2019 (10) TMI 301 - SC - IBC

Tea company cannot escape insolvency proceedings by claiming Tea Act protection without losing garden control

DUNCANS INDUSTRIES LTD. Versus A.J. AGROCHEM

The SC dismissed an appeal challenging maintainability of CIRP proceedings under Section 9 of IBC against a tea company. The court held that Section ... Maintainability of application - initiation of CIRP - Amount due and payable by the appellant-corporate debtor to the respondent-operational creditor - whether before initiation of the proceedings under Section 9 of the IBC, a consent of the Central Government as provided under Section 16G(1)(c) of the Tea Act, 1953 is required and/or whether in absence of any such consent of the Central Government the proceedings initiated by the respondent5 operational creditor under Section 9 of the IBC would be maintainable or not? HELD THAT:- On the facts and circumstances of the case, and more particularly when, despite the notification under Section 16E of the Tea Act, the appellant-corporate debtor is continued to be in management and control of the tea gardens/units and are running the tea gardens as if the notification dated under Section 16E has not been issued, Section 16G of the Tea Act, more particularly Section 16G(1)(c), shall not be applicable at all. On a fair reading of Section 16G of the Tea Act, we are of the opinion that Section 16G of the Tea Act shall be applicable only in a case where the actual management of a tea undertaking or tea unit owned by a company has been taken over by any person or body of persons authorised by the Central Government under the Tea Act. Taking over the actual management and control by the Central Government or by any person or body of persons authorised by the Central Government is sine qua non before Section 16G of the Tea Act is made applicable. Therefore, in the facts and circumstances of the case, Section 16G(1)(c) shall not be applicable at all, as the appellant corporate debtor is continued to be in management and control of the tea units/gardens. Section 16G(1)(c) refers to the proceeding for winding up of such company or for the appointment of receiver in respect thereof. Therefore, as such, the proceedings under Section 9 of the IBC shall not be limited and/or restricted to winding up and/or appointment of receiver only. The winding up/liquidation of the company shall be the last resort and only on an eventuality when the corporate insolvency resolution process fails. As observed by this Court in SWISS RIBBONS PVT. LTD. AND ANR. VERSUS UNION OF INDIA AND ORS. [2019 (1) TMI 1508 - SUPREME COURT], referred to hereinabove, the primary focus of the legislation while enacting the IBC is to ensure revival and continuation of the corporate debtor by protecting the corporate debtor from its own management and from a corporate debt by liquidation and such corporate insolvency resolution process is to be completed in a timebound manner. Therefore, the entire “corporate insolvency resolution process” as such cannot be equated with “winding up proceedings”. Thus, considering Section 238 of the IBC, which is a subsequent Act to the Tea Act, 1953, shall be applicable and the provisions of the IBC shall have an overriding effect over the Tea Act, 1953. Any other view would frustrate the object and purpose of the IBC. The impugned judgment and order dated 20.06.2019 passed by the learned NCLAT holding that insolvency petition under Section 9 of the Insolvency and Bankruptcy Code, 2016 initiated by the respondent operation creditor shall be maintainable, is hereby confirmed - appeal dismissed. Issues Involved:1. Whether the consent of the Central Government under Section 16G(1)(c) of the Tea Act, 1953 is required before initiating proceedings under Section 9 of the Insolvency and Bankruptcy Code, 2016 (IBC).2. Whether the provisions of the IBC have an overriding effect over the Tea Act, 1953.3. The applicability of Section 16G of the Tea Act when the management of tea gardens is taken over by the Central Government.Detailed Analysis:1. Consent of the Central Government under Section 16G(1)(c) of the Tea Act:The appellant, a corporate debtor managing tea gardens, argued that the respondent's application under Section 9 of the IBC is not maintainable without the Central Government's consent as required by Section 16G(1)(c) of the Tea Act. The NCLT had upheld this view, but the NCLAT reversed it, stating that the IBC proceedings are maintainable without such consent.The Supreme Court examined the provisions of Section 16G of the Tea Act, which restricts winding up proceedings without the Central Government's consent when the management of a tea undertaking is taken over. However, the Court noted that the appellant continued to manage the tea gardens despite a notification under Section 16E of the Tea Act, due to an interim order by the Calcutta High Court. Thus, Section 16G(1)(c) was deemed inapplicable as the actual management had not been taken over by the Central Government.2. Overriding Effect of IBC over the Tea Act:The Court emphasized that the IBC is a comprehensive code aimed at insolvency resolution and reorganization in a time-bound manner to maximize asset value and promote entrepreneurship. It noted that the primary focus of the IBC is to ensure the revival and continuation of the corporate debtor, not merely liquidation.The Court referred to Section 238 of the IBC, which provides that the IBC will have an overriding effect over other laws in case of any inconsistency. The Court concluded that the provisions of the IBC would prevail over the Tea Act, and no prior consent of the Central Government is required for initiating proceedings under Section 9 of the IBC.3. Applicability of Section 16G of the Tea Act:The Court clarified that Section 16G of the Tea Act applies only when the actual management of the tea undertaking is taken over by the Central Government or an authorized body. Since the appellant continued to manage the tea gardens despite the notification, Section 16G was not applicable.The Court also distinguished between winding up proceedings and the corporate insolvency resolution process under the IBC, noting that the latter aims at revival and not merely liquidation. Thus, the requirement for Central Government consent under Section 16G(1)(c) of the Tea Act does not extend to proceedings under Section 9 of the IBC.Conclusion:The Supreme Court dismissed the appeal, confirming the NCLAT's decision that the insolvency petition under Section 9 of the IBC is maintainable without the Central Government's consent. The Court held that the IBC provisions have an overriding effect over the Tea Act, and Section 16G of the Tea Act does not apply in this case.