Lawyer Monthly Magazine - November 2019 Edition

On 4 October 2019, the Hon’ble Supreme Court held that section 238 of the Insolvency and Bankruptcy Code, 2016 (“IBC”) has an overriding effect over the provisions of the Tea Act, 1953 (“Tea Act”). Accordingly, the prior approval of the Central Government is not required, under the Tea Act, for filing an application under IBC for the commencement of corporate insolvency resolution process (“CIRP”), against a tea company. In the present case, A.J. Agrochem (operational creditor) filed an application, under section 9 of the IBC, against Duncans Industries Limited (corporate debtor) before the National Company Law Tribunal (“NCLT”) on account of default by the INSOLVENCY AND BANKRUPTCY CODE, 2016, HAS AN OVERRIDING EFFECT corporate debtor in payment of dues against goods supplied by the operational creditor. The NCLT, however, dismissed the application of the operational creditor on the ground that the operational creditor did not comply with the requirement of section 16G(1)(c) of the Tea Act. As per section 16G(1)(c) of the Tea Act in case the management of, or a tea undertaking or tea unit owned by, a company has been taken over by the Central Government, then no proceeding for winding up of such company or for the appointment of receiver in respect thereof shall lie in any court except with the prior approval of the Central Government. The operational creditor filed an appeal before the National Company Law Appellate Tribunal (“NCLAT”), wherein the NCLAT held that prior approval of the Central Government under section 16G(1)(c) of the Tea Act is not required for an application filed under section 9 of IBC. The judgement of the NCLAT was based on the ground that section 9 of IBC occupies a different field than section 16G(1)(c) of the Tea Act. Since section 16(G) (1)(c) relates to winding up whereas the application filed under section 9 of IBC is not a proceeding for winding-up but for initiation of CIRP to ensure revival and continuation of a corporate debtor, prior approval of the Central Government is not required. (A.J. Agrochem v. Duncans Industries Limited, Civil Appeal no. 5120 of 2019) The Hon’ble Supreme Court upheld the judgement of the NCLAT and observed that the proceedings under section 9 of IBC shall not be limited and/or restricted to winding up and/or appointment of the receiver only. The winding up/liquidation of a company shall be the last resort only when CIRP fails. Therefore, CIRP cannot be equated with winding up proceedings. The Apex Court held that section 238 of IBC (which is an over-riding clause), shall be applicable and the provisions of IBC shall have an overriding effect over any other law including the Tea Act. Payment of outstanding tax liabilities for implementation of scheme of amalgamation (Ad2Pro Media Solutions Pvt. Ltd. v. Regional Director (SER), Ministry of Corporate Affairs & Ors., Company Appeal (at) No. 98 of 2019) The National Company Law Appellate Tribunal (“NCLAT”), vide its order dated 25 September 2019, reiterated the well settled principle that: “Once a scheme has been sanctioned by a Tribunal… nothing precludes the Tax Authorities from recovering its legitimate and recoverable outstanding tax dues from the Transferor or the Transferee Company, as provided in the scheme.” Accordingly, the NCLAT modified the scheme of arrangement (“Scheme”), which was approved by the National Company Law Tribunal, Bangalore (“NCLT”) subject to the condition that Ad2Pro Media Solutions Pvt. Ltd. (the “Transferor Company”) pays the entire outstanding liabilities towards income- Regulatory Update of the Month: India By Clasis Law 18 WWW.LAWYER-MONTHLY.COM | NOV 2019