NCLAT (03.08.2021) in Asset Reconstruction Company (India) Limited Vs. Mohammadiya Educational Society & Anr. [Company Appeal (AT) (Insolvency) No. 495 & 496 of 2019] held that;
Even if the Appellant was to say that the Respondents should be treated as body corporate under Section 18 of the A.P. Act, nothing is shown that Respondents Societies are persons “incorporated” or that the incorporation is with “limited liability”. This has to be further read with Section 2(d) which requires that to apply the Code such other body incorporated under any law for the time being in force needs to be specified by Central Government only then ‘I&B Code’ would apply to it.
Thus, reading Section 2 which prescribes the entities and individuals to which the ‘I& B Code’ applies when considered with definition of ‘corporate person’ under Section 3(7) of the ‘I&B Code’, the Respondents i.e. Societies cannot be said to be ‘corporate persons’ to whom the provisions of the Code applies.
Excerpts of the order;
# 1. This Appeal has been filed by the Appellant- ‘Asset Reconstruction Company (India) Limited’ against impugned order dated 26th March, 2019 passed by the Adjudicating Authority (National Company Law Tribunal, Hyderabad Bench, Hyderabad) in CP(IB) No. 644/7/HDB/2018. The Application under Section 7 of the Insolvency and Bankruptcy Code, 2016 (“I&B Code” for short) was filed against the Respondent- ‘M/s. Mohammadiya Educational Society’ claiming that the Respondent is Corporate Debtor. The Adjudicating Authority in the impugned order held that the Respondent is not a body corporate and dismissed the Petition. Hence, the Appeal.
# 4. The Application under Section 7 of the ‘I&B Code’ was filed claiming that the Respondent was in default of amount as mentioned in the Application. It was claimed that the Respondent is a Society governed by the special enactment called ‘AP Societies Registration Act, 2001’ (“A.P. Act” for short) and that as per Section 18 of the said Act, the Registration of a Society shall render it a body corporate by the name under which it is registered having perpetual succession and a common seal. The Appellant thus claimed that the Respondent is governed by the definition of ‘Corporate Person’ under Section 3(7) of the ‘I&B Code’ and the Application was maintainable. Before the Adjudicating Authority, the Respondent- Society claimed that it is a Society registered under the Societies Registration Act, 1860 (XXI of 1860) (“1860 Act” for short) and that it does not fall under the purview of Section 2 of the ‘I&B Code’. The Respondent claimed that it is not a body corporate and remains unincorporated body. The Respondent also claimed that Section 18 of the ‘A.P. Act’ confers the status of a body corporate for such Societies registered thereunder and that the status of Body Corporate was not afforded to Societies registered under ‘1860 Act’. The Respondent relied before the Adjudicating Authority on the judgment rendered by Hon’ble High Court of Andhra Pradesh in WP No. 488 of 2006 between “Satyadeva Sannakaru Rythu Sangham vs. The State of Andhra Pradesh” dated 12th August, 2011.
# 5. The Adjudicating Authority heard the parties and took up the issue whether the Application under Section 7 of the ‘I&B Code’ was maintainable and discussed and held, as follows:-
“9. It is not in dispute that the Respondent is a society registered under Act XXI of 1860. The provisions of the AP Societies Registration Act, 2001 shall be Applicable to the Societies that are registered thereunder. As rightly pointed out by the Respondent the Judgment Cited Supra stands in their favour more particularly para 32 of the said Judgment read as follows:-
- “32…….It is only under Section 18 of the AP Societies Registration Act, 2001 that a Society registered there under is conferred the status of a body Corporate having perpetual succession and a Common seal. This status however was not afforded to societies registered under the Act of 1860.”
10. In view of the above dictum, it is held that the Respondent is not a body Corporate and hence, the Present Petition is not maintainable under IB Code.
11. In the Result, this Company Petition is dismissed as not maintainable. No order as to costs.”
# 19. The question is whether Section 2 would apply to such Society even if it is accepted to be deemed body corporate. If Section 2 is considered, it lays down that the provisions of the ‘I&B Code’ shall apply to entities and individuals as mentioned in this Section.
(a) Section 2(a) shows that the Code applies to any “company” incorporated under the Companies Act, 2013 or under any previous company law. Admittedly, the Respondents are not Companies incorporated under the Companies Act, 2013 or under any previous company law.
(b) Section 2(b) provides that the Code applies to any ‘other company’ governed by any special Act for the time being in force, except in so far as the said provisions are inconsistent with the provisions of such special Act. Even if the best case of the Appellant is accepted, the Respondents can be said to be Societies which are deemed to be ‘body corporate’. It cannot be said that it is “Company” incorporated by the Special Act. Section 18 of the A.P. Act does not say that the Society would be deemed to be Company incorporated under the A.P. Act.
(c) Section 2(c) provides that the Code shall apply to any Limited Liability Partnership incorporated under the Limited Liability Partnership Act, 2008. Admittedly, the Respondents are not Limited Liability Partnership.
(d) Section 2(e) provides that the Code shall apply to personal guarantors to corporate debtors and Section 2(f) applies to partnership firms and proprietorship firms and Section 2(g) applies to individuals, other than persons referred to in clause (e). Undisputedly, the Respondents are neither personal guarantors to Corporate Debtor or partnership firms or proprietorship firms or any individuals other than persons referred to in clause (e) of Section 2.
# 20. Section 3(7) defines “corporate person” and even if this definition is considered, the Respondents are not Companies defined in clause 2(20) of the Companies Act, 2013 or “limited liability partnership” as defined under the Limited Liability Partnership Act, 2008 or any other person incorporated with limited liability under any law for the time being in force. Even if the Appellant was to say that the Respondents should be treated as body corporate under Section 18 of the A.P. Act, nothing is shown that Respondents Societies are persons “incorporated” or that the incorporation is with “limited liability”. This has to be further read with Section 2(d) which requires that to apply the Code such other body incorporated under any law for the time being in force needs to be specified by Central Government only then ‘I&B Code’ would apply to it.
# 21. Thus, reading Section 2 which prescribes the entities and individuals to which the ‘I& B Code’ applies when considered with definition of ‘corporate person’ under Section 3(7) of the ‘I&B Code’, the Respondents i.e. Societies cannot be said to be ‘corporate persons’ to whom the provisions of the Code applies.
# 26. Referring to the above judgments, the Learned Counsel for the Appellant stated that in the matter of “Satyadeva Sannakaru Rythu Sangham” in para 32 reproduced supra, the effect of Section 32 of the A.P. Act was not considered. It is explained that although the Respondents who are registered under the 1860 Act, the 1860 Act stood repealed and acts done under the 1860 Act need to be treated as done under the A.P. Act now applicable.
# 27. Against this, the Learned Counsel for the Respondents has relied on judgment in the matter of “Illachi Devi v. Jain Society, Protection of Orphans India” [(2003) 8 SCC 413]. That was a matter where the issue before the Hon’ble Supreme Court was whether a society registered under the Societies Registration Act, 1860 is entitled to obtain Letter of Administration under Section 236 of the Indian Succession Act. In that context, the Learned Counsel for the Respondents referred to paras 21 to 26 & 31 which reads as under:-
“21. A Society registered under the Societies Registration Act is not a body- corporate as is the case in respect of a company registered under the Companies Act. In the view of the matter, a Society registered under the Societies Registration Act is not a juristic person. The law for the purpose of grant of a probate or Letter of Administration recognises only a juristic person and not mere conglomeration of persons or a body which does not have any statutory recognition as a juristic person.
22. It is well known that there exists certain salient differences between a society registered under the Societies Registration Act, on the one hand, and a company corporate, on the other, principal amongst which is that a company is a juristic person by virtue of being a body corporate, whereas the society, even when it is registered, is not possessed of these characteristics. Moreover, a society whether registered or unregistered, may not be prosecuted in criminal court, nor is it capable of ownership of any property or of suing or being sued in its own name.
23. Although admittedly, a registered society is endowed with an existence separate from that of its members for certain purposes, that is not to say that it is a legal person for the purposes of Sections 223 and 236 of the Act. Whereas a company can be regarded as having a complete legal personality, the same is not possible for a society, whose existence is closely connected, and even contingent, upon the persons who originally formed it. Inasmuch as a company enjoys an identity distinct from its original shareholders, whereas the society is undistinguishable, in some aspects, from its own members, that would qualify as a material distinction, which prevents societies from obtaining letters of administration.
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26. Vesting of property, therefore, does not take place in the Society. Similarly, the society cannot sue or be sued. It must sue or be sued through a person nominated in that behalf.
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31. A bare perusal thereof would show that a society registered under the Societies Registration Act as contra-distinguished from a company registered under the Company Act cannot sue in its own name. It is to be sued in the name of the president, chairman, or principal secretary or trustees as shall be determined by the rules and regulations of the society or in the name of such person as shall be appointed by the Government Body for the occasion in default of such determination. It is, therefore, not correct to contend that it is capable of suing or being sued in its own name.”
# 31. It does not appear that when this judgment in the matter of “Illachi Devi” (supra) was passed in 2003, the A.P. Act of 2001 was noticed. Section 18 of the A.P. Act appears to have attempted to meet the requirements expressed by Hon’ble Supreme Court (Para 53) in the matter of “Illachi Devi”. What appears from reading of Section 18 of the A.P. Act is that the registration of a Society shall render it a body corporate by the name under which it was registered having perpetual succession and a common seal. Thus, although the Society is not incorporated and it is registered, it is rendered a body corporate which can have perpetual succession and have a common seal. Section 18 makes it clear that as the Society will be rendered body corporate, it shall be entitled to acquire, hold and dispose of property, to enter into contracts, to institute and defend suits and other legal proceedings and to do all other things necessary for the furtherance of the aim for which it was constituted. The Learned Counsel for the Respondents has rightly submitted that even if best case of the Appellant is accepted, the Society which will be deemed to be a body corporate is for the purposes as mentioned in Section 18, and not Company incorporated as such.
# 32. We need not deliberate in more detail on the effect of Section 18 of the A.P. Act for the reasons we have already discussed above.
Looked at in any manner, Section 2 read with Section 3 (7) does not spell out that the Respondents Companies in these Appeals are ‘Corporate Persons’ under the ‘I&B Code’ to whom provisions for ‘I&B Code’ would apply.
# 33. For such reason, we do not find any substance in these Appeals. For reasons mentioned above:
(a) Company Appeal (AT) (Insolvency) No. 495 of 2019 is dismissed. No order as to costs
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