Payment of Pre-CIRP Dues To Creditors Including Govt Dues Cannot Be Made By RP Outside Resolution Framework: NCLAT [Read Order]
It was noted that recovery of unpaid AMCC as pre-CIRP dues independently of the other stakeholders of the Corporate Debtor is a step in direct contravention of the IBC as it is barred under Section 14 and therefore deserves to be set aside
NCLAT – NCLAT Delhi – National Company Law Appellate Tribunal – CIRP Dues – TAXSCAN
NCLAT – NCLAT Delhi – National Company Law Appellate Tribunal – CIRP Dues – TAXSCAN
The Delhi bench of the National Company Law Appellate Tribunal ( NCLAT ) has held that payment of pre- Corporate Insolvency Resolution Process ( CIRP ) dues to creditors including government dues cannot be made by Resolution Process ( RP ) outside the resolution framework.
The Ministry of Coal, Government of India, vide order dated June 6, 2015 under Rule 8(2) of the Coal Mines (Special Provisions) Rules, 2016 had directed the auction of the coal mines under Section 41 of the Coal Mines (Special Provisions) Act, 2015 ('CMSPA'). The Corporate Debtor participated in bidding and was declared the Successful Bidder for the MM-I Coal Block. The Corporate Debtor and the President of India, acting through the nominated authority, entered into a Coal Mine Development and Production Agreement dated August 31, 2015 (“CMDPA”) regarding the allocation of the MM-1 Coal Block in favour of the Corporate Debtor.
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A Mining Lease Deed dated 09.02.2017 was executed by the District Mining Officer, Govt. of Maharashtra, in respect of the MM-I Coal Block in favour of the Corporate Debtor. The Corporate Debtor deposited Rs 1.56 Cr. as Annual Mine Closure Cost (AMCC) for the FY 2017-18 but due to unfavourable business environment and other reasons, the Corporate Debtor failed to deposit the amount for the FY 2018-19 following which reminders for payment were issued by the COO. Show Cause Notice was also issued on August 31, 2021 to the Corporate Debtor for non-compliance with the efficiency parameters of the CMDPA in respect of the MM-I Coal Block.
The Corporate Debtor furnished Performance Bank Guarantee ('PBG') on May 30, 2022 of Rs 33.17 Cr. to the nominated authority. The nominated authority again demanded of the Corporate Debtor to submit a PBG of Rs 41.47 Cr. within the extended time period of August 12, 2022. Meanwhile a Section 7 application had been filed by Bank of Baroda against the Corporate Debtor.
Respondent No. 2 issued a withdrawal of mine opening permission vide letter dated 05.09.2023 (“Withdrawal Letter”) for the MM-I Coal Block due to non-deposit of the AMCC for the pre-CIRP period in the escrow account as per the Escrow Agreement.
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The Adjudicating Authority partly allowed the appeal. The Adjudicating Authority directed the Appellant to keep aside the AMCC besides directing the Appellant personally liable for disposal of the mined coal in accordance with the terms of the Mine Agreement in the said Impugned Order. Since the Adjudicating Authority had passed directions beyond the reliefs sought by the Appellant, aggrieved by the same, the present appeal has been filed.
The appellant submitted that AMCC constituted an operational debt as it is relatable to performing mine closure operations and hence subject to the provisions of IBC. The AMCC being in the nature of an operational debt, the Respondents cannot be paid in preference to other creditors as that would defeat the purpose of CIRP and would prejudice other secured financial creditors who are members of the CoC.
Per contra, the respondents submitted that mine opening permission was withdrawn not because of insolvency of the Corporate Debtor but because of persistent default by Corporate Debtor since FY 2016-17 in depositing AMCC.
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The tribunal first addressed the contention of AMCC deposit being held in trust for public benefit. The tribunal while rejecting this argument observed that since no separate trust account was created or opened by the Corporate Debtor in the absence of separate trust account, by no stretch of imagination it can be said that the AMCC deposit including unpaid balance thereto were/are held by the Corporate Debtor in trust for the benefit of the others.
It was analysed the scheme of the MMDR Act and Escrow agreement to understand the nature of the AMCC. The tribunal observed that the Escrow Agreement itself provides that the entire amount is to be returned to the Corporate Debtor after completing mine closure activities.
A Coram comprising Justices Ashok Bhushan, Barun Mitra , Member and Arun Baroka observed that payment of pre-CIRP dues to creditors cannot be made by RP outside the resolution framework. If Respondents are allowed to recover their AMCC dues of pre-CIRP period in full by keeping it outside CIRP process, it would be a discriminatory arrangement which has not been envisaged or contemplated under the IBC.
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It was noted that recovery of unpaid AMCC as pre-CIRP dues independently of the other stakeholders of the Corporate Debtor is a step in direct contravention of the IBC as it is barred under Section 14 and therefore deserves to be set aside.
Further observed that if the AMCC is allowed to be kept outside the CIRP of the Corporate Debtor, it would tantamount to giving the Respondents a special status that is not recognised by law. Respondents cannot be paid in preference to other creditors as that would defeat the purpose of CIRP and allowed the appeal.
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