TaxTMI 
TaxTMI 
2023 (10) TMI 537
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....y arises out of the "Take or Pay" obligation as contained in Article 14 thereof, and which empowered IOCL to call upon ESL to take remedial steps for payment in case it failed to lift the entire Adjusted Annual Contract Quantity [AACQ]. 2. The record would reflect that on 18 January 2012 the name of ESL was changed to Essar Steel India Ltd. [ESIL] and an Assignment Agreement dated 14 November 2013 is stated to have been executed between IOCL, ESIL and EOL which constituted the "First Assignment Agreement" and was to remain valid upto 31 August 2014. In terms of the aforesaid agreement, ESIL assigned all its rights and obligations as flowing from the GSA to EOL. The parties are stated to have executed a "Second Assignment Agreement" on 25 September 2014 and which was to remain valid upto 30 September 2015. 3. On 04 May 2016, IOCL is stated to have placed ESIL on notice of its failure to comply with the AACQ for the Contract Year 2015 and consequently the former being entitled to invoke Article 14.1 of the GSA. 4. On 10 March 2017 the ESIL purporting to invoke powers conferred by Article 19.1 of the GSA proceeded to issue a notice of termination. The aforesaid termination wa....
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....t of INR 1 (Indian Rupee One only) to ensure your participation in the corporate insolvency Reason for non-admission of entire claim amount The remaining claim amount is not admitted because of pending dispute with respect to this claim as the arbitration proceedings were initiated by Indian Oil Corporation Limited You may take your own independent advice in this matter keeping in view the provisions of the Insolvency and Bankruptcy Code, 2016 and rule/regulations made under the said Code. This is also to inform you that the erstwhile management of Essar Steel India Limited (Company) is stating that Indian Oil Corporation Limited (IOCL) sold the gas that was to be supplied to the to alternate buyer, thus, IOCL has not incurred any losses. You are therefore directed to file an affidavit to confirm that the gas that was to be supplied to the Company was not sold to any third party and it actually vanished because the Company had not taken it. Thanking you, Sincerely, Satish Kumar Gupta Resolution Professional" 7. It would at this stage and before proceeding further also be pertinent to refer to the following passages as t....
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.... in the list of creditors, because we have already held in our separate order passed in I.As. Nos. 54 & 55 of 2018. However, the apportionment of these claims cannot be made as a matter of right, but only their interest, if any, can be taken care of while dealing with the I.A.No.431 of 2018 in succeeding paragraphs for consideration and approval of the Resolution Plan." 9. For the purposes of evaluating the issues which arise in the present petition, it would also be apposite to briefly notice the contentions which were raised by the petitioner before the NCLT in its IA. The Court extracts paras 12, 13, 15, 16, 17 & 18 thereof hereinbelow: "12. The Resolution Plan is wholly one sided and arbitrary as it provides that after the distribution of amounts to the Financial Creditors and Operational Creditors in terms of the Resolution Plan, all other liabilities and obligations of Operational Creditors shall stand extinguished in full and further that even all Litigations and proceedings in respect to the debts pending against the Corporate Debtor prior to commencement of CIRP shall stand abated thereby depriving the Applicant of any remedy to pursue the claim not provided fo....
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....8 and other connected appeals, while dealing with the claim of operational creditors including the petitioner herein it rendered the following pertinent observations: "41. In Interlocutory Applications filed by 'Dakshin Gujarat Vij. Co. Ltd.'; 'State Tax Officer'; 'Gujarat Energy Transmission Corporation Ltd.'; 'Bharat Petroleum Corporation Limited'; 'Indian Oil Corporation Ltd.'; 'MSTC Limited'; 'Gail (India) Limited' and 'Global Transnational Trading FZE' before the Adjudicating Authority, the Adjudicating Authority passed following directions: "That these I.As. can be partially succeed only to the extent of such direction may be issued to the Resolution Professional to register their respective claims and to update the claims in the list of creditors, because we have already held in our separate order passed in I.As. Nos. 54 & 55 of 2018. However, the apportionment of these claims cannot be made as a matter of right, but only their interest, if any, can be taken care of while dealing with the I.A.No. 431 of 2018 in succeeding paragraphs for consideration and approval of the Resolution Plan." 42. The grievance of 'Dakshin Gujarat Vij. Co. Ltd.'; 'State ....
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....interest out of the profit amount." 11. The aforesaid judgment was questioned before the Supreme Court in Committee of Creditors of Essar Steel India Ltd. vs Satish Kumar Gupta and Ors. (2020) 8 SCC 531. The Supreme Court upon a detailed consideration of the statutory scheme underlying the resolution process as contemplated under the IBC explained the importance liable to be attached to the clean slate doctrine which had come to be enunciated and the statutory closure which ensues once a Resolution Plan comes to be duly approved. This Court deems it apposite to extract the following passages from that decision hereinbelow: "107. For the same reason, the impugned NCLAT judgment in holding that claims that may exist apart from those decided on merits by the resolution professional and by the Adjudicating Authority/Appellate Tribunal can now be decided by an appropriate forum in terms of Section 60(6) of the Code, also militates against the rationale of Section 31 of the Code. A successful resolution applicant cannot suddenly be faced with "undecided" claims after the resolution plan submitted by him has been accepted as this would amount to a hydra head popping up which w....
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....ovided for amounts to be paid to different classes of creditors by following Section 30(2) and Regulation 38 of the Code." 12. It becomes pertinent to observe that while dealing with the admission of claims at a notional value of INR 1 and which was the action proposed by the RP, the Supreme Court set aside the order of the NCLT as well as the NCLAT which had held that the claims of the operational creditors were liable to be factored in full in the Resolution Plan. The effect of the said decision was that the action of the RP admitting the claims of the petitioner at a notional value of INR 1 came to be affirmed and the Resolution Plan so amended conferred a seal of finality. 13. The respondent who was the successful Resolution Applicant acquired 100% of the shareholding of ESIL on 16 December 2019 and took over its management. Once the Resolution Plan had come to be successfully implemented and one would have thought that all controversies would have been laid to rest, the petitioner issued a notice dated 09 August 2021 calling upon the respondent to pay various amounts which according to it were payable in terms of the GSA and pertained to the Contract Years 2014, January ....
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....r. Sharma submitted that this too would constitute a valid ground and evidence the imperatives of an AT being constituted. It was also his submission that the petitioner asserts that the GSA is a continuing contract and, therefore, the liabilities which arise therefrom and which relate to the non-payment of dues is clearly a cause of action which continues to subsist notwithstanding the closure of proceedings under the IBC, and thus the petitioner is justified in calling upon the Court to exercise its jurisdiction conferred by Section 11. 16. On a more fundamental plane, Mr. Sharma argued that the various objections which are addressed by the respondent relate to the merits of the dispute all of which should be left open for the consideration of the AT. Learned counsel submitted that bearing in mind the contours of the Section 11 power and which proceeds on the principle of a prima facie consideration alone, all disputes must be left open for the consideration of the AT. 17. Appearing for the respondents Dr. Singhvi, learned Senior Counsel firstly invoked the principles of extinguishment of claims and which according to him is a unique characteristic of the IBC. According to ....
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....proval of the Resolution Plan by the Adjudicating Authority, subject to Clause (g) below, all contingent liabilities of the Corporate Debtor till or as of the Insolvency Commencement Date arising out of any Proceedings to which the Corporate Debtor is a party shall, unless otherwise stated in this Resolution Plan and irrespective of the final outcome of such Proceedings, stand irrevocably and unconditionally reduced to and capped at the amounts that would be realizable by the Claimant, if the contingent liability had fructified at any time prior to the Insolvency Commencement Date. d. With effect from the Plan Approval Date, all Encumbrances created or suffered to exist over the assets of the Corporate Debtor or over the Securities of the Corporate Debtor, whether by contract or by Applicable Law, whether created for the benefit of the Corporate Debtor or any Third Party (except the Security Interest that is created or purported to be created for the benefit of the Resolution Applicant and/or its Connected Persons, and/or banks or financial institutions designated by the Resolution Applicant), shall stand unconditionally and irrevocably assigned or novated in favour of the....
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.... guarantor on account of subrogation, if any, under any such guarantee shall be deemed to have been abated, released, discharged and extinguished. It is hereby clarified that, the aforementioned clause shall not apply in any manner which may extinguish/affect the rights of the Financial Creditors to enforce the corporate guarantees and personal guarantees issued for and on behalf of the Corporate Debtor by the Existing Promoter Group or their respective affiliates, which guarantees shall continue to be retained by the Financial Creditors and shall continue to be enforceable by them. h. Upon the approval of the Resolution Plan by the Adjudicating Authority, all the outstanding negotiable instruments issued by the Corporate Debtor including demand promissory notes, postdated cheques and letters of credit, till or as of the Insolvency Commencement Date, shall stand terminated and the liability of the Corporate Debtor under such instruments shall stand extinguished unless otherwise determined by the Corporate Debtor in compliance with the provisions of Section VII or solely for the purpose of operating the Corporate Debtor as a going concern i. On the Plan Approval Da....
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....g pegged at INR 1 were clearly and admittedly canvassed and urged. Apart from the IA which was filed before the Adjudicating Authority Dr. Singhvi also drew our attention to the following averments as appearing in the appeal which was filed by the petitioner before the NCLAT: - "31. It is pertinent to mention herein that after the directions passed by the Adjudicating Authority on Appellant's application, the Resolution Profession (Respondent No. 1) has updated the list of Creditors of the Corporate Debtor to include the amount being claimed by the Appellant but the same is meaningless and of no avail in as much as the Resolution Plan has already been passed by the Adjudicating Authority on 08.03.2019. 32. It is also pertinent to mention herein that the Corporate Debtor had, by way of the communication dated 10.03.2017, sought to wrongfully terminate the GSA between the parties, which had been opposed to by the Appellant. The issue of termination of the GSA vitally affects the rights of the parties, more so of the Appellant. However, the Resolution Plan and/or the Order dated 08.03.2019 is absolutely silent on this aspect, giving rise uncertainty and ambiguity....
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....ed-by the successful resolution applicant is required to contain various provisions viz: provision for payment of insolvency resolution process costs, provision for payment of debts of operational creditors, which shall not be less than the amount to be paid to such creditors in the event of liquidation of the corporate debtor under Section 53; or the amount that would have been paid to such creditors, if the amount to be distributed under the resolution plan had been distributed in accordance with the order of priority in sub-section (1) of Section 53, whichever is higher. The resolution plan is also required to provide for the payment of debts of financial creditors, who do not vote in favour of the resolution plan, which also shall not be less than the amount to be paíd to such creditors if accordance with subsection (1) of Section 53 in the event of a liquidation of the corporate debtor. Explanation 1 to clause (b) of sub-section (2) of Section 30 of the I&B Code clarifies for the removal of doubts that a distribution in accordance with the provisions of the said clause shall be fair and equitable to such creditors. The resolution plan is also required to provide for the....
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....ion of petition under Section 7 there are various important duties and functions entrusted to RP and CoC. RP is required to issue a publication inviting claims from all the stakeholders. He is required to collate the said information and submit necessary details in the informatic memorandum. The resolution applicants submit their plans on the basis of the details provided in the information memorandum. The resolution plans undergo deep scrutiny by RP as well as CoC. In the negotiations that nay. be held between CoC and the resolution applicant, various modifications may be made so as to ensure that while paying part of the dues of financial creditors as well as operational creditors and other stakeholders, the corporate debtor is revived and is made an on-going concern. After CoC approves the plan, the adjudicating authority is required to arrive at a subjective satisfaction that the plan conforms to the requirements as are provided in sub-section (2) of Section 30 of the I&B Code. Only thereafter, the adjudicating authority can grant its approval to the plan. It is at this stage that the plan becomes binding on the corporate debtor, its employees, members, creditors, guarantors an....
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....e itself is with respect to the non-arbitrability of the dispute. 28. The limited scrutiny, through the eye of the needle, is necessary and compelling. It is intertwined with the duty of the referral court to protect the parties from being forced to arbitrate when the matter is demonstrably non-arbitrable. It has been termed as a legitimate interference by courts to refuse reference in order to prevent wastage of public and private resource . Further, as noted in Vidya Drolia (supra), if this duty within the limited compass is not exercised, and the Court becomes too reluctant to intervene, it may undermine the effectiveness of both, arbitration and the Court. Therefore, this Court or a High Court, as the case may be, while exercising jurisdiction under Section 11(6) of the Act, is not expected to act mechanically merely to deliver a purported dispute raised by an applicant at the doors of the chosen arbitrator , as explained in DLF Home Developers Limited v. Rajapura Homes Pvt. Ltd." 22. It was the submission of learned Senior Counsel that in proceedings like the present the Court would not be guided or influenced by the mere expediency to refer but be obliged to weigh....
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.... the successful Resolution Applicant cannot be left open to defend or oppose claims which are either not factored in the Resolution Plan nor can it be left to fend off actions that may be brought with respect to alleged or asserted dues of the corporate debtor which were not admitted. Taking any other position would clearly violate the clean and fresh slate doctrines which inform and imbue the resolution process under the IBC. The Supreme Court while alluding to the intent of the resolution process underlying the IBC had described this aspect as the "hydra headed monster". In fact, Ghanashyam Mishra significantly observes that all claims which are not part of the Resolution Plan shall stand extinguished and no person would be entitled to "initiate or continue" any proceedings in respect of the claim. 26. Undisputedly and as would be evident from the challenges which were raised by the petitioner against the decision of the RP to admit its claim at a notional value of INR 1, it had assailed all aspects of the said decision including with respect to termination as well as the abridgment of its claim itself. Although the NCLT and NCLAT had accorded relief to the petitioner and rein....
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....within the genre of non-arbitrability. 28. However, while examining the aforesaid aspects, the Section 11 court should also be conscious of delaying tactics that are sometimes adopted to stave off a reference as also being cognizant of the limited extent of review that it is obliged to undertake. If in the course of that limited review, it finds that a determination would remain inconclusive, it must defer those aspects of non-arbitrability to be considered by the AT. These aspects have been lucidly explained in the recent decision of the Supreme Court in NTPC where it was held that it is only in cases where the question of non-arbitrability is self-evident, ex facie manifest and where it is possible to come to a clear and definite conclusion on the question of non-arbitrability that the Courts would refuse to refer parties to arbitration. In NTPC, while accepting that the Section 11 court is not expected to act mechanically and succumb to the expediency of referring parties to arbitration, it was pertinently observed that a refusal to refer would be justified when there is not "even a vestige of doubt" with respect to non-arbitrability or where it is evident that the matter is ....