TaxTMI 
TaxTMI 
2021 (9) TMI 89
X X X X Extracts X X X X
X X X X Extracts X X X X
.... : 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....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ement 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 (I....
X X X X Extracts X X X X
X X X X Extracts X X X X
....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 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 passe....
X X X X Extracts X X X X
X X X X Extracts X X X X
....nership 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....
X X X X Extracts X X X X
X X X X Extracts X X X X
....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 ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....dule 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 b....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... 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 "wit....
X X X X Extracts X X X X
X X X X Extracts X X X X
....graphs 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, s....
X X X X Extracts X X X X
X X X X Extracts X X X X
....unctions, 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....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... 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 intend....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ned 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 Hindu....