Smt. Sudipa Nath vs Union of India
WP(C) (PIL) 04 of 2023
Facts:
1.Petitioner filed application under Article 226 of Constitution of India for issuance of a writ of Mandamus and/or in the nature thereof to issue appropriate orders or direction, directing the respondent to forthwith take steps to declare Section 66(1) of the Insolvency and Bankruptcy Code, 2016 as ultra vires on the vice of Article 14 of the Constitution of India for being manifestly arbitrary and unconstitutional or to save it from from unconstitutionality and in consonance with the scheme and object of IBC, scope thereof is enlarged by this Hon’ble Court by expanding the powers and jurisdiction of the NCLT.
Issue: Whether Writ of Mandamus can be issued declaring section 66 of the Code as ultra vires on the vice of Article 14 of the Constitution or writ of mandamus can be issued expanding the power of NCLT ?
Arguments:
Petitioner:
1.Petitioner contended the frauds of gigantic proportion are being played by the corporate to defraud the gullible creditors to siphon off public money. He contended that introduction of Insolvency Bankruptcy Code (IBC) itself is in public interest. According to him, grant of the prayer made by him would serve public interest and would enable maximum recoveries under IBC for the creditors of a corporate debtor.
2.Petitioner submitted that although broadly Section 339(1) of the Companies Act, 2013/Section 542 of the Companies Act, 1956 may appear to be pari materia to Section 66(1), there is clear distinction in the application of the provisions and the scheme under the Companies Act vis a vis IBC.
3.It was further submitted that there is urgent need of passing appropriate directions as prayed for by him in the interest of justice. The prayers if granted would strengthen the framework for insolvency & bankruptcy.
Decision: Section 66 of the Code is not ultra vires to Article 14 of the Constitution.
Rationale:
1.Hon’ble Court noted that Under the Companies Act, 2013 or 1956, the application under Section 339(1) or Section 542 as the case may be would be filed only in the course of the winding up of company. However, an application under Section 66(1) of IBC can be filed during the corporate insolvency resolution process or a liquidation process. Corporate Insolvency Resolution Process (CIRP) having been introduced laid down vide IBC, the legislature has consciously extended the application of the provisions even to the matters during corporate insolvency resolution process, instead of restricting it during the liquidation process
2.It relied on various judgments and held that Section 339 or Companies Act, 2013 and pari material, the provisions of section 542 of Companies Act, 1956 was aimed at conferring jurisdiction in the course of winding up of company to proceed against the persons responsible for fraudulent conduct of the business of the company. Both these provisions were aimed at making such persons personally liable for such fraudulent trading to recouping losses incurred thereby and to relief the company of the liabilities incurred by fraudulent trading.
3.That Section 66(1) also directed towards making such persons personally liable for such fraudulent trading to recouping losses incurred thereby and to provide that the NCLT can pass order holding such persons liable to make such contributions to the assets of the corporate debtor as it may deem fit. No power has been conferred on NCLT to pass such orders against other organizations/legal entities (other than corporate debtors) with whom such business was carried out against any person responsible in such other organizations/legal entities for carrying on business with corporate debtor.
4.Any application under section 66(1) will have no effect on legality or validity of any independent criminal action in accordance with law against such organization/legal entities and persons responsible for conduct of their business with corporate debtor. There is no arbitrariness, matchless manifest arbitrariness in section 66(1) of IBC to entertain the instant petition to declare the said provisions as ultra vires of Article 14 and unconstitutional as alleged or otherwise.
Order Copy:
