DUNCANS INDUSTRIES LTD. VS.  A. J. AGROCHEM : CASE SUMMARY

The Supreme Court in Duncans Industries Ltd. Vs A J Agrochem  2019 (9) SCC 725  held that provisions of Insolvency and Bankruptcy Code, 2016 will have overriding effect over Tea Act, 1953.

FACTS OF THE CASE

Duncans Industries Ltd. (Corporate Debtor) owned and managed fourteen   tea gardens out of which control of seven tea gardens  were  taken over by the Central Government under Section 16 E of the Tea Act, 1953 .  A J Agrochem (Operational Creditor) used to supply pesticides, insecticides and herbicides to the Corporate Debtor. Insolvency Proceedings was initiated against Corporate Debtor under Section 9 IBC as Corporate Debtor has defaulted in payment of Rs. 41, 55, 500/-. Insolvency proceedings was opposed by the Corporate Debtor solely on the ground that under 16 (1) (c) of the Tea Act, 1953, once management of tea unit has been taken over by the Central Government,  the proceedings of winding up or appointment of receiver cannot be initiated without the consent of central government.

The NCLT held that as prior consent has not been taken from the Central Government, the Application under Section 9 was not maintainable.

The NCLAT reversed the finding of the NCLT and held that Section 9 Petiiton will be maintainable even without consent of the government.

FINDINGS OF THE SUPREME COURT

The short issue before the Supreme Court was whether Section 9 Petition was maintainable without consent of the Central Government as provided under Section 16 E of Tea Act, 1953.

The Supreme  Court noted that the Central Government vide  notification dated 28.01.2016 under Section 16 E of the Tea Act, authorized Tea Board to take  over control of seven tea gardens as tea gardens were managed by the Appellant detrimental to tea industry and public interest. The said notification was challenged by the Appellant before the High Court of  Calcutta. Division Bench of Calcutta passed interim order whereby the  the management continues with the Corporate Debtor. The Supreme Court observed that provisions of Tea Act will only be applicable if the management of tea undertaking has been taken over.  Taking over actual management and control is sine quo non for applicability of the Section 16 G of the Tea Act.

The Supreme Court observed that IBC is a complete Code in itself. Section 16 (G ) 1 (c) refers to only winding up or appointment of receiver in respect thereof. Section 9 proceedings is not limited to winding up or appointment of receiver only. The winding up will be of last resort under IBC in case Corporate Insolvency Resolution Process for revival of the Corporate Debtor fails. The Supreme Court noted that in Swiss Ribbons Pvt. Ltd. Vs. Union of India  AIR (2019) 4 SCC  it has been observe the primary purpose of the IBC is to ensure revival and continuation of the Corporate Debtor by protecting the Corporate Debtor from its own management. Corporate Insolvency Resolution Process cannot be equated with winding proceedings.

The Supreme Court held that Section 238 of Insolvency and Bankruptcy Code, 2016 which has been passed subsequent to the passing of Tea Act, 1953 will be applicable and provisions of IBC will have overriding effect over the Tea Act.  If consent of Central Government is required then the main objective of timebound resolution of CIRP will be frustrated.  The Supreme Court concluded that Section 7 or Section 9 Application under Insolvency and Bankruptcy Code, 2016 will be maintainable even without prior consent of the Central Government.

The judgment of NCLAT was affirmed wherein the NCLAT has held that Section 9 Petition is maintainable against the Corporate Debtor.

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