Writ Petition Not Maintainable Against Private Bodies Under Insolvency Unless It Be In Discharge Of Public Duties: Allahabad High Court

Recently, the Allahabad High Court has held that a writ petition under Article 226 of the Constitution of India is not maintainable against a private company under insolvency in a contractual dispute unless it be the breach of some law or a statutory rule.

“The interim Resolution Professional just represents the Company and in no way changes its character or the rights relating to the contact of employment inter se the petitioner and the Company. The dispute between the petitioner and the Company about the petitioner resigning and walking away, without handing over charge, arises out of the contract of employment. The Company being essentially a private body and no face or establishment of the State, a breach of the contract of employment, either by the petitioner or the Company, unless it be the breach of some law or a statutory rule, would not entitle the petitioner to maintain a writ petition under Article 226 of the Constitution,” held Justice J.J. Munir.

Factual Background

The respondent-company is in the business of the construction of Public Roads, State Highways and National Highways for State and Central Governments on a contractual basis. Petitioner was hired and subsequently promoted to the position of Associate General Manager(Accounts and Finance) and has been posted at Varanasi since 2015. His division was responsible for the construction of the National Highway, 56 and 233, in Varanasi.

On being insolvent, respondent-company filed an application under Section 7 of the Insolvency and Bankruptcy Code, 2016 before the NCLT, Hyderabad Bench. The process of initiation of Corporate Insolvency Resolution began on 15.11.2022 and an Interim Resolution Professional was hired. A public announcement was issued under Regulation 6 of the Insolvent and Bankruptcy Code and the creditors were called upon to submit their claims on or before 01.12.2022 to the Interim Resolution Professional.

Petitioner pleaded that being dissatisfied with the conduct of the Senior Vice-President of Projects of the Company, submitted his resignation via email on 13.05.2023. He gave a notice of a month's period with the same. On 12.06.2023, at the end of the said notice period, the petitioner said that he handed over his duties to the relevant authority. Petitioner claimed that he was not issued a relieving certificate, a no-dues certificate, payment of the his gratuity and arrears of salary for the period May 1st to June 14th, 2023.

Since he did not receive any response to multiple emails written to the company, he filed a writ petition before the High Court.

Counsel for respondent raised a preliminary objection on the maintainability of the writ petition as the company was not “State” under Article 12 of the Constitution of India. it was further submitted that the presence of the petitioner was essential for the insolvency process and he had deserted the company without handing over the responsibilities and completing the required formalities as per the law.

High Court Verdict

The Court relied on Binny Ltd. and Anr. v. V. Sadasivam and Ors. where the Supreme Court held that power of judicial review under Article 226 of the Constitution of India regarding contractual disputes of public bodies is limited. The Apex Court held that even though there is increased employment of contractual techniques by public bodies to achieve their regulatory aims, judicial review must be limited and cannot be used to enforce contractual obligations.

“When that contractual power is being used for public purpose, it is certainly amenable to judicial review. The power must be used for lawful purposes and not unreasonably,” held the Apex Court.

The Court held that though respondent-company is a private party, it had undertaken functions of the state (construction of public highways), which is essentially a public function and hence is amenable to the writ jurisdiction of the High Court. However, the Court held that the relief sought by the petitioner against the company was not in regard to discharge of its public functions but a service dispute. Hence, the writ petition would not be maintainable under Art. 226 of the Constitution.

Case Title: Reddy Veerraju Chowdary vs. Insolvency Professional/Resolution Professional, C.A. Sai Ramesh Kanuparthi And Another 2024 LiveLaw (AB) 276 [WRIT - A No. - 15614 of 2023]

Case citation: 2024 LiveLaw (AB) 276

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