National Company Law Appellant Tribunal Decides on The Requirement Of Seeking Government Approval For Making An Insolvency Application Against A Tea Company

Brief Facts

A.J. Agrochem (Operational Creditor) had filed an application under Section 9 of the Insolvency & Bankruptcy Code, 2016 against Duncans Industries Ltd (“Corporate Debtor”), a tea company, before the Hon’ble National Company Law Tribunal. Conspicuously, the Central Government, by way of its notification dated 28 January 2016, had authorised the Tea Board of India (Tea Board) to take over the management and control of seven tea estates of the Corporate Debtor in terms of the Tea Act. The debt of the Operational Creditor was in relation to supply of goods to one of these seven tea estates which was under the management of the Tea Board.

The Hon’ble Tribunal canned the application of the Operational Creditor claiming the Operational Creditor had failed to comply with the requirement of Section 16G(1)(c) of the Tea Act.

Section 16G(1)(c) of the Tea Act requires approval of the Central Government to be taken before initiating winding-up proceedings/proceedings for appointment of a receiver in relation to a tea company, whose management has been taken over by the Tea Board.

Aggrieved by the order of the NCLT dismissing its application, the Operational Creditor preferred an appeal before the NCLAT.

Arguments presented before Hon’ble Tribunal by the Operational Creditors/Appellant

In terms of Section 238 of the Insolvency & Bankruptcy Code, the provisions of the IBC including Section 9 would have a superseding effect over the provisions of the Tea Act. Therefore, requirements of seeking accord under Section 16G of the Tea Act would not be pertinent; and

Initiation of Corporate Insolvency Resolution process is different from initiation of winding up proceedings. In isolation, Section 16G of the Tea Act is not applicable to the present application.

Arguments presented before Hon’ble Tribunal by the Respondent/Corporate Debtor

In terms of the statement of objects and reasons of the IBC, it is manifest that the primary objective of the IBC was to ensure revival and continuation of debtor companies by undertaking the CIRP process in a time-bound manner.

Liquidation is only provided as a last resort and is not a desirable outcome under the IBC.

Section 238 of the IBC deals only with situations where there is a conflict between the provisions of the IBC and other laws. Since there was no such conflict in the present matter, Section 238 was not applicable to the matter.

Conclusion

The NCLAT set aside the order of the National Company Law Tribunal, Kolkata Bench (NCLT) and inter alia apprehended that no prior approval / sanction of the Central Government is required for making an insolvency application against a tea company, since Section 16G(1)(c) of the Tea Act and Section 9 of the IBC operate in separate domains.

This order provides the flexibility to the operational as well financial creditors to take the corporate debtor into IBC where they believe liquidation is a better / only option, without undertaking formal process of inviting potential resolution applicants etc. This would help in saving time and efforts in certain cases resulting in speedy closure of the process.

A skid of Judicial pronouncement recommending arrangement under section 230 of the company act have tiled the way, which allows the corporate debtor another prospect for its revival.

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