Can NCLT initiate Insolvency Proceedings against Government Company, Bombay HC to decide [Read Order]

The Bombay High Court will decide if National Company Law Tribunal (NCLT) can initiate insolvency proceedings against Government Company under the Insolvency and Bankruptcy Code, 2016 (IBC)..In doing so, the High Court recently stayed proceedings against Hindustan Antibiotics Limited, a public sector Pharmaceutical Company before NCLT Mumbai Bench..A Division Bench of Justice SC Dharmadhikari and R I Chagla was hearing an interim application by the company seeking a stay on insolvency proceedings initiated by employees under section 9 of the Insolvency and Bankruptcy Code, 2016 (IBC)..The applicant Company also sought from Court to restrain respondent employees from taking further steps for recovering their alleged dues until the final disposal of the writ plea, which was filed by Hindustan Antibiotics in May this year. Moreover, in its application, Hindustan Antibiotics has claimed that Sections 3(8), 3(23), 7, 8, 9 and 238 of IBC are unfair, illegal, drastic, unreasonable and arbitrary and are in direct conflict with statutory provisions of Companies Act, 2013..The counsel for the Hindustan Antibiotics submitted that it is an entity under the direct control of the Central Government for administration, policy-making and all aspects dealing with the management and day to day affairs..Furthermore, the petitioner company had submitted before the NCLT that there are intricate, legal and constitutional issues involved and substantive plea challenging provisions of IBC, particularly, its applicability to Government Company or public sector entity is pending before the High Court..In this regard, it was argued that the composition and constitution of the company being peculiar, IBC ought not to be applied to the Hindustan Antibiotics..The Court noted, after perusing contentions, that the NCLT Bench comprising the Member (Judicial) and Member (Technical) were divided in their opinion since they could not agree on applicability of the Code. Thereafter, President of NCLT, Delhi nominated a third member (Judicial) of the Mumbai Bench to take up the matter..In this backdrop, the company had filed a writ plea before the High Court and argued that NCLT proceedings are without jurisdiction from inception and in light of the constitutional challenge, the NCLT could not have taken cognizance of the plea by employees..Senior Counsel Debabrata Ray Choudhari for Hindustan Antibiotics contended that the third member of NCLT is likely to retire by end of this month (December 2019)..“If in his haste, he passes an order, the entire petition before this Court could be rendered infructuous,” argued Choudhuri..On the other hand, the respondent employees argued that the company has committed a default in making payments along with interest. In this regard, it was submitted that they are admitted dues and the sum has not been paid by the Government Company..After perusing submissions and material on record, the Court refused to express an opinion on the maintainability of the proceedings before the NCLT..Moreover, the Division Bench noted that it cannot prevent the Government Company from proceeding with the writ plea irrespective of orders passed by the NCLT. It held that the Tribunal should not precipitate the matter and noted,. “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.” .Justice Dharmadhikari further noted that prima facie the issue is not concluded by the judgement in a case decided by the Supreme Court in Hindustan Construction Company Ltd. vs. Union of India relied on by the respondent employee..The Court went on to note that it needs to probe a little deeper with respect to the said judgement to decide whether it clinches the issue against the petitioner Hindustan Antibiotics..As a result, the Court held,.“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. It will suffer grave loss, irreparable harm and injury in the event the proceedings are concluded.”.Ultimately, the Division Bench proceeded to pass an interim order and ruled that there will be a stay on the proceedings in the plea filed by the employees before the NCLT Mumbai Bench until further orders..The Court also issued a notice to the Attorney General for India to argue on the constitutional validity of the provisions of IBC challenged by the employees. The Additional Solicitor General Anil Singh is likely to argue during the next hearing on January 22, 2020..Along with Senior Counsel Choudhuri, advocate DG Dhanure appeared for the petitioner company. Advocates K Katariya, Pooja Bhaidkar and Aagam D Joshi appeared for respondent employees..[Read Order dated December 6, 2019]