2019 (2) TMI 601 - AT - Insolvency and Bankruptcy

Government validly terminated coal agreement not violating insolvency moratorium. Resolution Professional appeal dismissed.

The Court held that the termination of the Coal Mines Development and Production Agreement by the Government of India did not violate the moratorium under ... Corporate Insolvency Resolution Process - Whether mining lease has been issued by the State Government(s) in terms of the provisions as mentioned in the ‘Coal Mines Development and Production Agreement’? - lease the mines are under occupation or in possession of the ‘Corporate Debtor’ - Held that:- In the present case, as we find that the vesting of the Coal Mines is not complete in absence of any agreement with the State Government in respect to the mines in question, we hold that the ‘Resolution Professional’ on behalf of the ‘Corporate Debtor’ cannot claim that pursuant to lease the mines are under occupation or in possession of the ‘Corporate Debtor’. The Government of India by its letter dated 13th April, 2017 issued show cause notice to the ‘Corporate Debtor’ before issuance of the termination letter dated 30th December, 2017 i.e. much prior to initiation of the ‘Corporate Insolvency Resolution Process’ (18th July, 2017). The ‘Corporate Debtor’ having failed to act in terms with the said show cause. If the order of cancellation have been passed by the Government of India on 30th December, 2017, it cannot be held to be in violation of Section 14(1)(d) of the ‘I&B Code’. In view of the aforesaid findings, no interference is called for against the impugned order dated 16th January, 2018. The appeal is dismissed. Interim order passed by this Appellate Tribunal on 8th February, 2018 is vacated. It will be open to the Respondent- ‘Government of India’ to accept any bid and to create third party interest with regard to mines in question which were earlier allotted vide ‘Coal Mines Development and Production Agreement’ dated 2nd March, 2015 to the ‘Corporate Debtor’. No costs. Issues:1. Interpretation of Section 14 of the Insolvency and Bankruptcy Code, 2016 regarding the moratorium.2. Validity of termination of the Coal Mines Development and Production Agreement by the Government of India.3. Compliance with the terms of the agreement by the Corporate Debtor.4. Impact of termination on the Corporate Insolvency Resolution Process.Analysis:1. The case involved an application under Section 7 of the Insolvency and Bankruptcy Code, 2016, leading to the initiation of Corporate Insolvency Resolution Process against the Corporate Debtor. The key contention was the impact of the moratorium under Section 14 of the Code on the termination of the Coal Mines Development and Production Agreement by the Government of India.2. Prior to the insolvency proceedings, the Government issued a notice terminating the agreement, citing revenue loss as the reason. The Resolution Professional challenged this termination, arguing that it violated Section 14 of the Code, which imposes a moratorium. The Adjudicating Authority held that the termination was not in violation of Section 14(1)(d) and noted the revenue loss to the State Exchequer.3. The agreement between the Government and the Corporate Debtor outlined conditions for vesting and post-vesting obligations, including payment of upfront amounts and obtaining a mining lease. The judgment highlighted that the mining lease was not issued by the State Government as per the agreement terms, raising questions about compliance by the Corporate Debtor.4. The Court found that since the vesting of the Coal Mines was incomplete without a lease agreement with the State Government, the Resolution Professional could not claim possession or occupation of the mines on behalf of the Corporate Debtor. The termination notice was issued after a show cause notice, and the Court determined it was not a violation of Section 14(1)(d) of the Code. The appeal was dismissed, allowing the Government to accept bids and create third-party interests in the mines initially allotted to the Corporate Debtor.In conclusion, the judgment analyzed the legal implications of the termination of the agreement in the context of insolvency proceedings, emphasizing compliance with contractual obligations and the applicability of the moratorium under the Insolvency and Bankruptcy Code.