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A petition has been filed in the Supreme Court challenging the validity of Section 327(7) of the Companies Act, 2013.
A Bench of Chief Justice of India, Ranjan Gogoi and Justice Sanjiv Khanna issued notice to the Central government last week.
The petition has been filed by Karamchari Union of Moserbaer India Ltd., a registered Trade Union.
It is the petitioner’s case that the legitimate dues of its members like gratuity, provident fund and pension and severance compensation are being denied by the liquidator of the Moser Baer India citing Section 327(7) of the Companies Act, 2013.
Section 327 of Companies Act, 2013 was amended in 2016 and sub-section (7) was introduced vide notification No. 3453 (E).
Sub-section (7) of Section 327 bars the application of Section 326 and Section 327 Companies Act, 2013 in the event of liquidation under the Insolvency and Bankruptcy Code (IBC)
Thereby, it effectively renders Explanation (II) to Section 53 of the IBC meaningless and otiose.
The said Explanation in IBC defines workmen’s dues and it specifically states that it shall adopt the definition from Section 326 of Companies Act, 2013 which is pari materia to Section 529 (A) of Companies Act, 1956.
However, with the application of Section 326 excluded by Section 327(7), a void is created insofar as the definition of “workmen’s dues” is concerned.
“Section 327 (7) renders the meaning of the Explanation (II) to Section 53 of the Code meaningless and otiose, as Section 327(7) bars the application of Section 326 and Section 327 Companies Act, 2013 to the proceedings under the Code….
The explanation defined workmen’s dues and it is specifically stated that it shall adopt the definition from Section 326 of Companies Act, 2013 which is pari materia to Section 529 (A) Companies Act, 1956. It is pertinent to mention that the term workmen’s dues are not defined anywhere in the Insolvency and Bankruptcy Code apart from this explanation, therefore, this exclusion clause of the impugned sub-section creates an embargo on the grant of statutory rights of workmen when the company goes into liquidation…
The IBC Code of 2016 is subsequent to Companies Act, 2013 and by application of Section 327(7) which was brought in vide notification dated 15.11.2016, a void has been created because this sub-section withdraws the application of Section 326 and 327 to the proceeding under IBC.”
Therefore, by not defining “Workmen Dues” in the IBC itself and also by debarring the application of Companies Act, a void has been created, with respect to the definition of workmen dues under the IBC. On the other hand, by excluding the applicability of Companies Act, especially Sections 326 and 327 from the proceedings under the Code, it has created an ambiguity as it fails to define as to what will constitute “Workmen’s Dues” under the IBC.
This the petitioner claims, is a violation of their right to livelihood under Article 21 of the Constitution as it denies the workmen their legitimate dues for the services rendered in the company for a long period of time.
“It, thereby, denies the workmen their legitimate dues for the services rendered in the company for a long period of time, which runs contrary to the concept to Right to Livelihood enshrined under Article 21 of the Constitution of India.”
The petitioner has, therefore, prayed for striking down section 327(7) of the Companies Act.
They have also prayed for a direction to leave the statutory claims of the “workmen’s dues” out of the purview of waterfall mechanism under Section 53.
The Court issued notice to the Central government and Moser Baer India.
Advocates Swarnendu Chatterji, Shriya Maini and Pallavi Pratap appeared for the petitioner.
Read the petition and order below.