2018 (1) TMI 953 - HC - Insolvency and Bankruptcy

Court Upholds Validity of Section 4(b) in Repeal Act, Dismisses Challenge to Constitutionality

M/s ATV Projects (India) Ltd. Versus Union of India & Ors.

The court upheld the validity of Section 4(b) of the Sick Industrial Companies (Special Provisions) Repeal Act, 2003, dismissing the writ petition ... Constitutional validity of Section 4(b) of the Sick Industrial Companies (Special Provisions) Repeal Act, 2003 - grievance of the petitioner is that its scheme, which was pending before BIFR, was at a very advanced stage and was almost on the verge of acceptance, a day prior to the notification of the Repeal Act - Held that:- Once a law is repealed and a new legislation has been put in its place, it is not open for anyone to contend that it should be continued to be governed by the old enactment, except where actions under the existing laws had concluded. The applicability of the repealed legislation is only to the extent as provided in the Savings clause and nothing more. Under the newly enacted Section 4(b) there are only two classes of persons, namely (i) those persons in whose cases schemes were sanctioned and (ii) those persons in whose cases the schemes were pending. In the former, there are two sub-classes namely; - schemes which were required to be implemented, where the NCLT could be approached and - schemes where appeals were yet to be filed by the party aggrieved, where the NCLAT could be approached. In the latter class of cases, there is only one remedy i.e. to approach the NCLAT within a period of 90 days. To this, there could be no quarrel. The broad classification of cases where schemes are sanctioned and not sanctioned is intelligible as both would be governed by the Code including the implementation, supervision and appeals arising therefrom. Thus, there is no discrimination whatsoever. The second proposition that the Petitioner has a ‘legitimate expectation’ does not have any legal basis, inasmuch as the right of the Petitioner to approach the appropriate forum has not been taken away. The Petitioner was provided with the remedy to approach the NCLT within a period of 180 days. In law, there could not be a legitimate expectation to be governed by the repealed enactment when the manifest intention of the Legislature is to completely replace the said enactment with a new insolvency regime. By operation of law, the forum which the Petitioner can approach has been changed and a remedy was thus available to the Petitioner. On a query as to why the Petitioner chose not to approach the NCLT, the response was that the Petitioner wanted to be governed by the repealed Act, i.e., SICA and not in accordance with the Code as provided for under Section 4(b). Such a submission lacks any legal basis and is liable to be rejected. Thus the validity of Section 4(b) is upheld and the writ petition is dismissed. Issues Involved:1. Constitutional validity of Section 4(b) of the Sick Industrial Companies (Special Provisions) Repeal Act, 2003.2. Right to appeal and vested rights.3. Legitimate expectation to be governed by the repealed enactment.Detailed Analysis:1. Constitutional Validity of Section 4(b):The petitioner challenged the constitutional validity of Section 4(b) of the Sick Industrial Companies (Special Provisions) Repeal Act, 2003 (Repeal Act). The court referred to a similar case, Ashapura Minechem Ltd. v. Union of India, where the challenge to Section 4(b) was rejected. The court held that the findings in Ashapura were equally applicable to the present petition, thereby upholding the validity of Section 4(b).2. Right to Appeal and Vested Rights:The petitioner argued that the abatement of proceedings under Section 4(b) resulted in severe injustice, as their scheme was at an advanced stage before the BIFR. They contended that their right to appeal, a vested right, was taken away by the Repeal Act, violating Articles 14 and 19 of the Constitution. The court examined precedents, including Hoosein Kasam Dada (India) Ltd. v. State of M.P. and Garikapati Veeraya v. N. Subbiah Choudhry, which established that a vested right to appeal can only be taken away by express enactment or necessary implication. The court concluded that the Repeal Act and the Insolvency and Bankruptcy Code, 2016 (Code) clearly manifested the intention to abate proceedings under the Sick Industrial Companies (Special Provisions) Act, 1985 (SICA), thereby taking away the right to appeal.3. Legitimate Expectation to be Governed by the Repealed Enactment:The petitioner claimed a legitimate expectation to be governed by SICA, arguing that relegating their case to the NCLT under the Code resulted in injustice. The court held that legitimate expectation could not override the manifest intention of the Legislature to replace the old insolvency regime with the new Code. The court emphasized that the petitioner had the remedy to approach the NCLT within 180 days, and their choice not to do so lacked legal basis.Findings in Ashapura Minechem Ltd. v. Union of India:The court reiterated the findings in Ashapura, stating that the differentiation between sanctioned schemes and pending schemes does not violate Article 14. The classification was deemed valid, germane, and realistic, with the cut-off date of 1st December 2016 being neither arbitrary nor illegal. The court emphasized that the Repeal Act and the Code provided a clear remedy for pending cases to approach the NCLT within 180 days.Conclusion:The court upheld the validity of Section 4(b) of the Repeal Act and dismissed the writ petition. The petitioner was advised to avail the remedy under the Code, with the possibility of condonation of delay if permissible in law. The court concluded that the petitioner's arguments lacked legal basis and did not warrant any deviation from the established legal framework.