IBC Has Overriding Effect Over Tea Act; Central Govt. Consent Not Required For Initiating Insolvency Proceedings: SC [Read Judgment]

The Supreme Court has held that the provisions of the Insolvency and Bankruptcy Code would have an overriding effect over the Tea Act, 1953 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.

The bench of Justice Arun Mishra, Justice MR Shah and Justice BR Gavai dismissed the appeal filed against the National Company Law Appellate Tribunal which had held that it would be maintainable.

The Corporate Debtor, a company which owns and manages 14 tea gardens, had opposed the initiation of the proceedings under the IBC by the operation creditor on the ground that, as provided under 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.

The issue considered before the Apex Court in Duncans Industries Ltd vs. A. J. Agrochem 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 operational creditor under Section 9 of the IBC would be maintainable or not?

Following are the relevant observations made in the judgment:

"Corporate insolvency resolution process" as such cannot be equated with "winding up proceedings".

The bench noted that the entire "corporate insolvency resolution process" as such cannot be equated with "winding up proceedings".

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. As observed by this Court in Swiss Ribbons Pvt. Ltd. (supra), referred to hereinabove, 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".

IBC has overriding effect over Tea Act

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 of the above discussion 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.  

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