India- Societies Are Not Corporate Persons Under The Code.

Order dated: 03 August 2021.
 

Summary:
 

In the present matter, the issue before the NCLAT was whether a society registered under the Societies Registration Act would fall under the definition of a corporate person under the Code. The Code provides that Corporate Insolvency Resolution Process (CIRP) can be initiated against a ‘corporate person’ committing default of INR 10,000,000 (Indian Rupees One Million) or more to a financial or operational creditor. Corporate person, as defined in the Code, means:
 

(i) a company incorporated under Companies Act, 2013 (or previous company law);
 

(ii) a limited liability partnership established under the Limited Liability Partnership Act, 2008; or
 

(iii) any other person incorporated with limited liability under any law for the time being in force but shall not include any financial service provider
 

The use of the expression “any other person incorporated with limited liability” was interpretated by the NCLAT in light of the provision dealing with applicability of the Code. The NCLAT noted that the provisions of the Code are also applicable 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.” The NCLAT held that the use of the expression “any other person incorporated with limited liability” is wider than “any other company governed by any Special Act” and the definition of ‘corporate person’ cannot go beyond the application provisions of the Code. The definition must be consistent with such provisions.
 

NCLAT also interpreted the provisions of the Societies Registration Act to hold that the act of registration of a society shall render it a body corporate by the name under which it was registered, and such a society will have perpetual succession and a common seal, but it will not be considered to be incorporated as a company. Accordingly, NCLAT held that the provisions of the Code would not apply to societies registered under Societies Registration Act as it is not a corporate person.
 

al@acuitylaw.co.in