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Bombay HC To Decide Whether IBC Can Be Invoked Against Govt. Owned Companies [Read Order]

Nitish Kashyap
11 Dec 2019 2:05 PM GMT
Bombay HC To Decide Whether IBC Can Be Invoked Against Govt. Owned Companies [Read Order]
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In a significant ruling, the Bombay High Court last week stayed proceedings before the National Company Law Tribunal, Mumbai in a company petition filed by a retired employee of Hindustan Antibiotics, the first public sector drug manufacturing company set up by the Government of India.

A division bench of Justice SC Dharmadhikari and Justice RI Chagla were hearing an interim application moved by Hindustan Antibiotics challenging the vires of Insolvency and Bankruptcy Code in a writ petition filed by them against the proceedings before NCLT under Section 9 of IBC.

The court observed that High Court not NCLT can decide the challenge raised against the constitutional validity of IBC.

In the said application, petitioners sought a declaration that Section 3(8), Section 3(23) and Section 238 and also Sections 7, 8 & 9 are unfair, illegal, drastic, unreasonable and arbitrary and are in direct conflict with statutory provisions of Companies Act, 2013 and they are also violative of Article 14 of the Constitution of India so far as "Government companies" are concerned and therefore the same are required to be declared as ultra vires, invalid, null and void.


Petitioner company had also sought a stay on all recovery proceedings initiated against them. They had argued before NCLT that M/s.Hindustan Antibiotics Ltd. is a Government of India enterprise and government company under the control and supervision of Department of Pharmaceuticals, Ministry of Chemicals and Fertilisers, Government of India, thus IBC ought not to apply to the petitioner company.

Initially, the bench that was hearing the case comprised of a Judicial Member and a Technical Member, was divided in their opinion. They could not agree on the applicability of the Code. Thereafter, they requested the President of NCLT, New Delhi, by order dated July 16, 2019 to take appropriate steps including referring the matter to a third member. Thereafter, a third member (Judicial) was nominated to take up the matter.

Senior Advocate D Ray Choudhuri appeared on behalf of the petitioner company. He expressed his apprehension that all these proceedings are totally without jurisdiction from the inception and particularly in the light of the constitutional challenge, the NCLT could not have taken cognizance of the application.

The matter now stands referred to a third member. He is likely to retire by the end of this month (December 2019). If in his haste, he passes an order, the entire petition before this Court could be rendered infructuous, Choudhuri said.

On the other hand, K Katariya appeared on behalf of the retired employee of Hindustan Antibiotic who filed the company petition before NCLT. He submitted that the petitioner has committed a default in making a payment of Rs.17 lakh (approx.) along with interest to his client upon retirement. The employee was employed with the petitioner for more than 25 years and yet the company failed to pay the dues claimed by him, Kataria argued.


After examining the submissions and contentions advanced by both parties, the Court observed-

"We would not wish to express any opinion on the maintainability of all the proceedings before the NCLT.

We do not think that the National Company Law Tribunal should precipitate the matter when a constitutional challenge is pending before this Court. None can dispute that it is only this Court which can deal with the challenge raised to the constitutional validity of the provisions of the IBC. That the NCLT exercises the jurisdiction conferred on it by the IBC is undisputed. That such an issue with regard to the constitutional validity of the provisions of the IBC, therefore, cannot be decided by the National Company Law Tribunal which is but a creature of the IBC."

The bench further noted-

"For all these reasons, we do not think that the NCLT would be well advised in proceeding with the matter. We think that the petitioner has made out a strong prima facie case for grant of interim relief and balance of convenience is also in its favour."

Staying the proceedings before NCLT, Court issued a notice to the Attorney General of India seeking a response on the specific contention that provisions of IBC are ultra vires to the constitution of India.

Click here to download the Order

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