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Section 120: Raising of loans

The Code on Social Security, 2020 (Act No. 36 of 2020) • Official Statutory Text & Plain English Practice Guide

Statutory Mandate
Chapter X: Finance and Accounts
Competent Labour Forum
Act No. 36 of 2020
Section 119 All 163 Sections of Code on Social Security, 2020 Section 121

Legal Commentary & Landmark Judgments: Section 120

Section 120 of the Code on Social Security, 2020 governs the loan-raising powers of Social Security Organisations, permitting borrowing for capital infrastructure, hospital modernizations, or emergency liquidity subject to prior Central Government sanction and statutory borrowing limits.

  • Condition Precedent of Prior Central Government Sanction: Enacts that a Social Security Organisation may, with the prior sanction of the Central Government and on such terms and conditions as may be prescribed, raise loans or issue bonds or debentures for the purposes of carrying out its statutory functions under the Code.
  • Permissible Purposes for Borrowing: Limits the power to raise loans strictly to capital development projects, such as the construction and modernization of ESIC medical colleges, super-specialty hospitals, branch offices, and national digital infrastructure.
  • Pledge, Mortgage, and Asset Encumbrance Restrictions: Restricts the power of the organisation to mortgage or pledge its assets or lands; no statutory fund dedicated to paying worker pensions or medical cash benefits can be mortgaged or hypothecated as collateral for debt service.
  • Debt Service Sinking Fund Mandate: Requires the borrowing organisation to establish a dedicated Sinking Fund out of its annual operating revenues to service the interest and amortize the principal of the loan within the sanctioned repayment schedule.
Key Landmark Precedents:
  • Ramana Dayaram Shetty v. International Airport Authority of India (1979) 3 SCC 489: The Supreme Court held that statutory corporations and public authorities are bound by the statutory limitations governing their powers to contract and raise public finances.
  • State of Rajasthan v. Basant Nahata (2005) 12 SCC 77: Affirmed that statutory bodies derive their operational and borrowing competence entirely from the parent statute and any act performed in excess of statutory limits is ultra vires and void.
  • Hindustan Zinc Ltd. v. Andhra Pradesh State Electricity Board (1991) 3 SCC 299: The Supreme Court recognized that statutory utility and welfare bodies must manage their capital borrowing within statutory guidelines to avoid passing unsustainable debt burdens onto the public.
Courtroom Practice & Strategic Litigation Guidance:

Before initiating any commercial borrowing or issuing infrastructure bonds, the Finance Director of the Social Security Organisation must prepare a detailed Project Feasibility Report and debt-servicing model. Submit the proposal to the Ministry of Labour and Department of Expenditure (Ministry of Finance) for formal inter-ministerial clearance under Section 120. Ensure that the loan agreement contains an express covenant confirming that worker benefit reserves are legally exempt from attachment by lending institutions.

Section 119 All 163 Sections of Code on Social Security, 2020 Section 121