2019 (7) TMI 686 - AT - Insolvency and Bankruptcy

Judgment: No Govt Consent Needed for CIRP Against Tea Company under I&B Code

The judgment clarified that Section 9 of the Insolvency and Bankruptcy Code, 2016 (I&B Code) does not conflict with Section 16G(1)(c) of the Tea Act, ... Winding up of Company - Applicability of provisions of the I&B Code - consent of the Central Government to start the ‘Corporate Insolvency Resolution Process’ of the ‘Corporate Debtor’ in view of Section 16G(1)(c) of the ‘Tea Act, 1953’ - case of the Appellant is that out of these 7 gardens, the ‘Operational Creditor’ supplied from the garden ‘Birpara Tea Estate’ and therefore it is not in dispute that the supplies made to the ‘Corporate Debtor’ is under the management and control of the Tea Board. HELD THAT:- From plain reading of Section 16(1)(c) of the Tea Act it is clear that where the management or a tea undertaking or tea unit owned by the company has been taken over by the Tea Board “no proceeding for the winding up of such company shall lie in any court except with the consent of the Central Government' - If the interpretation as given by the Respondent is accepted then it is to be held that Section 16G(1)(c) of the Tea Act, 1953 is not conflicting with Section 9 of the I&B Code and thereby Section 9 will have an over-riding effect on Section 16G(1)(c) of the Tea Act, 1953. From the finding of the Hon’ble Supreme Court decision in SWISS RIBBONS PVT. LTD. AND ANR. VERSUS UNION OF INDIA AND ORS. [2019 (1) TMI 1508 - SUPREME COURT] it is clear that the ‘Corporate Insolvency Resolution Process’ while allows a resolution process but liquidation is not desirable under the I&B Code. Section 16G(1)(c) relates to winding up and on the other hand Section 9 of the I&B Code application filed is not a proceeding for winding up but for initiation of ‘Corporate Insolvency Resolution Process’ to ensure revival and continuation of the ‘Corporate Debtor’ by protecting the ‘Corporate Debtor’ from its own management and from corporate debt by liquidation. Section 9 of Insolvency and Bankruptcy Code occupies different field than Section 16G(1) of the Tea Act, 1953. For filing an application under Section 9 against Tea Company under the management of the different board, no permission of the Central Government is required in terms of Section 16G(1) of the Tea Act, 1953 - the impugned order is set aside and case remitted back to the Adjudicating Authority, Kolkata Bench, Kolkata to pass appropriate order under Section 9 of the I&B Code after notice and hearing the parties. Appeal allowed by way of remand. Issues Involved:1. Applicability of Section 9 of the Insolvency and Bankruptcy Code, 2016 (I&B Code) vis-à-vis Section 16G(1)(c) of the Tea Act, 1953.2. Requirement of Central Government consent for initiating Corporate Insolvency Resolution Process (CIRP) under the I&B Code.3. Whether CIRP can be equated with winding up proceedings.4. Bar of limitation on the claim.Issue-wise Detailed Analysis:1. Applicability of Section 9 of the I&B Code vis-à-vis Section 16G(1)(c) of the Tea Act, 1953:The Appellant argued that Section 9 of the I&B Code, which empowers an 'Operational Creditor' to initiate CIRP, should have an overriding effect over Section 16G(1)(c) of the Tea Act, 1953 due to Section 238 of the I&B Code. The Respondent countered that the Tea Act, being a special Act, necessitates Central Government consent for any proceedings, including CIRP. The judgment clarified that Section 16G(1)(c) of the Tea Act relates specifically to winding up proceedings, not to CIRP. Therefore, there is no conflict between the two statutes, and Section 9 of the I&B Code occupies a different field aimed at the resolution and revival of the Corporate Debtor rather than winding up.2. Requirement of Central Government consent for initiating CIRP under the I&B Code:The judgment emphasized that Section 16G(1)(c) of the Tea Act, 1953, which requires Central Government consent for winding up proceedings, does not apply to CIRP under the I&B Code. The CIRP aims to ensure the revival and continuation of the Corporate Debtor, not its liquidation. Consequently, no permission from the Central Government is required for filing an application under Section 9 of the I&B Code against a tea company managed by the Tea Board.3. Whether CIRP can be equated with winding up proceedings:The Appellant contended that CIRP should not be equated with winding up proceedings under the Companies Act, 2013. The judgment supported this view, stating that the objective of the I&B Code is to provide a resolution process to revive the Corporate Debtor, rather than to liquidate it. The Supreme Court's decision in 'Swiss Ribbons Pvt. Ltd. & Anr. vs. Union of India & Ors.' was cited, which highlighted that the I&B Code aims for reorganization and insolvency resolution, not liquidation, which is considered a last resort.4. Bar of limitation on the claim:The Respondent argued that the claim was barred by limitation as the cause of action arose on 14th November 2014, and the petition was filed on 12th February 2018. The judgment noted that this issue was not raised before the Adjudicating Authority and thus was not decided. However, it mentioned that for filing an application under Section 9 of the I&B Code, Article 137 of the Limitation Act, 1963 applies, providing a three-year limitation period from when the right to apply accrues. The judgment allowed the Respondent to raise the limitation issue before the Adjudicating Authority, where the Operational Creditor could show a continuing cause of action.Conclusion:The judgment set aside the impugned order dated 5th October 2018 and remitted the case to the Adjudicating Authority, Kolkata Bench, to pass an appropriate order under Section 9 of the I&B Code after notice and hearing the parties. The appeal was allowed, and no costs were imposed.