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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 ..... ition, the Petitioner seeks to invalidate Respondent's decision, arguing that the corporate debtor, having undergone the CIRP, must not be held liable for past dues, which stand addressed in the resolution plan. The Respondent, on the other hand, maintains that their claims have survived the insolvency proceedings, as noted in the resolution plan. Thus, they argue that the Petitioner's disqualification is consistent with their established policy and tender conditions requiring the bidders to clear all past dues. 2. This judgment shall resolve the parties' conflicting positions to determine whether the Petitioner is liable for the alleged dues, thereby ascertaining their eligibility to participate in the coal mine auctions. THE FACTUAL BACKDROP 3. The Petitioner was established in 2006 as a coal based direct reduced iron production unit in Orissa. On 02nd March, 2015, they executed a Coal Mine Development and Production Agreement with the Respondent in respect of allocation and development of Ardhagram coal mine for production and utilization of coal. ["Coal Mine Agreement."] Clause 6.1. of this Agreement mandated submission of a bank guarantee for an amount of Rs. 92,25,20,000/- ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the PBG, and (b) the incremental fixed cost of Rs. 9,21,44,029/-, which was due towards the prior allottee of the Ardhagram coal mine. 7. On 06th January, 2022, the Authorized Representative of Resolution Professional issued a communication to the Respondent, informing them that the claim pertaining to the PBG in Form C and other supporting documents did not disclose a "financial debt" as per proviso to Section 3(31) of the IBC and thus, the Respondent was not found eligible to be a financial creditor by the Resolution Professional. Following the said communication, on 07th January, 2022, another e-mail communication was addressed to the Respondent, permitting them to file their claim in an appropriate form with supporting documents, if so advised, for the consideration of the Resolution Professional. No subsequent claim/ form was submitted by the Respondent to the Resolution Professional. 8. The resolution plan dated 27th May, 2022 formulated by the Successful Resolution Applicant was approved by the NCLT under Section 31 (1) of the IBC on 20th March, 2023. Clause 13 of the plan presented to the NCLT, titled "Concessions, Reliefs and Dispensation Sought," inter alia sought wai ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nd the incremental fixed cost of Rs. 9,21,44,029/-, remain unsettled by the Petitioner. Therefore, referring to the clauses of the Coal Mine Agreement and the Standard Tender Document, the Respondent debarred the Petitioner from participation in future auctions till the repayment of outstanding dues. 11. The instant petition seeks setting aside of the impugned decision. CONTENTIONS OF THE PARTIES On behalf of the Petitioner 12. Mr. Sandeep Sethi, Senior Counsel for Petitioner, presented the following arguments to assail the impugned decision: 12.1. The obligation concerning the PBG stems from Clause 6.1 of the Coal Mine Agreement executed between the parties, mandating the Petitioner to deliver a performance security in the form of an irrevocable and unconditional bank guarantee. This PBG was required to be kept alive till the coal mine achieved annual peak rated capacity. However, the Petitioner was unable to renew the PBG in view of the effect of COVID-19 pandemic, which severely affected their operations leading to shut down in March 2020, whilst the company was under the management and control of erstwhile Dham Group. In such circumstances, CIRP was initiated. The Terminat ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... request for waiver of claims, thereby implying that their claims still subsist. Irrespective, if the Respondent's contention that there is no waiver of the amount in question is accepted, it would not entitle them to deny the Petitioner participation in the tender, as the same would contradict the "letter and spirit" of the IBC. The mention of "applicable law" by the NCLT while determining the request for waiver suggests that all decided claims must not be resuscitated to preclude the new management from restarting their commercial activity with a 'fresh slate.' 12.5. In support, reliance is placed on the judgments of the Supreme Court in Ghanashyam Mishra and Sons Private Ltd. v. Edelweiss Asset Reconstruction Co. Ltd (2021) 9 SCC 657., Ajay Kumar Radheyshyam Goenka v. Tourism Finance Corporation of India Limited (2023) 10 SCC 545., and order dated 28th October, 2021 in Daiichi Sankyo Company Limited v. Malvinder Mohan Singh and Ors. O.M.P.(EFA)(COMM.) 6/2016. 12.6. The impugned decision breaches Articles 14, 19 and 21 of the Constitution of India, 1950, and contravenes the intent of Mines and Minerals (Development and Regulation) Act, 1957, which is to ensure a fair competitio ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rt to the Corporate Debtor" in respect of the amounts due to the Respondent. NCLT's sanction to the plan is restricted by the observations made in its order dated 20th March, 2023, and does not substantiate the Petitioner's assertions in this petition. 13.4. The principle of 'fresh start' of an entity that has undergone CIRP does not absolve them from pending dues acknowledged by the Resolution Professional. The Petitioner's interpretation of the communications dated 06th and 07th January, 2022 as a rejection of the Respondent's claim is misconceived. The Resolution Professional recognized the existence of Respondent's claim, but opined that it does not qualify as a financial debt. The consequence of such determination, as per the scheme of the IBC, is the exclusion of the Petitioner from the Committee of Creditors, and not the denial of claims. Therefore, the approved resolution plan entitles the Respondent to recover their acknowledged claims. Consequently, until the satisfaction of the pending dues, the Petitioner remains ineligible to participate in the auction process. 13.5. In support, Mr. Singh referred to the judgments in Swiss Ribbons Private Limited and Anr. v. Union of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... wing Clauses of CMDPA & Tender Document: As per Clause 3.1.d of CMDPA "any upwards revision in the fixed amount on a subsequent date by the government or the Nominated Authority consequent to any process or on the orders of any competent court of law, shall also be payable by the Successful bidder." As per Clause 24.3.3 of CMDPA "In case the Nominated Authority elects to terminate this Agreement, then the Performance Security and all other payments made by the Successful Bidder shall be forfeited and the Successful Bidder shall not be entitled to any benefits under this Agreement but would continue to be liable towards any antecedent liability, all obligation accrued before the effective date of the surrender/ termination and also for the obligations that must be fulfilled after termination". 7. As per Clause 4.1.3 of the Standard Tender Document: "If any company or corporation has failed to pay the Fixed Amount, upward revision in Fixed Amount or any other dues payable to the Nominated Authority in respect of any mine allocated to it then such company or corporation, its affiliates, subsidiaries, group companies or joint venture companies comprising such company or corpor ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Code, 2016 and the rules and regulations thereunder." [Emphasis Supplied] 17. Concededly, thereafter, no claim was presented under any appropriate form. Nonetheless, the Respondent argues that the Resolution Professional has not extinguished their claim for the PBG, but merely advised them to file it under the appropriate form. According to the Respondent, the rejection of Form C cannot be construed as a 'decision on the claim.' Thus, they contend that since their dues remain outstanding, they are entitled to debar the Petitioner from the auction process as per the tender eligibility conditions, unless their debts are resolved. Determination of Respondent's claim under the resolution plan 18. To properly appraise the merits of the Respondent's position, it is crucial to examine the resolution plan, as approved, particularly focusing on how the Respondent's claims have been considered and dealt within the plan. This scrutiny will clarify the consideration given to the Respondent's claims and determine their current status in the CIRP. For this purpose, the pertinent segments of the Resolution Plan are reproduced below: "3.4.2. List of Financial Creditors with voting share in C ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 13 of the CIRP Regulations, 2016, on 31st May, 2022, after considering all the claims submitted by various stakeholders, the Resolution Professional prepared a list of creditors of the Petitioner/ corporate debtor. The claim of Rs. 9,21,44,029/-, shown in Annexure 7 to the list, was admitted in full as a government due. However, the claim of Rs. 92,25,20,000/- of the Respondent, received on 05th October, 2021, was not admitted in its entirety as noted in Annexure 4 to the list. 20. The Resolution Plan specifically deals with the dues of government and operational creditors. A total sum of Rs. 52,00,000/- has been earmarked for distribution among the admitted claims of these creditors, reflecting a structured and proportionate allocation method. Within this framework, the specific apportionment for the Respondent's admitted operational debt of Rs. 9,21,44,029/- was calculated at Rs. 49,262/-, which represents 0.051% of the admitted amount. This payment was disbursed by the Successful Resolution Applicant on 03rd May, 2023, into the designated account specified in the resolution plan. Consequently, with this payment, any residual claim related to the debt of Rs. 9,21,44,029/- is con ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r the Respondent to obstruct the Successful Resolution Applicant's participation in the auction process. 23. 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. This ensures legal backing to the new management to proceed without the overhang of previous liabilities, conforming to the stipulations of the resolution plan and Section 31 (1) of the IBC, which reads as under: "31. Approval of resolution plan. - (1) If the Adjudicating Authority is satisfied that the resolution plan as approved by the committee of creditors under sub-section (4) of section 30 meets the requirements as referred to in sub-section (2) of section 30, it shall by order approve the resolution plan which shall be binding on the corporate debtor and its employees, members, creditors, including the Central Government, any State Government or any local authority to whom a debt in respect of the payment of dues arising under any law for the time being in force, such as autho ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... purport of NCLT's observations on debt waiver and concessions 26. The Respondent has clearly misinterpreted the NCLT's decision and the terms of resolution plan. The NCLT, while approving Clause 13 of the resolution plan - which deals with concessions, reliefs, and dispensations sought by the Resolution Applicant - specifically directed the concerned parties (the Respondent, in this instance) to interpret and apply the provisions of law within the IBC framework, both in letter and spirit. This directive underscores the intent of the IBC to facilitate a fresh start for the corporate debtor. The order mandates that waivers under Clause 13 be interpreted and applied to support the overarching goal of enabling a fresh start for the restructured entity. The tenor of the NCLT's observations, relegating the parties to adopt a course that conforms to the "letter and spirit" of the IBC, is to foster the fundamental goal of the IBC - facilitating the efficient resolution of insolvency cases to maximize asset value and promote entrepreneurship and credit availability. The NCLT reinforced the foundational objectives of the IBC, which is designed to clear the slate of past encumbrances that m ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f the creditors were treated on an equal footing, when they have different pre-insolvency entitlements, it would adversely impact the cost and availability of credit. Further, views have also been obtained so as to bring clarity on the voting pattern of financial creditors represented by the authorised representative. 3. In view of the aforesaid difficulties and in order to fill the critical gaps in the corporate insolvency framework, it has become necessary to amend certain provisions of the Insolvency and Bankruptcy Code. The Insolvency and Bankruptcy Code (Amendment) Bill, 2019, inter alia, provides for the following, namely- xx --- xx --- xx (f) to amend sub-section (1) of Section 31 of the Code to clarify that the resolution plan approved by the adjudicating authority shall also be binding on the Central Government, any State Government or any local authority to whom a debt in respect of payment of dues arising under any law for the time being in force, such as authorities to whom statutory dues are owed, including tax authorities;" 29. The IBC facilitates economic rehabilitation of the corporate debtor, enabling it to service its debts, thereby enhancing the reliabilit ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... olution Applicant, thereby allowing them to commence operations afresh, unaffected by past encumbrances. The overarching intent is to ensure that the Applicant starts on a clean slate, guided solely by the terms of the resolution plan. [Refer: Ghanashyam Mishra (Supra).]. 31. Under the framework of the IBC, all claims against the corporate debtor must be clearly delineated and adjudicated by the Resolution Professional during the CIRP. It is beyond dispute that the resolution plan, once approved by the Adjudicating Authority, carries binding legal force on all stakeholders. This binding nature of the resolution plan is designed to establish finality and certainty to the insolvency process, thereby preventing any further disputes or claims that could undermine the successful revival of the corporate debtor as a going concern. 32. Therefore, the observations contained in the impugned decision dated 22nd May, 2024 are required to be analysed in the context of the resolution plan approved on 20th March, 2023 and Section 31 (1) of the IBC. Section 31 (1), as discussed above, underscores that a resolution plan, once ratified by the Adjudicating Authority, must absolve the corporate deb ..... X X X X Extracts X X X X X X X X Extracts X X X X
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