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2019 (10) TMI 301

..... gs 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 p .....

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..... rt NCLAT ) by which the learned Appellate Tribunal has allowed the said appeal preferred by the respondent herein and has quashed and set aside the order dated 05.10.2018 passed by the National Company Law Tribunal, Kolkata (for short NCLT ), holding that the respondent s application under Section 9 of the Insolvency and Bankruptcy Code, 2016 (for short IBC ) would be maintainable, the original respondent has preferred the present appeal. 2. The facts of the case in nutshell are as under: 2.1 That the appellant is a Corporate Debtor. It is a company which owns and manages 14 tea gardens. Out of 14 tea gardens, the Central Government vide notification dated 28.01.2016, in exercise of its power under Section 16E of the Tea Act, 1953 has taken over the control of 7 tea gardens. 2.2 That the respondent is an operational creditor of the appellant. It used to supply pesticides, insecticides, herbicides etc. to the appellant. According to the respondentoperational creditor, a sum of ₹ 41,55,500/was due and payable by the appellantcorporate debtor to the respondentoperational creditor. That the respondent initiated the proceedings against the appellantcorporate debtor before the NCLT .....

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..... d that Section 16D(1) of the Tea Act, 1953 provides for taking over the tea unit and the tea undertaking inter alia if the Central Government is of the opinion that the tea unit is being managed in a manner highly detrimental to the tea industry or to public interest. It is submitted that Section 16D(4) provides that the Central Government shall take such steps as may be necessary for the purpose of efficiently managing the business of the undertaking. It is submitted that any notification under Section 16D is to have effect for a period not exceeding five years which can only be extended if the Central Government is of the opinion that it is expedient to do so in public interest, for such period not exceeding one year at a time, and for total period not exceeding six years. It is submitted that Section 16E refers to the power of the Central Government to restart the tea undertaking if it is found necessary in the interest of the general public. It is submitted that Section 16G specifically deals with a situation such as in the present application. It is submitted that an insolvency process is also meant to culminate in liquidation, if there is no revival. It is submitted that sinc .....

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..... sent of the Central Government. 4.5 It is further submitted by Shri Shyam Divan, learned Senior Advocate appearing on behalf of the appellant that, in the present case, by passing the impugned judgment and order, the learned NCLAT has erroneously relied upon Section 238 of the IBC to hold that the IBC will have an overriding effect over the Tea Act. It is submitted that Section 238 of the IBC will be applicable if there is any conflict between the two legislations. It is submitted that, in the present case, there is no such conflict between the Tea Act and the IBC. It is submitted that even the learned NCLAT in the impugned order recognizes and/or records that the provisions of the IBC and the Tea Act are not inconsistent with each other. It is submitted that the IBC process can be started if the permission is obtained from the Central Government by a financial creditor or an operational creditor. It is submitted that the provisions of Section 7 or Section 9 may not require the consent of the Central Government to initiate such proceedings, but when the management of the tea gardens have been taken over by the Central Government under the Tea Act, one will have to consider the prov .....

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..... he respondentoperational creditor under Section 9 of the IBC shall not be maintainable. 5. The present appeal is vehemently opposed by Shri Amar Dave, learned Advocate appearing on behalf of the respondentoperational creditor. 5.1 It is vehemently submitted by Shri Amar Dave, learned Advocate appearing on behalf of the respondentoperational creditor that the IBC is a complete Code in itself. It is submitted that the IBC is a consolidating and amending law relating to reorganization and insolvency resolution and for matters connected therewith or incidental thereto. It is submitted that the Code, which was promulgated in 2016, has not provided for the prerequisite of obtaining consent from the Central Government for initiating corporate insolvency resolution process like the Tea Act, which is an earlier Act enacted in 1953. It is submitted that, thus, such a prerequisite of obtaining consent cannot be imported and/or read into the Code when the self contained Code itself does not provide for it. 5.2 It is further submitted that importing the requirement of obtaining consent of the Central Government prior to initiating the corporate insolvency resolution process would be completely .....

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..... ea Act shall not be applicable at all. 5.4 It is further submitted by Shri Dave, learned Advocate appearing on behalf of the respondent operational creditor that Section 16G(1)(c) of the Tea Act is applicable to a proceeding for winding up and not to proceeding for initiation of corporate insolvency resolution process , as the both are not one and the same proceedings. It is submitted that winding up of a company is provided for, and governed by, the Companies Act. It is submitted that, on the other hand, initiation of corporate insolvency resolution process is provided for, and governed by, the Insolvency and Bankruptcy Code, 2016. It is submitted that both these processes are distinct from one another and not synonymous with one another. It is submitted that the power of the Parliament to make any law relating to winding up can be traced to Entry nos. 33 and 34 of the Union List of the Seventh Schedule of the Constitution. It is submitted that, on the other hand, the power of the Parliament to make any law relating to insolvency can be traced to Entry no. 9 of the Concurrent List of the Seventh Schedule of the Constitution. It is submitted that, thus, winding up and insolvency pr .....

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..... morandum or articles of association of such company,- (a) it shall not be lawful for the shareholders of such company or any other person to nominate or appoint any person to be a director of the company; (b) no resolution passed in a meeting of the shareholders of such company shall be given effect to unless approved by the Central Government; (c) no proceeding for the winding up of such company or for the appointment of receiver in respect thereof shall lie in any court except with the consent of the Central Government. (2) Subject to the provisions contained in subsection (1), and to the other provisions contained in this Act, and subject to such other exceptions, restrictions and limitations, if any, as the Central Government may, by notification in the Official Gazette specify in this behalf, the Companies Act, 1956, shall continue to apply to such company in the same manner as it applied thereto before the issue of the notified order. 7.1 In the present case, it is true that by notification dated 28.01.2016 issued under Section 16E of the Tea Act, the Central Government authorised the Tea Board to take over the management or the control of the seven tea estates mentioned in t .....

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..... nt 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. 7.2 Now, so far as the main issue, namely, whether before initiation of the proceedings under Section 9 of the IBC, a prior consent of the Central Government as provided under Section 16G(1)(c) of the Tea Act is required or not and/or in absence of any such consent of the Central Government, the proceedings under Section 9 of the IBC shall be maintainable or not, is concerned, at the outset, it is required to be noted that the IBC is a complete Code in itself. In a recent decision of this Court in the case of Swiss Ribbons Pvt. Ltd. (supra), this Court had an occasion to consider the Statement of Objects and Reasons of the IBC and also the Preamble of the IBC, which when noted by this Court in its earlier decision in Innoventive Industries Ltd. (supra), in paragraphs 25 and 26 in the case of Swi .....

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..... e Code seeks to provide for designating NCLT and DRT as the adjudicating authorities for corporate persons and firms and individuals, respectively, for resolution of insolvency, liquidation and bankruptcy. The Code separates commercial aspects of insolvency and bankruptcy proceedings from judicial aspects. The Code also seeks to provide for establishment of the Insolvency and Bankruptcy Board of India (Board) for regulation of insolvency professionals, insolvency professional agencies and information utilities. Till the Board is established, the Central Government shall exercise all powers of the Board or designate any financial sector regulator to exercise the powers and functions of the Board. Insolvency professionals will assist in completion of insolvency resolution, liquidation and bankruptcy proceedings envisaged in the Code. Information Utilities would collect, collate, authenticate and disseminate financial information to facilitate such proceedings. The Code also proposes to establish a fund to be called the Insolvency and Bankruptcy Fund of India for the purposes specified in the Code. 4. The Code seeks to provide for amendments in the Indian Partnership Act, 1932, the Ce .....

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..... rs are able to maximise their investment. Timely resolution of a corporate debtor who is in the red, by an effective legal framework, would go a long way to support the development of credit markets. Since more investment can be made with funds that have come back into the economy, business then eases up, which leads, overall, to higher economic growth and development of the Indian economy. What is interesting to note is that the Preamble does not, in any manner, refer to liquidation, which is only availed of as a last resort if there is either no resolution plan or the resolution plans submitted are not up to the mark. Even in liquidation, the liquidator can sell the business of the corporate debtor as a going concern. (See ArcelorMittal [ArcelorMittal (India) (P) Ltd. v. Satish Kumar Gupta, (2019) 2 SCC 1] at para 83, fn 3). 28. It can thus be seen that the primary focus of the legislation is to ensure revival and continuation of the corporate debtor by protecting the corporate debtor from its own management and from a corporate death by liquidation. The Code is thus a beneficial legislation which puts the corporate debtor back on its feet, not being a mere recovery legislation f .....

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