Ocl Iron And Steel Limited vs Union Of India WP 8316 of 2024
Facts:
1) 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.
2) An Application under CIRP was admitted against the petitioner on 20th September, 2021, triggering a moratorium under Section 14 of the IBC. 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
3) The Resolution Professional challenged the Respondent’s decision to terminate the Coal Mine Agreement before the NCLT 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.
4) 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. 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. 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. In response, the Respondent addressed a communication dated 22nd May, 2024 to the Petitioner, prohibiting them from participating in prospective coal mine auctions. 8 According to the Respondent, the dues of Rs. 92,25,20,000/- arising from the failure to renew the PBG and 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.
Issue: Whether the application can be allowed ?
Arguments:
Petitioner:
1) Counsel submitted that 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.
2) It was submitted that Termination Order directing the Petitioner to furnish an amount of Rs. 92,25,20,000/- in lieu of the non-renewed PBG, was wrongly issued by the Respondent after the commencement of a moratorium under Section 14 of the IBC. A challenge to the Termination Order is pending before the NCLAT.
3) It was submitted that 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.
Respondent:
1) It was submitted that Under the framework for allocation of work provided under the Mines and Minerals (Development and Regulation) Act, 1957, the Respondent issued the Standard Tender Document for the 9th Tranche of Mine Auctions. Clause 1.1.62 of the tender document defines a technical bid as “a confirmation of compliance with the Eligibility Conditions along with necessary supporting documents and information.” Clause 4, which specifies the eligibility criteria, stipulates that any entity that has failed to pay dues to the Respondent for previously allocated mines is ineligible to participate.
2) It was submitted that 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. The principle of ‘fresh start’ of an entity that has undergone CIRP does not absolve them from pending dues acknowledged by the Resolution Professional.
Decision: HC allowed the application.
Rationale:
1) It noted that 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 03 rd 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.
2) It held 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.
3) 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.
Order:
