagaon
Paper Mill of the Company was set up in the year 1985.
Hindustan Paper Corporation Limited, is incorporated under
the Indian Companies Act, 1956, and the Company 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 efficient
insolvency regime and to States that are undertaking the
process of review and modernization of their insolvency
regimes. Then the Apex Court went on to quote provisions
after provisions of the Legislative Code.
5. With this background and later with
recommendations of several Committees, finally the
Insolvency and Bankruptcy Code, 2016 was enacted by the
Parliament in the year 2016 and was published in the
Gazette of India on 28.05.2016. The purpose of the
aforesaid Code is given in the Statement of Objects and
Reasons of the Insolvency Code, which is as under:-
"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 and 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."
6. The main purpose of the Insolvency Code is for
reorganisation and insolvency resolution of Corporate
Persons, Partnership Firms and individuals and this has to
be done in a time bound manner. Insolvency Code is not
intended to be a substitute to a recovery forum
(Innovations Private Limited -Vs- Kirusa Software
Private Limited, reported in (2018) 1 SCC 353). Its
purpose is to seek revival of a Corporate Person and only
when it is not feasible that assets of the Company are
finally liquidated with an aim to get the maximum return
out of it, which are then to be given to the creditors of the
Company as well as to the workmen. There is a whole
scheme in the Act for this, and it may not be necessary for
us to go down in detail on the procedure.
7. All the same, insolvency proceedings under the
Insolvency Code can be initiated by a financial creditor
under Section 7 or by an operational creditor under Section
8. In the present case, one of the operational 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 and the maximum period, which is given under
the Insolvency Code for coming to a decision in this matter,
i.e. 180 plus 90 days, expired on 22.03.20191. On
02.05.2019, an order was passed by the NCLT directing
initiation of liquidation of the Corporate Debtor, i.e.
Hindustan Paper Corporation Limited. On 14.05.2019, Mr.
Mr. Kuldeep Verma, i.e. the respondent No.7 before this
Court, was appointed as liquidator of Hindustan Paper
Corporation Limited. On 17.05.2019 public announcement
was made by the liquidator calling upon the stakeholders to
submit their claims.
10. We may also mention at this stage that the
liquidation order was challenged by the present petitioners
under Section 61 of the Insolvency Code, where the
1 12. Time-limit for completion of insolvency resolution process.-- (1)
Subject to sub-section (2), the corporate insolvency resolution process shall be
completed within a period of one hundred and eighty days from the date of
admission of the application to initiate such process.
(2) The resolution professional shall file an application to the Adjudicating
Authority to extend the period of the corporate insolvency resolution process
beyond one hundred and eighty days, if instructed to do so by a resolution
passed at a meeting of the committee of creditors by a vote of sixty-six per
cent of the voting shares.
(3) On receipt of an application under sub-section (2), if the Adjudicating
Authority is satisfied that the subject matter of the case is such that corporate
insolvency resolution process cannot be completed within one hundred and
eighty days, it may by order extend the duration of such process beyond one
hundred and eighty days by such further period as it thinks fit, but not
exceeding ninety days:
Provided that any extension of the period of corporate insolvency
resolution process under this section shall not be granted more than once.
liquidation order was upheld with certain directions by the
appellate authority. On 15.06.2019, the present petitioner
Association before this Court also filed its claim for salary,
gratuity, provident fund, pension fund and other dues
before the liquidator pursuant to the public announcement
dated 17.05.2019. The total claim raised on behalf of the
petitioner No.1 is of Rs.119,76,92,408/- (Rupees One
Hundred Nineteen Crores Seventy Six Lakhs Ninety Two
Thousand Four Hundred Eight).
11. Pursuant to the efforts made by the liquidator to
raise funds to keep the Corporate Debtor as a going
concern and bring about a scheme of compromise under
Section 230 of the Companies Act, 2013. All the same, the
Government of India informed the liquidator that it is not
able to offer a scheme of compromise under Section 230 of
the Companies Act nor is in a position to make available the
funds required to keep the Company as a going concern.
On 25.11.2019, orders were passed by the NCLT recording
that no scheme under Sections 230/232 of the Companies
Act, 2013 has been received by the liquidator inspite of
opportunity and, therefore, it is expedient to liquidate the
assets of Corporate Debtor at the earliest. On 19.01.2020
and 10.01.2020, liquidator made public announcements in
newspapers inviting expression of interest from bidders for
selling certain non-core assets of the Corporate Debtor at
Guwahati and Mumbai. No expression of interest was
received for the same. We have been informed at the bar
by the learned senior counsel for the respondent Nos.2 & 7
Mr. V. Sibal that liquidation proceedings are going on and
on 06.08.2021, the liquidator has made 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 Rs.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 defined
under Section 3(8) of the Insolvency Code, which reads as
under:-
"3(8) 'Corporate debtor' means a corporate person who
owes a debt to any person."
14. "Corporate Person" is defined under Section 3(7) of
the Insolvency Code, which reads as under:-
"3(7) 'Corporate person' means a company as defined in
clause (20) of section 2 of the Companies Act, 2013 (18 of
2013), a limited liability partnership, as defined in clause (n)
of sub-section (1) of Section 2 of the Limited Liability
Partnership Act, 2008 (6 of 2009), 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."
15. The argument of the learned senior counsel for the
petitioners would be that a "Corporate Person" means a
Company as defined in Clause (20) of Section 2 of the
Companies Act, 2013, which is as under:-
"2(20) 'Company' means a company incorporated under this
Act or under any previous company law."
16. The learned senior counsel would then argue that
this would not include a Government Company as
Government Company has been separately defined under
Section 2(45) of the Companies Act, 2013, which reads as
under:-
"2(45) 'Government company' means any company in which
not less than fifty-one per cent of the paid-up share capital
is held by the Central Government, or by any State
Government or Governments, or partly by the Central
Government and partly by one or more State Governments,
and includes a company which is a subsidiary company of
such a Government company."
17. The argument here is that, if the intention of the
Legislator was to include a Government Company also as a
Corporate Person then it would have definitely included
"Government Company" in the definition of "Corporate
Person" given in Section 3(7) of the Insolvency Code. It
has been submitted that in order to cover a Company
under the Insolvency Code, it must be first a "Corporate
Person" within the meaning of Section 3(7) of the
Insolvency Code and since the definition of Section 3(7)
does not include Government Companies, then HPCL which
is Government Company, cannot be come within the ambit
of the Insolvency Code. The learned senior counsel for the
petitioners has then relied upon a number of judgments,
such as Hindustan Paper Corporation Limited -Vs-
Government of Kerala & Ors., reported in AIR 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 Government, which is of
performing sovereign functions, such as National Highway
Authority of India (hereinafter referred to as "NHAI"). The
respondent Nos.2 & 7 before this Court are the Company
and the Liquidator, respectively.
19. Before we come down to the aforesaid case, we
must note down the objections of Mr. K.N. Choudhury,
learned senior counsel for the petitioners, who would argue
that the judgment referred by Mr. V. Sibal, learned senior
counsel for the respondent Nos.2 & 7, cannot be held an
authority on the present question as in the said decision,
what was actually being challenged before the Hon'ble
Supreme Court was the constitutional validity of certain
provisions of the Arbitration and Conciliation Act, 1996 and
the question whether a Government Company is included in
the Insolvency Code was an incidental matter, and,
therefore, the observations of the Hon'ble Supreme Court
on this should be construed only as an obiter. These are
only in the nature of observations and not a ratio given by
the Court in its judgment.
20. In Hindustan Construction Company Limited
(hereinafter referred to as "Hindustan Construction
Company decision"), what was before the Apex Court was
a challenge to the constitutional validity of Section 87 of
the Arbitration and Conciliation Act, 1996 as well as a
change to the various provisions of the Insolvency and
Bankruptcy Code, 2016. According to the petitioners (i.e.
the petitioners before the Apex Court) these provisions
resulted in a discriminatory treatment towards them, which
is violative of Articles 14 and 19(1)(g) of the Constitution of
India, and also arbitrary, it was contended. We are not
concerned with the challenge being made by the
petitioners to the constitutional validity of Section 87 of the
Arbitration and Conciliation Act, but the admitted position is
that apart from a challenge to the constitutional validity of
the provisions of the Arbitration and Conciliation Act, the
petitioner had also challenged the provisions of the
Insolvency Code. Their case was that the provisions of the
Insolvency Code operates arbitrarily on the petitioner as on
the one hand an arbitral award given in favour of the
petitioner would be stayed under Section 34 of the
Arbitration and Conciliation Act, 1996 and as a result of
which money cannot be used to pay of the debts of
creditors and on the other hand any debt of over
Rs.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 Company, since these
Government companies have been incorporated under the
Companies Act, 2013. But as far as NHAI is concerned, the
argument of the petitioners' counsel cannot be accepted for
adding or deleting any words from the definition clause
inasmuch as if that is done then an authority such as NHAI
would come within the ambit of the Insolvency Code and
that would be catastrophic, inasmuch as the development
and maintenance of NHAI is a Government function and
falls in Entry 23 of List I of 7th Schedule to the Constitution
of India and more importantly the functions of the NHAI
are not functions of an ordinary Government Company, but
these are sovereign functions. NHAI cannot be wound up
under the Insolvency Code.
22. The argument of Mr. K.N. Choudhury, learned
senior counsel for the petitioners would be that this is not a
finding where any reasoning had been given by the Hon'ble
Supreme Court as to why a Government Company is
included under the Insolvency Code. What actually
happened is that a concession was given by the counsel
defending the State, which was accepted by the Court.
This, therefore, cannot be construed as a ratio decidendi.
23. This is, however, not correct even factually. The
dispute which was before the Apex Court in the said case,
is set out in the very first paragraph of the judgment,
which is reproduced below:-
"This set of Writ Petitions seek to challenge the
constitutional validity of Section 87 of the Arbitration and
Conciliation Act, 1996 (hereinafter referred to as the
'Arbitration Act, 1996') as inserted by Section 13 of the
Arbitration and Conciliation (Amendment) Act, 2019
(hereinafter referred to as the "2019 Amendment Act") and
brought into force with effect from 30.08.2019. They also
seek to challenge the repeal (with effect from 23.10.2015) of
Section 26 of the Arbitration and Conciliation (Amendment)
Act, 2015 (hereinafter referred to as the '2015 Amendment
Act') by Section 15 of the 2019 Amendment Act. Apart from
the aforesaid challenge, a challenge is also made to various
provisions of the Insolvency and Bankruptcy Code, 2016
(hereinafter referred to as the 'Insolvency Code') which, as
stated by the Petitioners, result in discriminatory treatment
being meted out to them."
(Emphasis provided)
24. It is thus clear that not only was there a challenge
to the constitutional validity of Section 87 of the 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 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. This was
stated in Paragraph 62 of the judgment, which reads as
under:-
"Constitutional Challenge to the Insolvency Code
62. It now falls on us to decide the second part of the
challenges made in the present Writ Petitions, i.e. the
challenge to the constitutionality of the Insolvency Code. As
mentioned above, Dr. Singhvi has argued that the provisions
of the Insolvency Code would operate arbitrarily on his client
inasmuch as, on the one hand, an automatic-stay of arbitral
awards in his favour would be granted under the Arbitration
Act, 1996 as a result of which those monies cannot be used
to pay-off the debts of his client's creditors. On the other
hand, any debt of over INR one lakh owed to a financial or
operational creditor which remains unpaid, would attract the
provisions of the Insolvency Code against the Petitioner No.
1 - making these provisions arbitrary, discriminatory and
violative of Articles 14 and 19(1)(g) of the Constitution of
India. As a result, he has suggested that in order for his
client, in turn, to recover monies from Government
Companies and NHAI, 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 is the definition of
'person', read into the aforesaid provision. In order to
appreciate this contention it is necessary to set out these
definitions:
'Definitions
3. In this Code, unless the context otherwise
requires,-
xxx xxx xxx
(7) "corporate person" means a company as
defined in clause (20) of section 2 of the Companies
Act, 2013 (18 of 2013), a limited liability
partnership, as defined in clause (n) of sub-section
(1) of section 2 of the Limited Liability Partnership
Act, 2008 (6 of 2009), 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;
(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
Government and which carries sovereign functions of laying
down National Highways and, therefore, obviously, the
Insolvency Code cannot be used against such a statutory
body, because no resolution professional or private
individual can take over the management of such body
since it performs sovereign functions, nor can such body be
driven to insolvency under an Insolvency Code.
26. On these rival submissions, the Hon'ble Apex Court
gave its finding in Paragraphs 63, 64 & 65, which are as
under:-
"63. As correctly argued by the learned Solicitor
General, Shri Tushar Mehta, the first part of 'corporate
person', as defined in Section 3(7) of the Insolvency Code,
means a company as defined in Clause 20 of Section 2 of
the Companies Act 2013. Sections 2(20) and 2(45) of the
Companies Act, 2013, which define 'company' and
'Government company' respectively, are set out
hereinbelow:
'2(20). 'company' means a company incorporated under this
Act or under any previous company law;'
'2(45). 'Government company' means any company in which
not less than fifty-one per cent of the paid-up share capital
is held by the Central Government, or by any State
Government or Governments, or partly by the Central
Government and partly by one or more State Governments,
and includes a company which is a subsidiary company of
such a Government company.'
64. From a reading of the aforesaid definition, Shri
Tushar Mehta is clearly right in stating that the three entities
who owe monies under arbitral awards to the Petitioner No.
1, being Government companies, would be subsumed within
the first part of the definition. However, so far as NHAI is
concerned, Dr. Singhvi's argument of either deleting certain
words in Section 3(7) of the Insolvency Code, or adding
certain words in Section 3(23)(g) of the Insolvency Code into
Section 3(7) cannot be accepted.
65. It is clear from a reading of the Statement of
Objects and Reasons of the NHAI Act, that the development
and maintenance of national highways is a government
function that falls within Entry 23 of List I of the Seventh
Schedule to the Constitution of India. Further, under Section
5 of the National Highways Act, 1956, the Central
Government may direct that any function in relation to the
development or maintenance of national highways shall also
be exercisable by any officer or authority subordinate to the
Central 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 in, or read down, the definition of
'corporate person' in Section 3(7) of the Insolvency Code."
28. As we can gather from the above judgment, the
whole effort of the petitioners was to get a declaration
from the Hon'ble Supreme Court to the effect that even
Government Bodies or authorities, like NHAI come within
the ambit of Insolvency Code. Giving its reasons that this
cannot be done as a Government authority performs
statutory functions, this plea was rejected. At the same
time, it was held that many of the Companies who owe a
debt to the petitioner are Government Companies and
come within the definition of a "Corporate Person" and
"Corporate Debtor", as defined under Sections 3(7) and
3(8) of the Insolvency Code. The plea of the petitioner for
including certain words in the statute or deleting them was
also rejected.
29. To reiterate, the stand taken by Mr. K.N.
Choudhury, learned senior counsel for the petitioners is
that this finding of the Hon'ble Supreme Court that a
Government Company comes within the definition of
"Corporate Person" or "Corporate Debtor" is an obiter and
that was not the main issue decided by the Hon'ble
Supreme Court, and in any case it has been granted as a
concession and, therefore, can never be a part of the ratio
decidendi of the judgment.
30. All the same, when we examine the arguments of
the rival parties before the Hon'ble Apex Court, as we have
done in the preceding paragraphs, it cannot be said by any
stretch of imagination that a proposition was made by the
petitioners and the concession was granted by the learned
Solicitor General of India. Both the rival counsels were only
reading the provisions of law and both of them agreed that
Government Companies are included as a "Corporate
Person" or a "Corporate Debtor". This has the mark of
approval by the Hon'ble Supreme Court, not as a matter of
concession on a point, but an acceptance of a legal
proposition. The learned Solicitor General of India correctly
argued, as held by the Hon'ble Court, that the Government
Company, such as the three Government Companies which
were before the Hon'ble Apex Court, namely, NTPC, NHPC
and IRCON, come under the definition of "Corporate
Person" under Section 3(7) of the Insolvency Code and this
the Hon'ble Apex Court approved holding that to be the
correct legal position.
31. It is indeed true that a judgment is only an
authority 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
then defines what is a Government Company, i.e. a
Company where more than 51% shares are held by the
State or Central Government. All the same, even a
Government Company is also a company which is
incorporated under the Companies Act. The argument of
the learned senior counsel for the petitioners is that Section
3(23) of the Insolvency Code while defining a "Person"
states Company differently. It merely states "a Company"
and not a Company as defined under Section 2(20) of the
Companies Act. The definition under Section 3(23) of the
Insolvency Code of a "Person" is as follows:-
"(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."
33. It is indeed true that in Section 3(23) of the
Insolvency Code, "Person", inter alia, includes "a
Company", and it is true that here it is not specifically
stated a Company as defined under Section 2(20) of the
Companies Act, 2013. But that does not matter. Words
and phrases are always to be understood in the context
where they have been used. Even here "a Company"
would include a Government Company, in our considered
opinion.
34. Moreover, if the Legislature had deliberately omitted
certain words or definition from a Clause, it is not given to
the Court to include that in a statute. A Government
Company is a Company as defined under Section 2(20) of
the Companies Act and had the Legislature intended to
exclude Government Companies from the definition of a
"Corporate Person", it would have very well done that by
excluding "Government Companies" from the definition of
"Corporate Person" as it has been done in the case of
"Financial Service Provider". It is not a function of a Court
to supply the supposed omissions of the Legislature.
35. We may add that merely because 100% share
capital of the company are owned by the Central
Government which are in the name of the President of
India, does not make the company an agent of the
Government of India or an arm of the Central Government,
as is being suggested, i.e. at par with Government Bodies,
like NHAI. A company has a distinct identity of its own after
being incorporated as a company under the Companies
Act. An incorporated company has 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. The
government company is not identified with the Union but has
been placed under a special system of control and conferred
certain privileges by virtue of the provisions contained in
Sections 619 and 620 of the Companies Act. Merely because
the entire shareholding is owned by the Central Government
will not make the incorporated company as Central
Government."
37. Mr. K.N. Choudhury, learned senior counsel for the
petitioners has referred to a number of judgments
including a recent judgment of the Hon'ble Apex Court in
the case of Pawan Hans Limited & Ors. -Vs- Aviation
Karmachari Sanghatana & Ors., reported in (2020) 13
SCC 506, where a Government Company is seen not as an
ordinary Company but as something different, with more
responsibility where the Courts expect such a Company to
be a model employer where there is fairness in the
treatment of its workers, etc. There can never be a quarrel
on this proposition. These are all accepted principles now.
But as we have seen from the decisions given by the
Hon'ble Apex Court in the above two judgments, a
Company has its separate identity after being incorporated
as a Company under the Companies Act. 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, which is binding upon this Court. Accordingly, the
writ petition fails and is hereby dismissed.
38. Interim orders are hereby vacated. No order as to
costs.
JUDGE CHIEF JUSTICE
M. Sharma
Comparing Assistant
