The National Company Law Appellate Tribunal (NCLAT), in A.J. Agrochem v Duncans Industries Limited, passed an order deciding the issue of whether approval of the Central Government under Section 16G(1)(c) of the Tea Act, 1953 (Tea Act) is necessary for filing an application under of the Insolvency and Bankruptcy Code, 2016 (IBC) against a tea company.
In the instant case titled A.J. Agrochem v Duncans Industries Limited, two issues were raised before the NCLAT:
In terms of Section 238 of the IBC, the provisions of the IBC including Section 9 would have an overriding effect over the provisions of the Tea Act. Therefore, requirements of seeking consent under Section 16G of the Tea Act would not be applicable; and
Initiation of CIRP is different from initiation of winding up proceedings. As such, Section 16G of the Tea Act is not applicable to the present application.
The NCLAT held that IBC's statement of purposes and reasons, the fundamental goal of the IBC was to secure the resurrection and continuance of debtor enterprises by completing the CIRP procedure in a timely way. Under the IBC, liquidation is only used as a last resort and is not a desirable conclusion. This point was supported by the decision in Swiss Ribbons Pvt Ltd v Union of India (2019 SCC Online SC 73) (Swiss Ribbons case).
As of the second issue, the nature and logic of initiating CIRP in response to an application under Section 9 of the IBC differ significantly from the 'winding-up' processes specified in Section 16G(1)(c) of the Tea Act. As a result, there is no contradiction between the two statutes, and the Tea Act's Section 16G(1)(c) does not apply to the IBC's Section 9 provisions.
Section 238 of the IBC only applies to instances in which the IBC's provisions contradict those of other laws. Section 238 was not applicable to the case at hand since there was no such conflict; and
Section 16G of the Tea Act does not apply because taking over the actual management is the sine qua non for making Section 16G applicable, and Consent of the Central Government is not required before initiating proceedings under Section 9 of IBC.