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April 16, 2019

Petition filed challenging Section 327(7) of Companies Act


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A petition has been filed by the Karamchari Union of Moserbaer India Ltd., a registered Trade Union, challenging the validity of Section 327(7) of the Companies Act, 2013.

The petitioner’s case is that the legitimate dues of its members such as gratuity, provident fund and pension and severance compensation are being denied by the liquidator of Moser Baer India, citing Section 327(7) of the Companies Act, 2013.

In 2016, Section 327 of the Companies Act, 2013, was amended and sub-section (7) was introduced vide notification No. 3453 (E), barring application of Section 326 and 327 of the Companies Act, 2013, in case of liquidation under the Insolvency and Bankruptcy Code (IBC). Thereby, Explanation (II) to Section 53 of the IBC is effectively rendered meaningless and otiose. Defining workmen’s dues, the said Explanation in the IBC specifically states that it will adopt the definition from Section 326 of the Companies Act, 2013 which is pari materia to Section 529 (A) of the Companies Act, 1956. However, a void is created insofar as the definition of workmen’s dues is concerned with the application of Section 326 excluded by Section 327(7).

On the other hand, by excluding the applicability of the Companies Act, especially Sections 326 and 327 from the proceedings under the Code, it has created ambiguity as it fails to define what will constitute “Workmen’s Dues” under the IBC. According to the petitioner, this is a violation of their right to livelihood under Article 21 of the Constitution as it denies workmen their legitimate dues for the services rendered in the company for a long period of time.

Hence, the petitioner has prayed that Section 327(7) of the Companies Act be struck down.

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