The provisions of the Insolvency and Bankruptcy Code, 2016 (IBC) shall have overriding effect over the Tea Act, 1953; Insolvency proceedings without consent of Central Govt is maintainable: SC

A bench of Supreme Court Justices B. R. Gavai, M. R. Shah, Arun Mishra ruled that the provisions of the Insolvency and Bankruptcy Code, 2016 (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. Further, the prior consent of the Central Government is not required before initiation of the proceedings under Section 7 or Section 9 of the IBC.

The appellant – a corporate debtor, owned and managed 14 tea gardens, out of which the Central Government in exercise of its power under Section 16E of the Tea Act, 1953 took over the control of 7 tea gardens. A sum of Rs. 41,55,500 was owed to the respondent-operational creditor by the appellant. The operational-creditor subsequently initiated proceedings against the corporate debtor before the National Company Law Tribunal, Kolkata (NCLT) under Section 9 of the IBC. Initiation of the proceedings under the IBC by the respondent was opposed by the appellant on the ground that, as provided under Section 16G(1)(c) of the Tea Act, once the Central Government took over the management of tea units, then the proceedings for winding up or appointment of receiver cannot be initiated without the consent of the Central Government.

The 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. The operational-creditor appealed to the National Company Law Appellate Tribunal (NCLAT). The NCLAT reversed the judgment of the NCLT and ruled that the 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.

Aggrieved by the judgment passed by the NCLAT, the corporate debtor appealed to the Supreme Court.

The appellant submitted that since the Tea Act permits for the Central Government to take over the management of a tea estate which is not run properly, the prior permission under Section 16G is applicable to such an estate, the management of which has been taken over by the Government. Further it was also contended that the “winding up” process under the Companies Act, 1956 includes the insolvency proceedings under the IBC and therefore, consent of the Central Government is a pre-requisite for the initiation of any proceedings for winding up or liquidation by way of insolvency proceedings.

The issue for consideration of the Supreme Court was 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 respondent operational creditor under Section 9 of the IBC would be maintainable or not.

The Supreme Court ruled that notification under Section 16E of the Tea Act was issued by the Central Government and the Central Government authorized the Tea Board to take steps to take over the management and control of the seven tea estates, as the appellant was managing the said tea estates in a manner highly detrimental to the tea industry and public interest.

The Court further held that despite the notification under Section 16E of the Tea Act, the appellant corporate debtor continued to manage and control the tea estates. In such a scenario, Section 16G(1)(c) shall not be applicable at all. The Court held 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 authorized 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 authorized by the Central Government is sine qua non before Section 16G of the Tea Act is made applicable.

The Apex Court observed that “the entire ‘corporate insolvency resolution process’ 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. Any other view would frustrate the object and purpose of the IBC.”

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