The provisions of the Insolvency and Bankruptcy Code 2016 would have an overriding effect over the Tea Act, 1953 and that no prior consent of the Central Government before initiation of the proceedings under Section 7 or Section 9 of the IBC would be required.
The Supreme Court in the matter of Duncans Industries Ltd. vs. A.J. Agrochem upheld the order of the NCLAT allowing the insolvency petition under Section 9 of the Insolvency and Bankruptcy Code, 2016 initiated by the Operational Creditor is maintainable. The Supreme Court pronounced the judgement on 04.10.2019
Challenge:
Whether before initiation of the proceedings under Section 9 of the Insolvency and Bankruptcy Code 2016, 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 respondent-operational creditor under Section 9 of the IBC would be maintainable or not?
Held:
Referring to section 16G(1)(c) of the Tea Act, the Court observed that the said section provides for the proceeding for winding up of such company governed under Tea Act or for the appointment of a receiver in respect thereof. The proceedings under Section 9 of the IBC shall not be limited and/or restricted to winding up and/or appointment of the 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. 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”. 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 before initiation of proceedings under Section 9 of the IBC.
If consent of the Central Government as provided under Section 16G(1)(c) of the Tea Act is to be obtained, the main object and purpose of the IBC, namely, to complete the “corporate insolvency resolution process” in a timebound manner, shall be frustrated. The sum and substance of the Supreme Court reasoning is that the IBC would have an overriding effect over the Tea Act, 1953 and that no prior consent of the Central Government before initiation of the proceedings under Section 7 or Section 9 of the IBC would be required and even without such consent of the Central Government, the insolvency proceedings under Section 7 or Section 9 of the IBC initiated by the operational creditor shall be maintainable.