2024 (10) TMI 1182 - AT - IBC

NCLAT rules Annual Mine Closure Cost must be included in insolvency proceedings under Section 14 moratorium

Avil Menezes Resolution Professional of Topworth Urja & Metals Limited Versus Ministry of Coal, Aarti Mahawar, Committee of Creditors

The NCLAT Principal Bench set aside the Adjudicating Authority's direction to keep Annual Mine Closure Cost (AMCC) outside the Corporate Insolvency ... Direction to withdraw the withdrawal letter of mine opening permission - direction to Appellant to keep aside the Annual Mine Closure Cost besides directing the Appellant personally liable for disposal of the mined coal in accordance with the terms of the Mine Agreement - HELD THAT:- On looking at the terms of the Escrow Agreement, it is clear that Clause 3 provides that the AMCC was to be placed in the Escrow Account to perform the mine closure obligations. Undisputedly, the same clause also provides that CCO is to be the exclusive beneficiary and that AMCC is to be verified by the CCO. It is equally significant to note that in the very succeeding clause i.e. Clause 4, the Escrow Agreement clearly provides that 80% of the amount deposited by the Corporate Debtor as AMCC would be returned to the Corporate Debtor every 5 years and the balance would be returned after completion of the final mine closure. Thus, when the Escrow Agreement itself provides that the entire amount is to be returned to the Corporate Debtor after completing mine closure activities, it cannot be persuaded by the argument canvassed by the Respondent No. 1 & 2 that AMCC was money held in trust and are more inclined to agree with the Appellant that this sum clearly belonged to the Corporate Debtor for discharge of mine closure obligations. The Corporate Debtor stood admitted into the rigours of CIRP on 12.08.2022 under the provisions of the IBC. Pursuant to the admission of the Corporate Debtor into CIRP, moratorium in terms of Section 14 of the IBC stood imposed against the Corporate Debtor. IBC places moratorium on all past dues of the Corporate Debtor. Once moratorium is declared in respect of any company, the institution of suits or continuation of pending suits or proceedings against such company including execution of any judgement, decree or any other order in any court of law, tribunal, arbitration panel or other authority is statutorily barred. Under the scheme of the IBC, each creditor is required to file its claim with the interim resolution professional/resolution professional as on the insolvency commencement date. So, for all pre-CIRP claims, there is a provision contemplated under IBC to file claims. These claims are then to be dealt in the resolution plan or during liquidation as the case may be. The 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. In terms of the provisions of IBC as contained in Section5(13) of IBC it would therefore also be accurate and appropriate to categorise AMCC as CIRP cost in running the Corporate Debtor as a going concern. The Adjudicating Authority grossly erred in holding that the AMCC is not part of the estate of the Corporate Debtor and that the same needs to be kept aside - the reasoning offered by Adjudicating Authority to allow AMCC to be kept out of the CIRP process to enable its recovery dehors the scheme of IBC, cannot be agreed upon. 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 would prejudice other secured financial creditors who are members of the CoC. The impugned order is modified by setting aside the directions of the Adjudicating Authority to consider the Annual Mine Closure Costs as money not belonging to the Corporate Debtor and to keep the same aside - appeal allowed. Issues Involved:1. Validity of withdrawal of mine opening permission during CIRP.2. Classification of Annual Mine Closure Cost (AMCC) as operational debt or money held in trust.3. Applicability of IBC's overriding provisions over CMSPA and MMDR Act.4. Treatment of pre-CIRP AMCC dues within the CIRP framework.5. Personal liability of the Resolution Professional (RP) for deviations in mine operations.Issue-wise Analysis:1. Validity of Withdrawal of Mine Opening Permission During CIRP:The Tribunal examined whether the withdrawal of mine opening permission by Respondent No. 2 was valid in light of the moratorium imposed under Section 14 of the Insolvency and Bankruptcy Code (IBC) following the initiation of the Corporate Insolvency Resolution Process (CIRP) on 12.08.2022. The Adjudicating Authority had jurisdiction to direct the withdrawal of the letter, satisfying the Appellant's request to that extent. The Tribunal upheld the decision, emphasizing that the moratorium prevents such actions against the Corporate Debtor during CIRP.2. Classification of Annual Mine Closure Cost (AMCC) as Operational Debt or Money Held in Trust:The Tribunal considered whether AMCC should be treated as an operational debt or money held in trust. The Adjudicating Authority had previously ruled that AMCC was money held in trust and not part of the Corporate Debtor's assets. However, the Tribunal disagreed, finding no evidence of a trust arrangement. The Escrow Agreement indicated that AMCC funds were to be returned to the Corporate Debtor after fulfilling mine closure obligations, suggesting that these funds were indeed assets of the Corporate Debtor. The Tribunal concluded that AMCC should be treated as an operational debt, subject to the CIRP provisions.3. Applicability of IBC's Overriding Provisions Over CMSPA and MMDR Act:The Tribunal addressed whether the IBC, as a later legislative enactment, overrides the Coal Mines (Special Provisions) Act (CMSPA) and the Mines and Minerals (Development and Regulation) Act (MMDR Act). The Tribunal affirmed that the IBC, with its overriding clause in Section 238, takes precedence over conflicting provisions in earlier statutes like CMSPA and MMDR Act. This means that the provisions of IBC govern the resolution process, including the treatment of AMCC dues.4. Treatment of Pre-CIRP AMCC Dues Within the CIRP Framework:The Tribunal evaluated whether pre-CIRP AMCC dues should be treated within the CIRP framework. It was argued that allowing Respondents to recover these dues outside the CIRP process would be discriminatory and contrary to the IBC's scheme. The Tribunal agreed, stating that such recovery attempts would contravene the moratorium and the resolution process under IBC. The Tribunal emphasized that all creditors, including government entities, must file claims within the CIRP framework, and pre-CIRP dues should be addressed through the resolution plan.5. Personal Liability of the Resolution Professional (RP) for Deviations in Mine Operations:The Tribunal reviewed the Adjudicating Authority's decision to hold the RP personally liable for deviations in the disposal of mined coal. The Tribunal expunged this observation, clarifying that the RP should not be held personally liable as long as they act within the statutory provisions of the IBC and related regulations. The Tribunal underscored that the RP's role is to manage the Corporate Debtor's assets in accordance with the IBC framework.Conclusion:The Tribunal allowed the appeal, setting aside the Adjudicating Authority's directions to treat AMCC as money not belonging to the Corporate Debtor and to keep it aside. The Tribunal reaffirmed the IBC's supremacy over other conflicting statutes and emphasized the need to treat AMCC as part of the CIRP process. The personal liability of the RP was also removed, subject to compliance with IBC provisions. The Tribunal's decision reinforces the comprehensive framework of the IBC in managing insolvency resolutions.