Constitutionality of Section 327 (7) of the Companies Act, 2013 challenged; SC issues notice

Supreme Court: The bench of Ranjan Gogoi, CJ and Sanjiv Khanna, J has issued notice to the Centre in a writ petition challenging the Constitutional validity of Section 327 (7) of the Companies Act, 2013 qua Section 53 of the Insolvency and Bankruptcy code, to the extent that Section 327 (7) renders the meaning of the Explanation (II) to Section 53 of the Code meaningless.

The petition was filed by a group of workmen comprising the Moser Baer Karamchari Union. Swarnendu Chatterjee and Shriya Maini, the advocates appearing for the Union argued before the Court that since Section 327(7) bars the application of Section 326 and Section 327 Companies Act, 2013 to the proceedings under the Code, it 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 Union also submitted that the Legislation undertaken for the benefit of the labour or workmen cannot be so construed so as to prejudiced the right and welfare of the labour. It would be an illegitimate method of interpretation of a statute or any provision whose dominant purpose is to protect the workmen. The petition read,

“The present provision; Section 327 (7) of the Companies Act, 2013 creates an artificial embargo by ousting the application of Section 326 of Companies Act, 2013 to the proceedings under IBC, 2016 which results in exclusion of “Workmen Dues” which results in violation of Right to Livelihood as the statutory dues which are rights of every employee/workmen gets denied.”

It was argued that “by not defining “Workmen Dues” in the Code itself and also by debarring the application of companies Act by the impugned Section, a void has been created, with respect to the definition of workmen dues under the Insolvency and Bankruptcy Code, 2016.  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 Code, being in stark violation of Article 21 of the Constitution.”

The petition stated,

“when Legislature in its wisdom has categorically mentioned that the definition of workmen dues will be taken/borrowed/shall have the same meaning as defined in Section 326 of the Companies Act, 2013, Section 327(7) frustrates the object and purpose of the explanation (II) which results in conflict between two central statutes and ultimately results in denial of statutory dues of the workmen such as gratuity, pension, provided fund and all other wages and salaries which have been guaranteed under Section 326 of the Companies Act, 2013, in effect rendering the Companies Act and its applicability to the Code to a level of a mere rubber stamp. Such denial in effect actually frustrates the social welfare aspect of the beneficial provision which results in denial of hard earned money and welfare rights of the workmen guaranteed under Article 21 of the Constitution.”