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TMI Blog2024 (7) TMI 1361X X X X Extracts X X X X X X X X Extracts X X X X ..... act of the PBG claim, had it been recognized as valid operational debt, the actual financial benefit to the Respondent would have been minimal - there exists no legal basis for the Respondent to obstruct the Successful Resolution Applicant s participation in the auction process. The finality and decisiveness of an approved resolution plan is recognized under the IBC s framework. The resolution process, as endorsed by the NCLT, aims to free the corporate debtor from past liabilities and enable a fresh operational start, unhampered by unresolved and extinguished debts - The mandate of Section 31 (1) of the IBC underscores that once a resolution plan is approved by the Adjudicating Authority, it is binding not only on the corporate debtor, but also on all stakeholders, including Central and State Governments, as well as any local authorities to whom debts are due under any current laws. This binding nature extends to all statutory dues owed to these authorities. In COMMITTEE OF CREDITORS OF ESSAR STEEL INDIA LIMITED THROUGH AUTHORISED SIGNATORY VERSUS SATISH KUMAR GUPTA OTHERS [ 2019 (11) TMI 731 - SUPREME COURT ] the Supreme Court has elaborated on the treatment of claims post-approv ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... esolutions. The insistence on clearing past dues contradicts the rehabilitative intent and purpose of the IBC, calls for judicial intervention. The impugned decision dated 22nd May, 2024, issued by the Respondent, stipulating that the Petitioner remains ineligible to participate in coal mine auctions until outstanding dues to the Petitioner are cleared, cannot sustain - the present writ petition is allowed and the impugned decision dated 22nd May, 2024 is set aside. - HON'BLE MR. JUSTICE SANJEEV NARULA For the Petitioner Through: Mr. Sandeep Sethi, Senior Advocate with Mr. Divyakant Lahoti, Mr. Kartik Lahoti, Ms. Vindhya Mehra, Ms. Praveena Bisht, Ms. Riya Kumar and Mr. Adith Menon, Advocates. For the Respondent Through: Mr. Kirtiman Singh, CGSC with Mr. Waize Ali Noor, Mr. Ranjeev Khatana, Mr. Varun Pratap Singh, Mr. Varun Rajawat, Advocates with Mr. Prince Kumar and Mr. Jaibant Kishore Dev Varma, Ministry of Coal. JUDGMENT SANJEEV NARULA, J.: 1. Petitioner, OCL Iron and Steel Ltd., now under the management of HI A MMT Pvt. Ltd. following a Corporate Insolvency Resolution Process [CIRP], has been disqualified from participating in coal mine auctions by the Respondent, Nomina ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... deposit an amount of Rs. 92,25,20,000/- with the Respondent within 15 days from the date of the said order. 5. The Resolution Professional challenged the Respondent s decision to terminate the Coal Mine Agreement before the NCLT [IA (IB) No. 15/CB/2022], arguing that the PBG could not be kept alive due to the global pandemic COVID-19. As an ad-interim measure, the NCLT issued ex-parte directions to the Respondent on 24th January, 2022, restraining them from proceeding with the Termination Order. On a subsequent date (07th February, 2023), the interim order was vacated and the NCLT dismissed IA (IB) No. 15/CB/2022 filed by the Resolution Professional. The Resolution Professional as well as the Successful Resolution Applicant (M/s Indrani Patnaik) thereafter preferred appeals against the NCLT s order dated 07th February, 2023 before the National Company Law Appellate Tribunal [NCLAT]. In the said appeal, on 08th May, 2023, the NCLAT restored the interim order dated 24th January, 2022, thereby staying the operation of the Termination Order. 6. The Resolution Professional notified the onset of CIRP and invited claims from the public through publication in the Business Standard on 23rd ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... te Debtor. 9. The new board of management of the corporate debtor was constituted in March-April 2023. The reconstituted management of the Petitioner applied for participation in the bidding process for the Lalgarh South coal mine on 15th February, 2024 (titled the 9th Tranche of Mine Auctions). Their participation was acknowledged by the Respondent through inclusion in the list of bidders created on 20th February, 2024. However, in the list of technically qualified bidders notified on 11th March, 2024, Petitioner s name was omitted. The Petitioner submitted several representations to Respondent seeking permission to participate in the approaching coal mine auctions. They also challenged their elimination from the bidding process through a writ petition [bearing WP(C) No. 1407/2024] before the High Court of Jharkhand. However, given that the auction process for the Lalgarh South coal mine was concluded in favour of another bidder, rendering the Petitioner s relief for participation in the process infructuous, the petition was withdrawn on 10th July, 2023. 10. In response, the Respondent addressed a communication dated 22nd May, 2024 to the Petitioner, prohibiting them from particip ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ional creditor, which stood admitted in CIRP. Accordingly, in terms of payment scheme outlined in the Resolution Plan, an amount of Rs. 49,262/- was disbursed in Respondent s favour, thereby settling all outstanding obligations of the corporate debtor. 12.3. Clause 4.1.3.4 of the approved resolution plan explicitly limits the liability regarding operational creditors and statutory dues of the corporate debtor and the Successful Resolution Applicant to the claims notified and accepted by the Resolution Professional, as included in the Information Memorandum; all other claims are extinguished. Similarly, Clause 4.1.3.6 stipulates that upon approval of the plan by the NCLT, all claims, liabilities, and obligations payable to governmental authorities by the corporate debtor will be written off in full and deemed permanently discharged, and will not be recoverable from the corporate debtor or the Resolution Applicant at any time. The business operations of the Petitioner-company were revived during the CIRP as per the strategy detailed in the resolution plan. All claims received by the Resolution Professional have been considered in the resolution plan, and any residuary claims not rais ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the established norms concerning participation in coal auction processes, operative since before the Petitioner s CIRP. 13.2. Clause 13 of the resolution plan explicitly records that the plan would not be contingent upon the grant of waivers by the NCLT, and shall remain unaffected by their refusal. While reviewing the resolution plan, the NCLT declined to grant a concession for the debts owed to the Respondent. Instead, it allowed the concerned party/ authority to explore other arrangements, as is evident from the language used by the NCLT when rejecting the request for waiver. This indicates that debts are owed to the Respondent by the Petitioner. The Petitioner did not challenge the rejection of their request, and cannot now contend that the debts do not subsist. Through the present petition, the Petitioner cannot seek a declaration or determination which is contrary to the approved resolution plan. 13.3. A perusal of the observations against each request for waiver/ concession contained in paragraph No. 34 of the NCLT s approval order dated 20th March, 2023 reflects that the NCLT purposefully used the phrase as per the applicable provisions of law. Concerned parties/authorities ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 021 that NCLT has ordered commencement of corporate insolvency resolution process for OCL Iron and Steel Limited (successful bidder) on 20.09.2021. Further, allocation of Ardhagram coal mine was terminated on 31.12.2021. It is important to highlight that the final decision on the show cause notice could not be taken due to the unavailability of PBG. 4. Hon ble NCLT, vide order dated 20.03.2023(approval of Resolution Plan) dealt with Relinquishment/ waiver of liabilities and approvals. With respect to the waiver sought relating to Ardhagram coal mine, the NCLT has given following order:- As per the applicable provisions of law. Concerned parties/authorities as the case be, may consider keeping in view the letter and spirit of the Insolvency and Bankruptcy code, 2016, which is to enable fresh start to the Corporate Debtor. 5. Hon ble NCLT, vide order dated 20.03.2023 did not considered for waiver of past dues of M/s OCL Iron Steel Ltd with reference to Ardhagram coal mine. Therefore, the liability of M/s OCL Iron Steel Ltd towards non-renewal of bank guarantee amounting to INR 92.25 Cr exist as per Termination Order dated 31.12.2021 and payment of incremental fixed cost of INR 9.21 C ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he Ardhagram coal mine. 16. It is uncontroverted that the Respondent claimed the incremental fixed cost of Rs. 9,21,44,029/- as an operational creditor. However, the claim of the PBG of Rs. 92,25,20,000/- was filed under Form C as a financial debt. After scrutinizing the documents presented, the Resolution Professional held that this claim was not admissible as a financial debt , as there was no disbursement of amount in favour of the Petitioner. This decision was communicated to the Respondent on 06th January, 2022, and they were permitted to file an appropriate form for the satisfaction of their dues, if advised, on 07th January, 2022. The e-mail communication dated 07th January, 2022 reads as under: Dear Sir, In furtherance to our trailing mail wherein it has been informed that the claim submitted by the Nominated Authority, Ministry of Coal ( Claimant ) vide Form C cannot be admitted as the financial creditor as Claimant does not qualify as the Financial Creditor of the Corporate Debtor. However, please note that the Claimant may file its claim in appropriate form along with supporting documents based on their independent legal advice which shall be considered by the Resolution ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nt requests for the reliefs, concessions and dispensations set out below to be included in the Adjudicating Authority order approving the Resolution Plan. For the avoidance of doubt, the Resolution Applicant unconditionally confirms and undertakes that this Resolution Plan will not be conditional upon any conditions or any reliefs, waivers and concessions sought from the NCLT/relevant government, statutory, regulatory or judicial authorities and the Implementation of the Resolution Plan shall remain unaffected even if any relief, waivers or concession is not granted by the NCLT or any relevant judicial) statutory, regulatory or governmental authority. xx --- xx --- xx 30. Waiver of compensation of INR 9.21 Crore which is due towards the prior allottee of the Ardhagram Coal Mine. Waiver of the entire contingent claim of INR 92.25 Crore in relation to the Nominated Authority, Ministry of Coal in terms of the Coal Mine Development Production Agreement dated 28.02.2015 (CMDPA). Further, the approval of the Resolution Plan by the AA to absolve the Corporate Debtor from any other past dues in relation to the allotment of the Ardhagram Coal Mine. 19. As per Regulation 13 of the CIRP Regul ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... other operational creditors. 22. The upshot of the above discussion is that with the approval of the resolution plan by the NCLT on 20th March, 2023, the claims that were not submitted in the required manner or were rejected by the Resolution Professional, are deemed extinguished. This extinguishment includes all dues, including statutory dues owed to the Central Government that were not incorporated in the resolution plan. The Respondent s inaction in contesting the categorization of their claims by the Resolution Professional, or challenging the resolution plan signifies their acceptance of the resolution process. Moreover, even if we were to hypothetically consider the financial impact of the PBG claim, had it been recognized as valid operational debt, the actual financial benefit to the Respondent would have been minimal. The proportional payment under the resolution plan would have amounted to merely Rs. 4,70,485.20 (0.051% of the PBG claim amount). This nominal sum underscores the futility of any attempts by the Respondent to assert the full value of PBG against the Successful Resolution Applicant. In light of these facts, there exists no legal basis for the Respondent to obs ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ich aims to streamline and stabilize the process of corporate revival. The Supreme Court s observations emphasise the critical need for all claims related to the corporate debtor to be presented, assessed, and resolved during the CIRP. This ensures that the Resolution Applicant enters the post-CIRP phase with clarity and confidence regarding the financial responsibilities inherited. The requirement that all claims be decided by the Resolution Professional before the approval of the plan ensures that the Resolution Applicant is fully aware of the financial commitments required to revitalize and operate the business. Therefore, introducing claims that were not part of the list of assessed and finalized claims in CIRP post the approval of resolution plan, contravenes the established legal framework and the Supreme Court s holding. This ruling importantly guards against the hydra head phenomenon, where unexpected financial liabilities emerge post the CIRP, potentially destabilizing the newly revived corporate debtor and deterring future investment and participation in the insolvency resolution processes. [Refer: Ajay Kumar Radheyshyam (Supra).]. The purport of NCLT s observations on de ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d as under: The Insolvency and Bankruptcy Code, 2016 (the Code) was enacted with a view 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 or priority of payment of Government dues and to establish an Insolvency and Bankruptcy Board of India. 2. The Preamble to the Code lays down the objects of the Code to include the insolvency resolution in a time bound manner for maximisation of value of assets in order to balance the interests of all the stakeholders. Concerns have been raised that in some cases extensive litigation is causing undue delays, which may hamper the value maximisation. There is a need to ensure that all creditors are treated fairly, without unduly burdening the adjudicating authority whose role is to ensure that the resolution plan complies with the provisions of the Code. Various stakeholders have suggested that if the creditors were treated on an equal footing, when ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... , thereby facilitating a fresh start for the debtor under new management, free from past liabilities and encumbrances. Therefore, the Court remains unconvinced with the Respondent s construal of the observations of the NCLT in deciding concessions to the corporate debtor in respect of their obligations to the Respondent. Standing of the impugned decision in the context of the resolution plan 30. An approved resolution plan is a critical document. It encapsulates all pertinent details in the information memorandum prepared by Resolution Professional, equipping the Resolution Applicant with a clear understanding of potential liabilities. This facilitates the formulation of a plan that not only addresses these liabilities, but also revitalizes the corporate debtor, ensuring its operational continuity. The legislative framework mandates that once the resolution plan receives approval from the Adjudicating Authority, signifying its compliance with the criteria set forth in Section 30 (2) of the IBC, it becomes binding on all stakeholders. This approval is designed to pre-empt any unforeseen claims against the Successful Resolution Applicant, thereby allowing them to commence operations ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tioner s new management based on past liabilities arising against the erstwhile management. Imposing such claims or restricting the Petitioner s participation in tenders based on these extinguished or unapproved claims would contradict the principles of the IBC, which aims to provide a fresh start to the corporate debtor. Such actions would be deemed unreasonable, arbitrary, and in violation of the spirit of the IBC, thus, infringing Article 14 of the Constitution of India, which ensures equality before the law. CONCLUSION AND DIRECTIONS 34. The resolution framework, as noted above, intends to balance the interests of all stakeholders, including creditors, by ensuring that they are bound by the finalized resolution plan. As such, the Respondent, who is a creditor within its context, is obligated to adhere to the stipulations of the resolution plan as approved on 20th March, 2023, which mandates an interpretation and application of the IBC as per its intent and statutory mandate. By holding the Petitioner accountable for liabilities that have been legally extinguished, the Respondent has failed to adhere to the statutory mandate of the IBC and the broader objectives of insolvency re ..... X X X X Extracts X X X X X X X X Extracts X X X X
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