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PURPOSE SEEKING APPROACH APPLIED - SUBSEQUENT PROVISION OF IBC 2016 HELD TO PREVAIL OVER PROVISION OF TEA ACT 1953. |
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PURPOSE SEEKING APPROACH APPLIED - SUBSEQUENT PROVISION OF IBC 2016 HELD TO PREVAIL OVER PROVISION OF TEA ACT 1953. |
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Enactments considered in the judgment under study Insolvency and Bankruptcy Code, 2016 (for short “IBC”). The Tea Act, 1953. Parties in case: a. DUNCANS INDUSTRIES LTD – a corporate debtor. b. A.J. AGROCHEM – Creditor ( as per author creditor can be a body corporate or any other entity so word ‘creditor’ is used in this article) Chain of judgments: The facts of the case are analyzed: At relevant time, the Corporate Debtor/ Duncan owned and managed 14 tea gardens. Although out of 14 tea gardens, the Central Government has taken over 7 tea gardens vide notification dated 28.01.2016, in exercise of its power under Section 16E of the Tea Act, 1953. However, in spite of such notification the control and management continued with the Corporate Debtor (Duncan) through the process of some court proceedings and favorable judgment. The creditor is an operational creditor of the appellant on account of supply of pesticides, insecticides, herbicides etc. to the Corporate Debtor, and for such supplies a sum of ₹ 41,55,500/- was due and payable by the Corporate Debtor to the Creditor. Creditor initiated the proceedings against the Corporate Debtor before the NCLT under Section 9 of the IBC. The corporate debtor contested such proceeding on the ground that as per Section 16G(1)(c) of the Tea Act, once the management of tea unit has been taken over by the Central Government, then the proceedings for winding up or appointment of receiver cannot be initiated without the consent of the Central Government and because the requisite prior approval of the Central Government has not been taken, as required under Section 16G of the Tea Act, the insolvency proceeding under Section 9 of the IBC would not be maintainable. By an order dated 05.10.2018, learned NCLT held that in view of the statutory provisions under Section 16G of the Tea Act and as the prior consent of the Central Government has not been obtained, the proceedings under Section 9 of the IBC shall not be maintainable. On an appeal before the NCLAT by the Creditor , the NCLAT has reversed the order passed by the NCLT, Kolkata and has held that the respondent’s application under Section 9 of the IBC would be maintainable even without the consent of the Central Government in terms of Section 16G of the Tea Act. Feeling aggrieved and dissatisfied with the order passed by the learned NCLAT corporate debtor preferred statutory appeal before the Supreme Court. Before the Supreme Court various contentions and arguments were raised by both sides, however, main argument of Corporate Debtor was that in absence of prior permission of the central Government , proceedings before NCLT are not maintainable. The honorable Supreme Court considered the objects and relevant provisions in the Tea Act and the IBC. The dates of their coming into force. The honorable Supreme Court in a milder way expressed displeasure about the Corporate Creditor continued in management and control of tea garden, through court proceedings. This displeasure is reflected in the following wordings in paragraph 7.1 of the judgment: “ Despite the same, very surprisingly, by an interim arrangement, the Division Bench of the High Court of Calcutta has handed over the management and control of the seven tea gardens to the appellant, because of whose mismanagement, it has deteriorated the condition of the tea gardens run by the appellant. “
After considering purposes of the tea Act and IBC Code, the Supreme Court considered that 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. Court also considered that Section 16G(1)(c) refers to the proceeding for winding up of such company or for the appointment of receiver in respect thereof. Whereas 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 Supreme Court also referred to its judgment in Swiss Ribbons Pvt. Ltd. And Anr. Versus Union of India And Ors. - 2019 (1) TMI 1508 - Supreme Court and viewed that 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”. 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 overriding effect over the Tea Act, 1953. Court also held that any other view would frustrate the object and purpose of the IBC. If the submission on behalf of the Corporate Debtor 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 timebound manner, shall be frustrated. In conclusion the court held that the provisions of the IBC would have an overriding effect over the Tea Act, 1953. IBC being recent legislation with similar objects and purposes will prevail over older Tea Act to make attempts to revive companies and not just to windup companies. No prior consent of the Central Government before initiation of the proceedings under Section 7 or Section 9 of the IBC would be required when the tea gardens were under control and management of corporate debtor. Even without such consent of the Central Government, the insolvency proceedings under Section 7 or Section 9 of the IBC initiated by the creditor shall be maintainable. The appeal of Corporate Debtor was dismissed. Further observations: As per author, it appears that the corporate debtor / Duncan has adopted delaying tactics not only to delay payment to creditor but also to halt process under IBC so as to avoid other creditors also from joining proceedings before NCLT. As per author, the ruling in this case will be applicable in case of Financial Creditors also and creditor need not be a body corporate, though debtor need to be a company. Use of expression ‘corporate creditor’, may lead to confusion that it apply only to corporate creditor. Therefore, author has used word creditor instead of ‘corporate creditor’ as used in judgment. IBC is in nature of a public purpose legislation to protect interest of creditors and corporate debtors both. This is to provide mechanism for corporate restructuring with financial restructuring as well as recovery of money receivable by creditors. It is desirable that the procedures should be made simpler and too many procedures and technicalities must be reduced. Provisions having similar purposes of public interest must be applied in purpose serving manner. In case there are more than one legislation on similar subject, the latest one can be applied if older one is one such which defeat the purpose.
By: DEV KUMAR KOTHARI - August 28, 2020
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