India: NCLT Hyderabad Upholds Supreme Court's Stance Regarding Statutory Bodies Under The IBC

Introduction:

The National Company Law Tribunal, Hyderabad Bench ("NCLT") in the matter of M/s. Akash Electrotek Engineers Pvt. Ltd. v. M/s. NCC Limited and Anr¹, dismissed the petition filed by the Operational Creditor under Section 9 of the Insolvency and Bankruptcy Act, 2016 ("IBC") for the alleged default by the Airport Authority of India ("AAI"), reiterating that proceedings under the IBC cannot be initiated against a statutory body.

Factual Matrix and Arguments:

AAI had awarded a contract for the electrical work at Lucknow Airport to NCC Limited, Respondent No. 1. NCC Limited, in turn, appointed the Petitioner to complete the aforesaid work vide a tripartite agreement. Under the tripartite agreement, NCC Limited was obligated to make payment to the Petitioner upon completion of the aforesaid work. Subsequently, AAI, in its efforts to privatize airports, handed over the future management, construction, and development of Lucknow Airport to Adani Group, the successful bidder of the public bid made by AAI.

The Petitioner claimed that it had completed 95% of the total work assigned to it by NCC Limited, however, its invoices were not settled by NCC Limited or even AAI, including Adani Group, which had the responsibility to do the same in case NCC Limited failed to do so. AAI defended the initiation of CIRP citing that it is a statutory body and thus did not qualify as a corporate person under Section 3(7) of the IBC.

Summary of the Judgment:

The NCLT, while relying on the definition of a 'corporate person' under Section 3(7) of the IBC held that AAI does not come under the definition of a corporate person as it is a statutory body. Thus, no CIRP proceedings under the IBC could be initiated against it.

Views:

The NCLT has followed the Supreme Court ruling of Hindustan Construction Company Limited & Anr. v. Union of India & Ors.² which summarily observed that a statutory body cannot be proceeded against under the IBC by including it under Section 3(7) of the IBC.

Since statutory bodies function as an extended limb of the Central Government and perform governmental functions, they cannot possibly be taken over by a resolution professional or wound up under the IBC. Therefore, the NCLT's decision to follow the Supreme Court's stance on the exemption of statutory bodies from proceedings under the IBC serves as a vital safeguard for protecting the structural essence and regular functioning of statutory bodies.

Footnotes

1. CP(IB) No. 66/09/HDB/2022.

2. Hindustan Construction Company Limited & Anr. v. Union of India & Ors., AIR 2020 SC 122.

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