Insolvency and Bankruptcy Code, 2016:
ss. 7, 9 and 238 – Application for initiation of corporate insolvency resolution process by operational creditor – On facts, appellant-operational debtor managing 14 tea gardens, out of which, Central Government in exercise of power u/s. 16E of the Tea Act, took control of 7 gardens – Appellant defaulted in making payment to respondent–operational creditor against the pesticides supplied by the respondent – Initiation of insolvency proceedings u/s. 9 by the respondent against the appellant – NCLT held that the proceedings were not maintainable since prior consent of Central Government as required u/s. 16 G not obtained – In appeal, NCLAT held that application u/s. 9 was maintainable even without consent of Central Government in terms with s. 16 G – On appeal, held: Section 16G(1)(c) shall not be applicable at all, as the appellant-corporate debtor is continuing to be in management and control of the tea gardens – Provisions of the IBC shall have an over-riding effect over the Tea Act, 1953 – No prior consent of the Central Government before initiation of the proceedings u/s. 7 or s. 9 would be required and even without such consent of the Central Government, the insolvency proceedings u/s. 7 or s. 9 initiated by the operational creditor shall be maintainable – Thus, the order passed by NCLAT upheld – Tea Act, 1953 – s. 16G(1)(c). Emphasis of – Held: Primary focus of the Code while enacting, 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 time-bound manner – As such the entire “corporate insolvency resolution process” cannot be equated with “winding up proceedings”. Dismissing the appeals, the Court
HELD: 1.1 In effect, the appellant has been continued to be in management and control of the tea estates, despite the notification under Section 16E of the Tea Act. It is required to be noted that notification under Section 16E was issued by the Central Government and the Central Government authorised the Tea Board to take steps to take over the management and control of the seven tea estates, having satisfied that the said seven tea gardens were being managed by the appellant in a manner highly detrimental to the tea industry and public interest. Despite the same, very surprisingly, by an interim arrangement, the Division Bench of the High Court has handed over the management and control of the seven tea gardens to the appellant, because of whose mis–management, it has deteriorated the condition of the tea gardens run by the appellant. Be that as it may, the fact remains that, pursuant to the interim arrangement/order passed by the Division Bench of the High Court dated 29.09.2016, the appellant–corporate debtor is continued to be in management and control of the seven tea gardens and they are running the tea gardens. Therefore, in 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, Section 16G 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. Therefore, 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. [Para 7.1] [841-F-H; 842-A-E]
1.2 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. 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 time–bound manner. Therefore, the entire “corporate insolvency resolution process” as such cannot be equated with “winding up proceedings”. Therefore, 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 over– riding effect over the Tea Act, 1953. Any other view would frustrate the object and purpose of the IBC. If the submission on behalf of the appellant that before initiation of proceedings under Section 9 of the IBC, the consent of the Central Government as provided under Section 16G(1)(c) of the Tea Act is to be obtained, in that case, the main object and purpose of the IBC, namely, to complete the “corporate insolvency resolution process” in a time–bound manner, shall be frustrated. The sum and substance would be that the provisions of the IBC would have an over–riding 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. Thus, the order passed by the 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 upheld. [Para 7.4, 8] [846-EH; 847-A-D] Macquarie Bank Ltd. v. Shilpi Cable Technologies Ltd. (2018) 2 SCC 674 : [ 2017] 13 SCR 751 ; K. Kishan v. M/s. Vijay Nirman Company Pvt. Ltd. (2018) 17 SCC
662 : [2018] 10 SCR 959 ; Swiss Ribbons Pvt. Ltd. v. Union of India [AIR 2019 SC 739 : (2019) 4 SCC 17: [2019] 3 SCR 535 ; Innoventive Industries Ltd. v. ICICI Bank [AIR 2017 SC 4084 : (2018) 1 SCC 407 :
[2017] 8 SCR 33 ; PCIT v. Monnet Ispat and Energy Ltd. (2018) 18 SCC 786 – referred to.
As published in the Supreme Court Reports, Supreme Court of India. Text from the Indian Supreme Court Judgments open data set (Dattam Labs), CC BY 4.0.
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