TaxTMI 
TaxTMI 
2017 (12) TMI 1106
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....16, Notification No. S.O. 3569 (E) dated 25th November, 2016 and Notification No. S.O. 1683 (E) dated 24th May, 2017. 3. The Petitioner is a company engaged in mining, processing, 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 Consequently, the SIC Act was repealed and ceased to be operative and proceedings under the SIC Act before the BIFR abated. 6.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 Section 4(b) of the Repeal Act as originally enacted was as under:- "4.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,....
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....de or inquiry pending to or before the Board or any proceeding of whatever nature pending before the 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).- ....
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....en regarding review or monitoring of the schemes sanctioned under sub-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....
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....vival and rehabilitation 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 ther....
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....er 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 and DRT as the Ad....
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....ents. 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. There are no exceptions. 19. Section 5(1)(d)....
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....) 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 provisions would apply. Fourth proviso would come into op....
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....sumed 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 does not apply to others. Thus, so long as the classification is base....
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....en 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 themselves. 30. The subsequent Notification S.O. 1683(E) dated 24th May, 2017, which has also be....
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....ual 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 question of challenge to constitution of Special Courts on the ground of discrimination and inequality violating Article 14, has held that the S....
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.... 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 of the Government power to differentiate, distinguish and classify persons or things on the question of Article 14 and the principle underlying, observed as under: "72. ....
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....e 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 who should be regarded as a class for purposes of legislation and in relation to a law enacted on a particular subject. This power, no doubt, in some degree is likely to produce some inequality; but if a la....
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....bject-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. Discretionary power is not necessarily a discriminatory power. (11) Classification necessarily implies the making of a distinction or discrimination between persons classified and those who are not members of that class. It is the es....
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....its 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 legislation i.e. SIC Act. This is a mandate of the third proviso to clause (b) of Section 4 of the Repealed Act, enacted as a consequence of power conferred under Section 252 of the Code. The intent and object of Clause (b) to Section 4 of the Repeal Act includ....
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....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 are in place. Economic and financial considerations etc. also have a role to play. The government must be given free play in the joints and judicial restraint is well advised and must be adhered to. 43. Thus whether legislature fixes a cut-off date or leaves it to the e....
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....mployees 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 not arbitrary or whimsical so long as the classification is based on intelligible differentia. 46. Earlier in Union of India & Anr. Vs. Parameswaran Match Works & Ors. 1975 (1) SCC 305, the Supreme Court upheld the date specified for purpose of classification observing: "10. In the matter of grant....
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....nded 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, 2013. 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 the Code reads:- "252. Amendments of Act 1 of 2004. - The Sick Industrial Companies (Special Provisions) Repeal Act, 2003 shall be amended in the manner specified in the Eighth 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....