A.J. Agrochem vs Duncans Industries Ltd

Company Appeal (AT) (Insolvency) No. 710 of 2018 [ arising out of Order dated 5th October, 2018 by NCLT, Kolkata Bench, in CP (IB) - 308/KB/2019 ]

IN THE MATTER OF:

A.J. Agrochem ...Appellant

Versus

Duncans Industries Ltd. ...Respondent

Present:

For Appellant : Ms. Sonal Shah, Mr. Anirudh Sanganeria, Mr. Amar Dave and Ms. Shruti Agarwal, Advocates

For Respondent : Mr. Ratnanko Banerjee, Senior Advocate with Mr. Rishav Banerjee and Mr. Sarthak Guru, Advocates

JUDGMENT

SUDHANSU JYOTI MUKHOPADHAYA, J.

The Appellant filed an application under Section 9 of the Insolvency and

Bankruptcy Code, 2016 (for short, 'the I&B Code') against 'Duncans

Industries Limited' (Corporate Debtor). The Adjudicating Authority (National

Company Law Tribunal), Kolkata Bench, Kolkata by impugned order dated 5th

October, 2018 rejected the application on the ground that the provisions of

the I&B Code are not applicable unless the 'Operational Creditor' seeks

consent of the Central Government to start the 'Corporate Insolvency

Resolution Process' of the 'Corporate Debtor' in view of Section 16G(1)(c) of

the 'Tea Act, 1953'. According to the learned counsel for the Appellant the 2

aforesaid provision of 'Tea Act, 1953' cannot be made applicable and Section

9 of the I&B Code will have an over-riding effect in view of Section 238 of the

'I&B Code'.

2. Further according to the learned counsel for the Appellant initiation of

'Corporate Insolvency Resolution Process' cannot be equated with winding up

proceedings under the Companies Act, 2013.

3. Learned counsel appearing on behalf of the Respondent (Corporate

Debtor) submitted that the application u/s 9 of the I&B Code will not lie nor

can proceed without the leave of Central Government in view of the provisions

of the Tea Act, 1953. It is further submitted that the claim is barred by

limitation as the cause of action having arisen on 14th November, 2014 and

the petition has been filed on 12th February, 2018. It was further submitted

that Tea Act, 1953 is a special Act for the purpose of providing the control by

Union of India on the Tea industry. The 'statement and objects' of the Tea

Act, 1953 will make it clear that it is expedient in the public interest that the

Union should take under its control the Tea industry. The Central

Government has taken over the control of the Tea Industry. Reliance has

been placed on the Notification issued by the Central Government on 28th

January, 2016 authorising the Tea Board to take over the management and

control of 7 tea estates of the Respondent (Corporate Debtor).

4. It is submitted that the said Notification has been challenged before the

Hon'ble High Court of Calcutta and the Division Bench by order dated 16th

September, 2016 though issued notice but has not passed order of stay.

Company Appeal (AT) (Insolvency) No. 710 of 2018 3

5. Reliance has also been placed on the decision of the Hon'ble Supreme

Court in "Macquarie Bank Limited vs. Shilpi Cable Technologies

Limited" - (2018) 2 SCC 674 to suggest that Section 9 of the I&B Code will

have no over-riding effect on the previous Tea Act, 1953.

6. The Tea Act, 1953 was enacted to provide for the control by Union of

the tea industry, including the control, in pursuance of the International

Agreement of the cultivation of tea in and of the export of the tea from India

and for that purpose to establish a Tea Board and levy a duty of excise on the

tea produced in India. It is applicable to whole of India except the State of

Jammu & Kashmir.

7. While constituting the Tea Board, the control of the export of tea from

cultivation was laid down therein. Chapter III A relates to the Management

or Control of Tea Undertaking or different Tea Units by the Central

Government in certain circumstances. Section 16G relates to the

management or a tea undertaking or tea unit owned by a company taken over

by any person or body or persons authorised by the Central Government,

Clause (c) therein provides that no proceedings for 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, relevant of which

reads as under:

"16G. (1) Where the management or a tea

undertaking or tea unit owned by a

company has been taken over by any

person or body of persons authorised

Company Appeal (AT) (Insolvency) No. 710 of 2018 4

by the Central Government under this

Act, then not withstanding anything

contained in the said Act or in the

memorandum 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

sub-section (1), and to the other

provisions contained in this Act and

subject to such other exceptions,

Company Appeal (AT) (Insolvency) No. 710 of 2018 5

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. 16H. If, at any time, it

appears to the Central Government on

the application of the owner of a tea

undertaking or tea unit or otherwise

that the purpose of the order made

under section 16D or section 16E, has

been fulfilled or that for any other

reason it is not necessary that the

order should remain in force, the

Central Government may by notified

order, cancel such order and, on

cancellation of any such order the

management or control as the case

may be, of the tea undertaking or tea

unit, shall vest in the owner of that

undertaking or unit, 16-I. (1) If the

Central Government is of opinion that

there are possibilities of running or

Company Appeal (AT) (Insolvency) No. 710 of 2018 6

restarting a tea undertaking or tea unit

in relation to which an investigation

has been made under subsection (2) of

section 16B, and that such tea

undertaking or tea unit should be run

or restarted for maintaining or

increasing the production supply or

distribution of tea that Government

may make an application to the court

by which the company owing such tea

undertaking or tea unit has been

ordered to be wound up, praying for

permission to appoint any person or

body of persons to take over the

management of the tea undertaking or,

as the case may be, tea unit, or to

exercise in respect of the whole or any

part of the tea undertaking or tea unit,

such functions of control as may be

specified in application."

Under sub-section (2) of Section 16G, the Central Government may by

notification in the Official Gazette, specify exceptions, restrictions and

limitations subject to which the Companies Act, 1956, (now Companies Act,

Company Appeal (AT) (Insolvency) No. 710 of 2018 7

2013) shall continue to apply to such company in the same manner as it

applied thereto before the issuance of the notification.

8. It is not in dispute that the Central Government issued Notification on

28th January, 2016, under Section 16 E(1) of the Tea Act, 1953 authorising

Tea Board to take over the management of 7 Tea gardens owned by the

Respondent (Corporate Debtor).

9. The case of the Appellant is that out of these 7 gardens, the

'Operational Creditor' supplied from the garden 'Birpara Tea Estate' and

therefore it is not in dispute that the supplies made to the 'Corporate Debtor'

is under the management and control of the Tea Board.

10. From plain reading of Section 16(1)(c) of the Tea Act it is clear that

where the management or a tea undertaking or tea unit owned by the

company has been taken over by the Tea Board "no proceeding for the winding

up of such company shall lie in any court except with the consent of the Central

Government."

11. Section 9 of the I&B Code empowers the 'Operational Creditor' to trigger

the 'Corporate Insolvency Resolution Process' against the 'Corporate Debtor'

if there is a 'debt' and 'default' in payment.

12. Section 238 of the I&B Code provides that provision shall have an over-

riding effect if other laws is inconsistent with any of the provisions of I&B

Code, which reads as follows :

"238. The provisions of this Code shall have effect,

Company Appeal (AT) (Insolvency) No. 710 of 2018 8

notwithstanding anything inconsistent therewith contained

in any other law for the time being in force or any instrument

having effect by virtue of any such law."

13. If the interpretation as given by the Respondent is accepted then it is to

be held that Section 16G(1)(c) of the Tea Act, 1953 is not conflicting with

Section 9 of the I&B Code and thereby Section 9 will have an over-riding effect

on Section 16G(1)(c) of the Tea Act, 1953.

14. However, according to us there is no conflict between Section 16G(1)(c)

of the Tea Act, 1953 and Section 9 of the I&B Code. The preamble of the I&B

Code states as follows:

"An act to consolidate and amend the laws

relating to reorganisation and insolvency

resolution of corporate persons, partnership

firms and individuals in a time bound manner

for maximisation of value of assets of such

persons, to promote entrepreneurship,

availability of credit and balance the

interests of all the stakeholders including

alteration in the order of priority of payment

of Government dues and to establish an

Insolvency and Bankruptcy Board of India,

and for matters connected therewith or

incidental thereto.

Company Appeal (AT) (Insolvency) No. 710 of 2018 9

15. The Hon'ble Supreme Court in 'Swiss Ribbons Pvt. Ltd. & Anr. vs. Union

of India & Ors.' - (2019 SCC OnLine SC 73) observed :

"27. As is discernible, the Preamble gives an insight into

what is sought to be achieved by the Code. The Code

is first and foremost, a Code for reorganisation and

insolvency resolution of corporate debtors. Unless

such reorganisation is effected in a time-bound

manner, the value of the assets of such persons will

deplete. Therefore, maximisation of value of the

assets of such persons so that they are efficiently run

as going concerns is another very important objective

of the Code. This, in turn, will promote

entrepreneurship as the persons in management of

the corporate debtor are removed and replaced by

entrepreneurs. When, therefore, a resolution plan

takes off and the corporate debtor is brought back

into the economic mainstream, it is able to repay its

debts, which, in turn, enhances the viability of credit

in the hands of banks and financial institutions.

Above all, ultimately, the interests of all stakeholders

are looked after as the corporate debtor itself

becomes a beneficiary of the resolution scheme--

workers are paid, the creditors in the long run will be

repaid in full, and shareholders/investors are able to

maximise their investment. Timely resolution of a

Company Appeal (AT) (Insolvency) No. 710 of 2018 10

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)."

16. From the aforesaid finding of the Hon'ble Supreme Court decision in

'Swiss Ribbons (Supra,) it is clear that the 'Corporate Insolvency Resolution

Process' while allows a resolution process but liquidation is not desirable under

the I&B Code. Section 16G(1)(c) relates to winding up and on the other hand

Section 9 of the I&B Code application filed is not a proceeding for winding up

but for initiation of 'Corporate Insolvency Resolution Process' to ensure revival

and continuation of the 'Corporate Debtor' by protecting the 'Corporate Debtor'

from its own management and from corporate debt by liquidation.

Company Appeal (AT) (Insolvency) No. 710 of 2018 11

17. Therefore, it is clear that Section 9 of Insolvency and Bankruptcy Code

occupies different field than Section 16G(1) of the Tea Act, 1953.

18. For the reasons aforesaid, we hold that for filing an application under

Section 9 against Tea Company under the management of the different board,

no permission of the Central Government is required in terms of Section 16G(1)

of the Tea Act, 1953. The Adjudicating Authority have erred in noting the

aforesaid fact. We have no other option but to set aside the order. So far as the

question of limitation is concerned, as that was not raised before the

Adjudicating Authority, we are not deciding this issue as it is a mixed question

of facts and law.

19. This apart, we may mention that for filing an application under Section 9

of the I&B Code, Article 137 of Part II of the Third Division of the Schedule of

Limitation Act, 1963, is applicable which is as follows :

"PART II - OTHER APPLICATIONS

Description of application Period of Time for which limitation period being to run

137. Any other application Three years Where the right to apply accrues for which no period of

limitation is provided

elsewhere in this

division.

20. As the Act has come into force on 1st December, 2016, the application

under Section 9 is maintainable.

21. Whether the claim is barred by limitation is a mixed question of fact

and law. It will be open to the respondent to raise this question before the

Company Appeal (AT) (Insolvency) No. 710 of 2018 12

Adjudicating Authority and in such case 'Operational Creditor' may show that

there is a continuing cause of action and claim is not barred by limitation and

thereby there is an 'existence of debt' and 'default'.

22. In view of the finding aforesaid, we set aside the impugned order dated

5th October, 2018 and remit the case to the Adjudicating Authority, Kolkata

Bench, Kolkata to pass appropriate order under Section 9 of the I&B Code

after notice and hearing the parties.

The appeal is allowed with aforesaid observations and directions. No

cost.

[Justice S.J. Mukhopadhaya] Chairperson

[ Justice Bansi Lal Bhat ] Member (Judicial)

New Delhi

20th June, 2019

/ns/

Company Appeal (AT) (Insolvency) No. 710 of 2018