Full Text
HIGH COURT OF DELHI
OCL IRON AND STEEL LIMITED .....Petitioner
Through: Mr. Sandeep Sethi, Senior Advocate
Through: Mr. Kirtiman Singh, CGSC
Coal.
JUDGMENT
1. Petitioner, OCL Iron and Steel Ltd., now under the management of HI A MMT Pvt. Ltd. following a corporate insolvency resolution process,[1] has been disqualified from participating in coal mine auctions by the Respondent, Nominated Authority of the Ministry of Coal, Government of India. This debarment is premised on certain outstanding unsettled dues “CIRP.” attributable to the Petitioner’s erstwhile management. Through the present writ petition, 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.[2] Clause 6.1. of this Agreement mandated submission of a bank guarantee for an amount of Rs. 92,25,20,000/- as performance security by the Petitioner, which was to remain in force till such time the coal mine in question achieved the annual peak rated capacity.[3] Clause 24.3.[3] of the Coal Mine Agreement provided for forfeiture of the PBG in the event of termination of the Agreement by Respondent.
4. On an application under Section 7 of the Insolvency and Bankruptcy “Coal Mine Agreement.” “PBG.” Code, 2016,[4] National Company Law Tribunal,[5] Cuttack Bench initiated CIRP against OCL Iron and Steel Limited at the behest of Indian Bank (formerly, Allahabad Bank) on 20th September, 2021, triggering a moratorium under Section 14 of the IBC [bearing CP(IB) NO. 111/CTB/2020]. During this period, on 31st December, 2021, Respondent issued a communication terminating the Coal Mine Agreement for breach of its terms, specifically the non-renewal of the PBG, which had lapsed on 20th March, 2021, as per Clause 6.15.[6] The Termination Order also required the Petitioner’s erstwhile management to 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.[7] In the said appeal, on 08th May, 2023, the NCLAT restored the interim order “IBC.” “NCLT.” “Termination Order.” “NCLAT.” 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 September, 2021. The Respondent submitted two claims to the Resolution Professional: (a) Form C dated 04th October, 2021 as a financial creditor in respect of the claim of Rs. 92,25,20,000/- towards 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 waiver of the two claims raised by the Respondent, as detailed above. The observations of the NCLT in respect of this request are as follows:
Concerned
│ │ Waiver of the entire contingent claim parties/authorities, as the │ │ of INR 92.25 Crore in relation to the case be, may consider │ │ Nominated Authority, Ministry of Coal keeping in view the letter │ │ in terms of the Coal Mine and spirit of the Insolvency │ │ Development & Production Agreement and Bankruptcy Code, 2016, │ │ dated 28.02.2015 (CMDPA). Further, which is to enable fresh │ │ the approval of the Resolution Plan by start to the Corporate │ │ the AA to absolve the Corporate Debtor.” │ │ Debtor from any other past dues in │ │ relation to the allotment of the │ │ Ardhagram Coal Mine. │ │ 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, │ └──────────────────────────────────────────────────────────────────────────────────────────────────────────────────────�
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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 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 considered fully settled.
21. Insofar as the claim against PBG is concerned, as noted above, it was set up by the Respondent as a financial creditor and this designation was rejected by the Resolution Professional. It is crucial to note that, following this rejection, the Respondent did not file any appropriate form as specified under the CIRP Regulations, 2016, to reclassify the claim as an operational debt. Consequently, this led to the claim being deemed extinguished. Significantly, the Respondent also did not challenge the approved Resolution Plan, nor did they contest the Resolution Professional’s categorization. This inaction has crucial legal implications. It exhibits tacit acceptance of the final outcomes, effectively precluding the Respondent from resurrecting this claim at a later stage. Moreover, even if the claim were to be reconsidered and reclassified as an operational credit arising from a government due, such a reclassified claim would have been subjected to the same proportional payment structure as other operational debts. The Respondent would have then received only 0.051% of the admitted amount, which would have been approximately Rs. 4,70,485.20/-, mirroring the treatment accorded to 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 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:
24. 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. This provision provides certainty and finality to the outcome of the resolution process, ensuring that once a resolution plan is approved, it is universally applicable and enforceable against all parties involved.
25. In Committee of Creditors of Essar Steel India Ltd. v. Satish Kumar Gupta and Ors.,14 the Supreme Court has elaborated on the treatment of claims post-approval of a resolution plan. The Apex Court emphasized that a Resolution Applicant should not be encumbered by sudden and unforeseen claims. Such occurrences would not only disrupt the financial calculations and expectations that underpinned the resolution plan, but also undermine the very purpose of the IBC, which 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.15 The 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
Refer: Ajay Kumar Radheyshyam (Supra). 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 might hinder the economic recovery of distressed entities. This is to ensure that the corporate debtor emerges from insolvency resolution unburdened by unsustainable debts, equipped to embark on a sustainable operational path. The order reflects the rehabilitative intentions of the IBC, affirming that the economic revitalization of the corporate debtor takes precedence over the pursuit of outstanding liabilities, particularly, those that have been considered and extinguished within the approved resolution plan.
27. The Supreme Court has also articulated the legislative intent behind IBC through various judgments,16 emphasizing its purpose in the reorganization and insolvency resolution of corporate debtors. The core objective is the maximization of asset value, ensuring the debtor operates as a going concern, which in turn promotes entrepreneurship by replacing inefficient management with capable stewards.
28. The spirit of IBC can also be gleaned from the Statement of Objects and Reasons of the Insolvency and Bankruptcy Code (Amendment) Act, 2019, inter alia aimed at binding the governmental authorities to an approved resolution plan. The pertinent sections thereof read 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 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- (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, See: Ghanashyam Mishra (Supra) and Swiss Ribbons (Supra). enabling it to service its debts, thereby enhancing the reliability of the credit market. Importantly, the Code prioritizes the interests of all stakeholders, including the corporate debtor, by shielding it from its past management and potential liquidation threats. This focus on revitalization over mere credit recovery segregates the debtor’s interests from those of its previous promoters or managers, underscoring the IBC’s object as a protective, not adversarial, mechanism in the resolution process. This legislative framework is designed to return the corporate debtor to viability, benefiting the broader economic ecosystem. The objective of IBC is to streamline and expedite the insolvency resolution process, safeguard the value of assets, promote entrepreneurship, and ensure the equitable treatment of all stakeholders. This is achieved by prioritizing the quick resolution of insolvency cases to prevent erosion of asset value due to protracted litigation. The 2019 amendment explicitly makes the approved resolution plan binding on governmental entities, affirming that all creditors, including government bodies with statutory dues, are to adhere to the terms set forth in the resolution plan. This reinforces the principle that the resolution plan, once approved, supersedes all previous claims and entitlements, 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 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.17
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 Refer: Ghanashyam Mishra (Supra). by the Adjudicating Authority, must absolve the corporate debtor of past liabilities, enabling the Successful Resolution Applicant to commence operations unencumbered by previous debts. Thus, excluding the Petitioner from participating in tenders on the basis of prior dues attributable to the corporate debtor, contradicts the fundamental tenets of the IBC. This decision overlooks the fact that primary goal of the IBC is the rejuvenation of the corporate debtor, enabling a revival free from the encumbrances of past liabilities, thereby allowing the entity to operate as a competitive entity in the marketplace. By requiring the settlement of these past dues as a precondition for tender participation, the Respondent not only undermines the statutory framework and purpose of the IBC, but also imposes an unreasonable restriction that potentially stifles competition and innovation in the sector. Such demands for pre-resolution liabilities, post the approval and implementation of a resolution plan, are inconsistent with the doctrine of ‘fresh start’ under the IBC.
33. As a result, the claims of Rs. 92,25,20,000/- and Rs. 9,21,44,029/cannot be considered as pending or active against the new management of the Petitioner. Hence, the Respondent does not have the standing to impose penalties or claim dues from the Petitioner’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 resolutions. The insistence on clearing past dues contradicts the rehabilitative intent and purpose of the IBC, calls for judicial intervention.
35. In light of the above, 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.
36. Accordingly, the present writ petition is allowed and the impugned decision dated 22nd May, 2024 is set aside. The Petitioner shall be eligible to participate in the coal mine auctions.
37. With the above directions, the present petition is disposed of along with the pending applications.
SANJEEV NARULA, J JULY 26, 2024as/nk