Avil Menzes vs Ministry Of Coal Through Its Secretary

[Arising out of the Impugned Order dated 06.02.2024 passed by the Adjudicating Authority, National Company Law Tribunal, Mumbai Bench-I in I.A. No. 4460 (MB)/ 2023 in CP (IB) No. 1807 of 2018]

In the matter of: Avil Menezes Resolution Professional of Topworth Urja & Metals Limited

Having its office at: 106, 1st Floor, Kanakia Atrium 2, Cross Road A, Behind Courtyard Marriott, Chakala, Andheri East, Mumbai, Maharashtra - 400 093. ...Appellant

Versus

1. Ministry of Coal Through its Secretary Having its office at: 120, F-Wing, Shastri Bhawan, Dr. Rajendra Prasad Road, New Delhi - 110 001. E-Mail: secy.moc@nic.in ...Respondent No.1

2. Aarti Mahawar Deputy Director, Ministry of Coal, Office of Coal Controller Having its office at: Scope Minar, 5th Floor, Core -II Laxmi Nagar, New Delhi - 110092 E-Mail: aarti.mahawar@gov.in ...Respondent No.2 3. Committee of Creditors Through the Lead Bank State Bank of India Having its office at: SAMB 1 Branch Mumbai, 2nd Floor, The Arcade, World Trade Centre, Cuffe Parade, Mumbai, Maharashtra - 400 005. E-Mail: SBI.04107@sbi.co.in ...Respondent No.3

Present:

For Appellant : Mr. Abhijeet Sinha, Sr. Advocate with Mr. J. Rajesh, Mr. Dhrupad Vaghani, Jaitegan Khurana, Md. Arsalan Ahmed, Advocates. For Respondent : Ms. Shiva Lakshmi, CGSC, Mr. T. Hari Hara Sudhan, Advocates for UOI, Ministry of Coal. Mr. Nitin Bindal, Advocate for R-2. Mr. Arpan Behl, Mr. Aakash Sharma, Advocates for R3/ CoC. Mr. Krishnendu Datta, Sr. Advocate with Mr. Madhav Kanoria, Ms. Srideepa Bhattacharyya, Advocates for intervener/ SRA.

JUDGMENT

(Hybrid Mode)

Per: Barun Mitra, Member (Technical)

The present appeal filed under Section 61 of Insolvency and Bankruptcy

Code 2016 ('IBC' in short) by the Appellant arises out of the Order dated

06.02.2024 (hereinafter referred to as 'Impugned Order') passed by the

Adjudicating Authority (National Company Law Tribunal, Mumbai Bench-I) in

I.A. No. 4460 of 2023 in CP (IB) No. 1807 of 2018. The Appellant had filed the

I.A. No. 4460 of 2023 seeking direction against the Secretary, Ministry of Coal-

Respondent No.1 and Coal Controller-Respondent No.2 not to withdraw the

mine opening permission in respect of Marki Mangli - I Coal Block. By the

impugned order, the Adjudicating Authority directed the Respondent No. 2 to

Page 2 of 31 Company Appeal (AT) (Insolvency) No. 944 of 2024 withdraw the withdrawal letter of mine opening permission and also directed

the 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. Aggrieved with the last two directions

given to the Appellant in the impugned order, the present appeal has been

preferred by the Appellant.

2. Coming to the salient facts of the case, the same are as outlined below:

 The Ministry of Coal, Government of India, vide order dated 04.06.2015

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' in short).

 Respondent No. 1 issued a tender document dated 08.06.2015 for

various coal mines across the country, including Marki Mangli - I Coal

Mine ("MM-I Coal Block" in short).

 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

31.08.2015 ("CMDPA" in short) regarding the allocation of the MM-1

Coal Block in favour of the Corporate Debtor.

 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.

Page 3 of 31 Company Appeal (AT) (Insolvency) No. 944 of 2024  As part of the aforesaid CMDPA, the Corporate Debtor, State Bank of

India (as Escrow Agent) and the Coal Controller's Organisation ("CCO"

in short) had entered into an Escrow Agreement dated 20.03.2017 in

respect of the MM-1 Coal Block. The Corporate Debtor was required to

deposit the Annual Mine Closure Cost ("AMCC" in short) into the

Escrow Account.

 The MM-I Coal Block started operations in April 2017. The Corporate

Debtor deposited Rs 1.56 Cr. as 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 31.08.2021 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 sought

exemption from non-compliance with efficiency parameters on

06.09.2021 on grounds of Covid-19 pandemic and series of forced

lockdown.

 The Corporate Debtor furnished Performance Bank Guarantee ('PBG' in

short) on 30.05.2022 of Rs 33.17 Cr. to the nominated authority. The

nominated authority again demanded of the Corporate Debtor to submit

PBG of Rs 41.47 Cr. within extended time period of 12.08.2022.

 Meantime a Section 7 application had been filed by Bank of Baroda

against the Corporate Debtor. On 12.08.2022, the Adjudicating

Page 4 of 31 Company Appeal (AT) (Insolvency) No. 944 of 2024 Authority admitted CP (IB) No 1807 of 2022 and initiated Corporate

Insolvency Resolution Process ("CIRP" in short).

 On 20.08.2022 the IRP informed the nominated authority about the

commencement of CIRP and operation of moratorium under Section 14

and requested for time extension for furnishing the PBG.

 On 22.08.2022 Respondent No. 1 initiated the process for cancelling

and termination of the CMDPA and issued an appropriation notice to

the Corporate Debtor for appropriating bank guarantee as performance

security.

 On 12.09.2022 Respondent No. 1 terminated the CMDPA by issuing a

termination notice.

 Aggrieved by the said termination notice, the IRP approached the

Hon'ble Delhi High Court by way of a Writ Petition No. 13282 of 2022.

The Hon'ble Delhi High Court on 15.09.2022 granted an interim stay on

the operation of the said termination notice and directed the Respondent

No. 1 and Respondent No. 2 not to take any coercive action against the

Corporate Debtor pursuant to the said termination notice. The Writ

Petition is still pending before the Hon'ble Delhi High Court.

 The Committee of Creditors-Respondent No. 3 in the 2nd CoC meeting

held on 20.02.2023 appointed the Appellant as the Resolution

Professional ("RP" in short) of the Corporate Debtor.

 IRP issued Form G inviting expression of interest ("EoI") from

prospective resolution applicants on 06.03.2023.

Page 5 of 31 Company Appeal (AT) (Insolvency) No. 944 of 2024  Respondent No. 2 issued a withdrawal of mine opening permission vide

letter dated 05.09.2023 ("Withdrawal Letter" in short) 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.

 Aggrieved by the decision of Respondent No. 1 and Respondent No. 2 to

withdraw the mine opening permission, the Appellant preferred IA No.

4460 of 2023 on 27.09.2023 before the Adjudicating Authority seeking

withdrawal of the withdrawal letter.

 During the pendency of I.A. No. 4460 of 2024, the Resolution Plan

submitted by the PRA's were put to vote in the 14th CoC meeting and

the Resolution Plan of Evonith Holdings Pvt. Ltd. was unanimously

approved by the CoC on 05.01.2024.

 The Adjudicating Authority vide Impugned Order partly allowed IA No.

4460 of 2023. 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.

3. We have heard Shri Abhijeet Sinha, Ld. Sr. Advocate appearing for the

Appellant. Ms. Shiva Lakshmi, CGSC appeared for Ministry of Coal-

Respondent No.1 and Shri Nitin Bindal, Ld. Advocate for Respondent No. 2.

Shri Arpan Behl, Ld. Advocate was heard representing for Respondent No.3-

Page 6 of 31 Company Appeal (AT) (Insolvency) No. 944 of 2024 CoC and Shri Krishnendu Datta, Ld. Sr. Advocate appeared for the SRA who

is an Intervenor.

4. Making his submissions, the Learned Senior Counsel of the Appellant

contended that the Adjudicating Authority committed an error in directing

that the outstanding dues of AMCC of the pre-CIRP period be kept aside and

holding the AMCC not belonging to the assets of the Corporate Debtor. It was

contended that in terms of the Colliery Control Rules and the Escrow

Agreement, the AMCC was to be placed in the Escrow Account and the Escrow

Agreement itself provided that the AMCC was to be returned to the Corporate

Debtor after completing mine closure activities. Thus, this sum clearly

belonged to the Corporate Debtor. It was stressed 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. However, the

directions of the Adjudicating Authority by allowing the AMCC to be kept

outside the CIRP of the Corporate Debtor tantamount to giving the

Respondents No.1 and 2 a special status that is not recognised by law. It has

also been contended by the Appellant that Section 29 of the CMSPA cannot

override the provisions of IBC. It has been vehemently contended by the

Appellant that the Respondents having filed their claim in Form-B on

23.11.2023 as operational creditor by treating AMCC as a Pre-CIRP cost they

Page 7 of 31 Company Appeal (AT) (Insolvency) No. 944 of 2024 cannot be allowed to reprobate now and claim that AMCC is not an asset of

the Corporate Debtor and that the same be kept out of CIRP altogether. In any

case this relief could not have been granted by the Adjudicating Authority as

this was neither sought nor pleaded by the Appellant or Respondents no.1 and

2. Thus, by granting such a relief which was not pleaded by either parties, the

Adjudicating Authority had clearly erred by overstepping its bounds. It was

also added that AMCC payable by the Corporate Debtor during the CIRP in

terms of Escrow Agreement was being considered as CIRP cost which has

utmost priority as per provisions of the IBC. AMCC which would accrue during

the CIRP period would be treated as CIRP cost which has utmost priority as

per provisions of IBC and the SRA would be required to make sufficient funds

available for mine closure activities as CIRP cost. It is further contended that

Section 233 of IBC protects insolvency professionals from actions taken in

good faith while acting under provisions of IBC and the Rules and Regulations

framed thereunder and hence the Adjudicating Authority had erred in

observing that the RP would be personally liable for depositing AMCC.

5. The arguments canvassed by the Appellant that AMCC constituted a

part of the assets of the Corporate Debtor was also echoed by the Learned

Counsel for Respondent No.3-CoC. It was emphasised that the role of CoC to

ensure a just and favourable outcome for all stakeholders associated with the

Corporate Debtor was not only a statutory obligation of the CoC but that this

was pivotal in determining the future viability of the Corporate Debtor.

Additionally, it was contended that the Adjudicating Authority incorrectly held

Page 8 of 31 Company Appeal (AT) (Insolvency) No. 944 of 2024 mine-closure obligation to be a future obligation whereas it is an ongoing

activity and therefore a continuous process. Hence the Adjudicating Authority

had wrongly directed pre-CIRP AMCC to be kept outside the purview of the

IBC scheme. It was also submitted that withdrawal of mine opening

permission by issue of the withdrawal letter would negatively impact the asset

valuation of the Corporate Debtor and disrupt the entire CIRP.

6. Rebutting the arguments and contentions of the Appellant, the Learned

Counsel for Respondents No.1 and 2 submitted common arguments. It was

pressed 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. AMCC was required

to be deposited in the Escrow Account to address public health and safety

issues and to facilitate the transition from active mining to post-closure

operations enabling sustainable after-use of the coalmine site. Submission

was also pressed that AMCC which is deposited in the Escrow Account is in

the nature of trust as it is Union's duty to act as a trustee of nature's resources

for the welfare of public. These costs are designated for environmental

restoration and safety measures to be executed upon cessation of mining

activities rather than ongoing business operations. Treating them as part of

running costs would misrepresent the nature of these obligations which are

future oriented and contingent upon closure of the mine. AMCC cannot be

considered as an expense or cost incurred in running the business of the

Corporate Debtor as a going concern. It was also contended that this obligation

Page 9 of 31 Company Appeal (AT) (Insolvency) No. 944 of 2024 to pay AMCC is a pre-requisite condition for functioning of mining operation

and cannot be considered as a fee, tax or dues payable to the government. It

was vociferously contended that AMCC did not fall within the purview of

Section 5(13) of the IBC and cannot be subjected to any haircut. It has also

been submitted that the CCO acquired the powers and duties to monitor mine-

closure and operate the Escrow Account for funding mine closure activity from

Rule 10A of the Colliery Control Rules, 2004 and Section 18 of MMDR Act.

The Escrow Account opened by the Corporate Debtor had the CCO as the

exclusive beneficiary of AMCC prior to commencement of mining activities.

This money was to be used for rehabilitation of land and environment and

only after fulfilling all statutory obligation, the balance was to go back to the

Corporate Debtor. Hence, AMCC cannot be considered as money belonging to

Corporate Debtor. It was also submitted that IBC cannot have over-riding

effect over MMDR Act, the latter also being a special law enacted for a specific

purpose to perform a public duty.

7. An intervention application has also been filed by the SRA. The Ld.

Senior Counsel on behalf of the SRA opposed the contention of Respondents

No.1 and 2 that pre-CIRP AMCC dues must be paid as per applicable laws and

guidelines without any haircut. It has been submitted that the resolution plan

of the SRA had been approved by the CoC on 05.01.2024 and is currently

pending approval of the Adjudicating Authority. It was submitted that the

protection of this Tribunal is being sought since in their resolution plan it has

been stipulated that the SRA cannot be burdened with liabilities exceeding the

Page 10 of 31 Company Appeal (AT) (Insolvency) No. 944 of 2024 "Discharge Payment" stipulated in the resolution plan. Imposition of

additional cost on the SRA not envisaged under the resolution plan will

adversely affect its financial commitments. The impugned order alters the

fundamentals of the resolution plan and dilutes the commercial wisdom of

CoC which approved the resolution plan unanimously. It was also pointed out

that residual obligation if any arising out of the order of the Adjudicating

Authority to treat the AMCC as not part of the asset of the Corporate Debtor,

such residual obligation should be redistributed so that it does not have any

effect on the resolution plan. Maintaining the integrity of the approved

resolution plan is vital and the residual obligations must be managed within

this framework to avoid adverse effects on the SRA's financial position.

8. We have duly considered the arguments advanced by the Learned

Counsel for all the parties and perused the records carefully.

9. When we look at the sequence of events, it is clear that the cause of

action of IA No. 4460 of 2023 was the issue of withdrawal of mine opening

permission letter dated 05.09.2023 for MM-I Coal Block by Respondent No. 2

due to non-deposit of the AMCC in the escrow account as per the Escrow

Agreement by the Corporate Debtor. Aggrieved by the issue of withdrawal

letter, the Appellant had filed IA No. 4460 of 2023 before the Adjudicating

Authority seeking the following reliefs:

a. To quash and set aside the Withdrawal Letter dated 05.09.2023 issued by the Respondent No. 2;

Page 11 of 31 Company Appeal (AT) (Insolvency) No. 944 of 2024 b. During pendency or disposal of this Application, direct the Respondent No. 1 and Respondent No. 2 to not take any coercive action in light of the Withdrawal Letter dated 05.09.2023;

c. During pendency or disposal of this Application, suspend the effect of Withdrawal Letter dated 05.09.2023 allowing the Corporate Debtor to continue with the mining operations;

d. For interim and ad-interim reliefs; and e. Pass such other necessary orders as this Hon'ble Tribunal may deem fit.

10. When we look at para 24 of the impugned order, we find that the

Adjudicating Authority had delineated two issues to be answered:

"24. At the outset, it is hereby clarified that the issue for determination before us is (a) whether the withdrawal letter dated 05.09.2023 could have been issued in view of the CIRP commencement on 12.08.2022 and consequential imposition of moratorium in terms of Section 14 of the Code; (b) Whether the Mine closure cost upto the CIRP commencement date are operational Debt or money held in trust."

11. On the first question at (a) above, the Adjudicating Authority held that

it had jurisdiction to direct the nominated authority to withdraw the

withdrawal letter and that having been ordered with immediate effect, the

Appellant's prayer in IA No. 4460 of 2023 to that extent stood satisfied. With

regard to second question at (b) above, the Appellant is aggrieved by paras 32

and 33 of the impugned order wherein the Appellant has been directed to

consider the AMCC as money not belonging to the Corporate Debtor and to

keep the same aside and made RP personally responsible for any deviation in

relation to disposal of the mined coal.

12. At the outset, it may be useful for us to take notice of the relevant paras

which have aggrieved the Appellant and the same are as reproduced below:

Page 12 of 31

Company Appeal (AT) (Insolvency) No. 944 of 2024 "32. During, the course of hearing held on 11.01.2024, the learned counsel for the Applicant submitted that the annual cost accrued during the CIRP period can be treated as CIRP Costs and be paid in priority.

However, per contra, the learned counsel for the Respondents submits that the entire closure costs have to be paid failing which the permission has to be withdrawn. We find that the annual mine closure cost is in nature of funds created under the Mine Plan to ensure that the mining closure activities are completed by the lessee in accordance with the agreed timelines and guidelines laid down in this relation. The said obligation is in nature of guarantee towards fulfilment of social obligations arising out of mining of natural resources. The terms of maintenance of escrow account clearly provides for release of part money at interval of 5 years subject to the fulfilment of obligation towards closure of mined out land/back filling, and finally upon complete mine closure. The Escrow account clearly stipulates refund of the balance amount to the lessee. It follows therefrom that the annual mine closure costs are in nature of annual deposits which are to be applied towards the statutory obligation of closure of mined out land. Since, these are obligations of the lessee of the mine, even if there is shortfall in contribution of such charges, the lessee does not get discharged from its obligation of final closure. In other words, in case the costs of mine closure is treated as Pre-CIRP costs and is subjected to hair-cut, the short fall equivalent to hair cut shall become obligation of the Successful Resolution Applicant, as Government cannot be asked to fund such hair cut under any circumstances. The Code contemplates waivers of fiscal liabilities which has arisen in present, whereas the mine closure obligation is a future obligation, because the failure in fulfilment of progressive fulfilment of obligation cannot discharge the lessee from the final obligation of closing the mined land in accordance with the guidelines and statutory mandate. Accordingly, we are of considered view that annual mine closure charges are in nature of moneys held in trust in an Escrow Account to ensure fulfilment of obligation towards the Public at large for complete closure of mine and development of mined area, and such money cannot be part of Liquidation estate.

33. Accordingly, we direct the Applicant to consider the Annual Mine closure costs as money not belonging to the Corporate Debtor and keep the same aside. Our observation in this Order shall not prejudice the rights of the Respondent to take appropriate action, except termination of the Coal mine agreement on that ground, in relation to allegation of

Page 13 of 31 Company Appeal (AT) (Insolvency) No. 944 of 2024 sale of coal in open market in violation of MMDR Amendment Act, 2021. In view of these directions, the Respondent No. 2 is directed to withdraw the letter dated 5.9.2022 with immediate effect. However, it is clarified that the Applicant shall dispose of the mined Coal only in accordance with the terms of Mine Agreement and he shall be personally responsible for any deviation in relation to such disposal."

13. The correctness of the above view taken by the Adjudicating Authority

in paras 32 and 33 of the impugned order supra is what has come up before

us for determination in the present appeal.

14. While admitting the non-payment of pre-CIRP AMCC dues, it is the

contention of the Appellant that non-payment of AMCC is an operational debt

as it relates to the purpose of securing mine-closure obligations and that it

has been wrongly held by the Adjudicating Authority to be in the nature of

money held in trust. The Appellant has placed a tabular chart of AMCC dues

at pages 189-190 of Appeal Paper Book ("APB" in short). The chart reflects

that the total quantum of AMCC which stood due for the period 2016 till date

of initiation of CIRP on 12.08.2022 was Rs 13.30 Cr. The balance which arose

subsequent to 12.08.2022 was Rs 5.37 Cr. and it is the case of the Appellant

that this amount of Rs 5.37 Cr. has to be treated as CIRP cost under IBC.

However, the AMCC due of Rs. 13.30 Cr. for the pre-CIRP period has to be

treated in terms of provisions of IBC and cannot be recovered in full or kept

outside the CIRP process dehors the provisions of IBC.

15. Per contra, it is the contention of the Respondent No 1 and 2 that the

purpose of AMCC is to rehabilitate the coal-mine land back to the original

condition so as to mitigate the ill effects and damages caused to the

Page 14 of 31 Company Appeal (AT) (Insolvency) No. 944 of 2024 environment while mining. It was belaboured hard that AMCC draws its

sustenance particularly from Article 39(b) of the Constitution of India. AMCC

therefore helped in sub-serving the common good and in the protection of

environment. Hence, AMCC amount was required to be deposited in the

Escrow Account which was in the nature of trust to fulfils Union's obligation

to act as a trustee of nature's resources for the welfare of public. Emphasising

that AMCC was held in the nature of trust, it is the case of the Respondent No

1 and 2 that the Escrow Account opened by the Corporate Debtor had the

CCO therefore as the exclusive beneficiary of AMCC. This money was only to

be used for fulfilling the statutory obligation of rehabilitation of land and

environment and therefore did not form the asset of the Corporate Debtor and

that the Adjudicating Authority correctly held that the pre-CIRP AMCC due is

fully recoverable. It was contended that AMCC cannot be treated as a fee, tax

or dues payable to the government but was a payment in the nature of trust

to fulfil the social obligation of mine-closure. It therefore falls outside the scope

of CIRP costs as defined under Section 5(13) of the IBC and hence cannot be

subjected to any haircut. It has also been contended by the Respondents that

though the Corporate Debtor was obligated to pay the mining closure cost in

annual instalments over the period of mine-life this was consistently breached

by the Corporate Debtor which had led to issue of several reminders followed

by issue of show cause notice calling upon the Corporate Debtor to explain

why the mining operations should not be withdrawn. Hence withdrawal of

mining permission arises out of breach of Escrow Agreement and not in

pursuance of Termination Notice dated 12.09.2022.

Page 15 of 31 Company Appeal (AT) (Insolvency) No. 944 of 2024

16. This brings us to the first limb of the argument of the Respondent No. 1

and 2 which is premised on the basis that the AMCC deposit and unpaid

balance were/are held by the Corporate Debtor in trust for the benefit of

common good and that AMCC deposit are not assets of the Corporate Debtor.

In support of their contention that AMCC was imposed to sub-serve common

good, the Respondent No. 1 & 2 have relied on the judgment of the Hon'ble

Supreme Court of India in Coal India Ltd and Anr. Vs Competition

Commission of India and Anr 2023 10 SCC 345 ('CCI' in short) and

attention was adverted to the following paragraph as under:

"100.The expression "common good" in Article 39(b) in a Benthamite sense involves achieving the highest good of the maximum number of people. The meaning of the words "common good" may depend upon the times, the felt necessities, the direction that the Nation wishes to take in the future, the socio-economic condition of the different classes, the legal and fundamental rights and also the Directive Principles themselves. ..... As to how common good is best served is best understood by the representatives of the people in the democratic form of Government. We must bear in mind the wholesome principle that when Parliament enacts laws, it is deemed to be aware of all the existing laws. Properly construed and operated fairly, the "Act" would, in other words, harmonise with common good, being its goal as well."

17. In the above CCI case, it has been held by the Hon'ble Apex Court that

when Parliament enacts laws, it is deemed to be aware of all the existing laws

and the legislative enactment should harmonise with common good being its

goal as well. We have no quarrel with the above proposition of law and find no

good reasons to disbelieve that the Parliament while passing the IBC was

unaware of all other existing laws sub-serving the cause of common good.

Further, in the present matter, as no challenge has been mounted to the vires

Page 16 of 31 Company Appeal (AT) (Insolvency) No. 944 of 2024 of the IBC, hence, this judgement does not come to the aid of the Respondent

No. 1 & 2.

18. Another judgment of the Hon'ble Supreme Court which has been

referred to by the Respondent No. 1 & 2 is Assam Sillimanite Ltd. Vs Union

of India, 1992 Supp (1) SCC 692 in which the Hon'ble Supreme Court

examined the constitutional validity of the Industries (Development and

Regulation) Act which enabled acquisition and transfer of the right, title and

interest of the Assam Sillimanite Ltd. in respect of its refractory plant. The

Hon'ble Supreme Court had upheld the validity of Industries (Development

and Regulation) Act by holding that there is a direct and rational nexus

between the objective of the enactment and the principles contained in Article

39 of the Constitution. The present is, however, not a case where the

constitutional validity of IBC has been put on the test and hence this case law

also does not come to the rescue of the Respondent No.1&2.

19. Yet another judgment of the Hon'ble Supreme Court which has been

relied upon by Respondent No. 1 & 2 is Reliance Natural Resources Ltd. Vs

Reliance Industries Ltd. (2010) 7 SCC 1 wherein the Hon'ble Supreme Court

held that the public trust doctrine "is part of Indian law" and that it "is thus

the duty of the Government to provide complete protection to the natural

resources as a trustee of the people at large." This ratio also does not render

any assistance to Respondent No. 1 & 2 since the Appellant has nowhere

questioned the purpose and objective of AMCC or denied the obligation cast

on the Corporate Debtor to take necessary measures for fulfilling mine-closure

Page 17 of 31 Company Appeal (AT) (Insolvency) No. 944 of 2024 responsibilities. This is also clearly evidenced by the fact that AMCC has been

made part of CIRP costs during the CIRP period to make the Corporate Debtor

fulfil these obligations while running as a going concern.

20. We have no doubts in our mind that our legal system includes the

principle of public trust as a part of the Indian jurisprudence and the Hon'ble

Supreme Court has held in a catena of judgements that the Constitution

postulates the principle of public trust especially in Part IV. We also agree that

Article 39(b) obligates justness in "ownership and control of material

resources" so as to "subserve common good". Be that as it may, adjudicating

on the contours of the public trust doctrine or its infringement is clearly not

the remit of this Tribunal and any foray made in this direction by this Bench

is clearly fraught with danger of leading to judicial over-reach and hence the

transgression of the boundaries of our summary jurisdiction is not

countenanced.

21. In any case, the Respondent No. 1 & 2 have failed to place on record

any document to substantiate its averments regarding such purported

treatment of the AMCC deposits as money held in the nature of trust. The

Respondent No. 1 & 2 have also failed to place on record any contractual

agreement to substantiate/show any arrangement how AMCC deposit was

kept/held in trust by the Corporate Debtor/Respondent No. 1 and 2 for the

benefit of others. There is no documentary evidence on record to establish that

any steps were taken for creation of any separate trust account by the parties

to the Agreement. Since no separate trust account was created or opened by

Page 18 of 31 Company Appeal (AT) (Insolvency) No. 944 of 2024 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. In the absence of any separate trust account, we are of the considered

view that no trust can be said to have come into the existence in the present

case.

22. Before we proceed further to examine the rival contentions, for better

appreciation of the issue at hand, we need to first dwell upon the basis which

AMCC was to be collected. We begin by looking at the statutory provisions and

rules as adverted by Respondent No. 1 & 2 which permitted collection of

AMCC. Section 18 of the Mines and Minerals (Development and Regulation)

Act, 1957 ('MMDR Act') lays down that it shall be the duty of the Central

Government to take all such steps as may be necessary for the conservation

and systematic development of minerals in India and for the protection of

environment by preventing or controlling any pollution which may be caused

by prospecting or mining operations. Further, Section 29 of the Coal Mines

(Special Provisions) Act, 2015 vests overriding powers which reads as follows:

"The provisions of this Act shall have effect, notwithstanding anything

inconsistent therewith contained in any other law for the time being in force, or

in any instrument having effect by virtue of any such law." Further as per

Clause 14 and 15 of the CMDPA, upon exhaustion of the extractable coal

reserves at the Coal Mine, the Coal Mine shall be closed in the manner

provided in the closure plan. In addition, Rule 10A and 12A of the Colliery

Page 19 of 31 Company Appeal (AT) (Insolvency) No. 944 of 2024 Control Rules empowers the Coal Controller to monitor mine-closure and

operate the Escrow Account formed for funding mine-closure activity for which

an Escrow Agreement was drawn up.

23. This brings us to salient terms of the Escrow Agreement, which provides

for the modalities of the operation of the Escrow Account as extracted here-

under:

"1. As per the guidelines of the Ministry of Coal, Government of India all Coal Mine owners who are operating Coal Mines are required to obtain a Mine Closure Plan within a period of One year from the day when the original guidelines came into effect (i.e. 27th August, 2009) and from the date of publishing of the amended guidelines i.e. 7th January, 2013 for those mine owners who have not yet complied to the same failing which the Government will take action as appropriate.

.....

3. The money to be deposited year-wise by the said Mining Company in the Escrow A/c to be opened by the Coal Mine owners with any Scheduled Bank and the President of India acting through Coal Controller's Organization as exclusive beneficiary, is the annual Mine closure cost as approved by the Ministry of Coal and which is to be verified by the Coal Controller's Organization as per the guidelines of the Ministry of Coal, Govt. of India. If mining activity starts after the approval of Mine Closure Plan, then project proponent will be required to recalculate the closure cost based on WPI which will be effective from the financial year of starting of the project.

4. Up to 80% of the total deposited amount including interest accrued in the Escrow Account may be released after every 5 years in the line with the periodic examination of the closure plan as per clause 3.1 of the annexure of the guidelines. The amount released should be equal to the expenditure incurred in the Progressive Mine Closure in the past 5 years or 80% whichever is less. The balance amount at the end of the Final Mine Closure shall be released to the Mine Owners/Leaseholder on compliance of all provisions of closure plan duly signed by the Lessee to the effect that said closure of mine complied all statutory rules,

Page 20 of 31 Company Appeal (AT) (Insolvency) No. 944 of 2024 regulations, orders made by the Central or State Government, statutory organizations, court etc. and duly certified by the Coal Controller.

5. If the Coal Controller has reasonable grounds for believing that the protective, reclamation and rehabilitation measures as envisaged in the approved mine closure plan in respect of which financial assurance was given has not been or will not be carried out in accordance with mine closure plan, either fully or partially, the Coal controller shall give the mine owner a written notice of his intention to issue the orders for forfeiting the sum assured at least thirty days prior to the date of the order to be issued after giving an opportunity to be heard. Operation Of Escrow Account

Deposit

i) The Escrow Account shall continue as a fixed deposit account subject to withdrawal of 80% of total deposited amount including interest accrued in the Escrow Account after 5 years of every deposit in line with the periodic examination of the closure plan. The balance amount shall be released to the mine owner/leaseholder at the end of the final Mine Closure on compliance of all provision of closure Plan.

ii)The M/s. Topworth Urja & Metals Ltd. shall cause deposit in such "Escrow Account" in the following manner on yearly basis as would be communicated by the Coal Controller from time to time to it:

.......

h) If the Mine owner fail to deposit the annual amount required to be deposited, the Government can withdraw the mining permission."

24. When we look 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

Page 21 of 31 Company Appeal (AT) (Insolvency) No. 944 of 2024 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, we are not 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.

25. This brings us to the second tier of defence raised by the Respondent

No. 1 & 2. The argument canvassed is that CCO acquired powers to operate

the Escrow Account to perform duties relating to monitoring of mine-closure

activities from Rule 10A of the Colliery Control Rules, 2004 and Section 18

and 20 of MMDR Act. It has been contended that MMDR Act is a special law

having been enacted for a specific purpose, IBC cannot claim to have

overriding effect over public duty which is cast upon the CCO by MMDR Act.

Respondent No. 1 & 2 have relied on the judgement of the Hon'ble Supreme

Court in the matter of Municipal Corporation of Greater Mumbai Vs

Abhilash Lal (2020) 13 SCC 234 wherein it was held that Section 238 of IBC

cannot override the public duty and rights of a third party in controlling and

regulating its own properties. In that case, the resolution plan was becoming

an impediment to Municipal Corporation of Greater Mumbai's independent

plans to ensure that public health amenities are developed in the manner it

chooses. The present facts of the case are clearly distinguishable since the

dispute is not on how the AMCC is to be used but whether the Respondent

No. 1 & 2 can recover the pre-CIRP AMCC dues in respect of a Corporate

Page 22 of 31 Company Appeal (AT) (Insolvency) No. 944 of 2024 Debtor which has been admitted into the rigours of insolvency resolution

under IBC. This case law is therefore not applicable in the facts of the present

matter.

26. The Appellant has contended that neither the Section 29 of the Coal

Mine Special Provision Act, 2015 nor the provisions of MMDR Act, 1957 can

override the provisions of IBC, 2016 in view of the fact that IBC being a later

legislative enactment it will prevail over the former. It is their case that though

these enactments may contain a non-obstante clause, the IBC being a later

non-obstante clause, it would override CMSPA. In support of their contention,

the Appellant has relied on the judgment of Hon'ble Supreme Court in A.P.

State Financial Corporation Vs Official Liquidator (2000) 7 SCC 291 and

R.S. Raghunath Vs State of Karnataka (1992) 1 SCC 335 which has

approved the Rule of Lex Posteriori. We quite agree that IBC being a

subsequent enactment, the provisions of the IBC shall have an overriding

effect and neither CMSPA nor MMDR Act can claim itself as not being

subservient to the provisions of the IBC.

27. For ease of reference, Section 238 of the IBC is reproduced below:

"238. Provisions of this Code to override other laws.- The provisions of this Code shall have effect, notwithstanding anything inconsistent therewith contained in any other law for the time being in force or any instrument having effect by virtue of any such law."

We also agree that there is a catena of judgments of the Hon'ble Supreme

Court as in Sundaresh Bhatt, Liquidator of ABG Shipyard Limited Vs

Central Board of Indirect Taxes and Customs- Civil Appeal No. 7667 of

Page 23 of 31 Company Appeal (AT) (Insolvency) No. 944 of 2024 2021 and A. Navinchandra Steels Pvt. Ltd. Vs SREI Equipment Finance

Ltd. & Ors. Civil Appeal Nos. 4230-4234 of 2022 wherein it has been held

that Section 238 of the IBC clearly overrides any provisions of law which is

inconsistent with the IBC. In the case of Innoventive Industries Ltd vs ICICI

Bank in CA Nos 8337-8338, the Hon'ble Supreme Court had reaffirmed the

IBC's overriding authority. Furthermore, the Court reiterated in this landmark

ruling that the IBC serves as a comprehensive law, providing an exhaustive

framework for matters related to insolvency concerning corporate entities.

Consequently, the Court clarified that the later non-obstante clause of this

Parliamentary enactment takes precedence over the limited non-obstante

clause present in any other Act. This Bench is therefore of the considered view

that IBC being a later enactment, it would override both CMSPA and MMDR

Act.

28. This brings us to the contention of the Appellant that since the provisions

of the IBC overrides and prevails over the CMSPA and MMDR Act, all contrary

provision contained in the latter two statutes shall stand overridden. Thus,

the Respondent No. 1 & 2 cannot be allowed to recover the pre-CIRP AMCC

dues outside the resolution plan framework. The treatment of AMCC deposit,

both pre-CIRP and during CIRP will have to be made subject to the resolution

mechanism under the IBC.

29. When we look at the given factual matrix, we find that 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

Page 24 of 31 Company Appeal (AT) (Insolvency) No. 944 of 2024 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.

30. In the IBC framework, the assets of the Corporate Debtor are to be taken

over by the RP for resolution of the Corporate Debtor. The RP has to make

every endeavour to protect and preserve the value of the property of the

Corporate Debtor. 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. Respondent No. 1 & 2 cannot stand on different

footing with other creditors of the Corporate Debtor who have filed their claims

for the pre-CIRP period with the Appellant-RP. Such differential treatment is

also contrary to the settled law which prescribes for non-differential treatment

of similarly situated Operational Creditors or the Financial Creditors. The

Page 25 of 31 Company Appeal (AT) (Insolvency) No. 944 of 2024 payment of pre-CIRP dues is not sustainable since any such payment to any

creditor is not only discriminatory to other similarly situated creditors, but

also dilutes the scheme of the IBC. The Respondent No. 1 & 2 are entitled to

receive pre-CIRP dues as per resolution framework. Hence, the Respondent

No. 1 & 2 cannot be heard in contending that they be allowed to realize the

said amount independent of the resolution plan as any such measure will not

be in the overall interest of a composite resolution plan under the provisions

of IBC. The claim of the Respondent No. 1 & 2 to realize the pre-CIRP AMCC

by treating it as outside the resolution process is clearly in conflict of the

statutory scheme as laid down in the IBC. The Respondent No.1 and 2 by

seeking to recover the entire AMCC by keeping it outside purview of CIRP

tantamount to bypassing the resolution process of IBC. Accepting the

argument of the Respondent No. 1 & 2 will be clearly in derogation of the

scheme for payment of creditors of the Corporate Debtor as delineated in the

IBC.

31. As per the provisions of the IBC, any Government and/or statutory

Authority is also required to file its claims for any dues pending to be paid to

such authority. Therefore, by virtue of moratorium which is currently

operating/subsisting against the Corporate Debtor, no proceedings can be

instituted or continued against the Corporate Debtor during the CIRP period

to recover the AMCC deposit which belonged to pre-CIRP period including

AMCC that remained unpaid. Hence, 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

Page 26 of 31 Company Appeal (AT) (Insolvency) No. 944 of 2024 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.

32. We also notice that it has been vehemently contended by the Appellant

that after issue of withdrawal of mine opening permission the Respondents

had filed their claim in Form-B on 23.11.2023 as operational creditor by

treating AMCC as a pre-CIRP cost. It was also pointed out that the RP had

rejected the claim filed by the Respondent on grounds of being time barred

and this was also not challenged by them. It is also the contention of the

Appellant that the Respondents having filed their claim as operational

creditor, they cannot be allowed to reprobate now and claim that AMCC is not

an asset of the Corporate Debtor and for keeping the sums out of CIRP

altogether. It is also pointed out that the Respondents never took the stand

that AMCC was held in the nature of trust and that it was not an asset of the

Corporate Debtor either in the pleadings before the Adjudicating Authority or

even in communications exchanged by them with the RP or with SRA. It was

also asserted that keeping this asset outside the CIRP would not achieve the

purpose of securing mine closure obligations.

33. The counter-contention of Respondent No. 1 & 2 is that they had filed

their claim in Form-B as Operational Creditor without prejudice to their

contention that AMCC cost should not be subjected to waterfall mechanism

as it is not part of the estate of the Corporate Debtor and is not subject to

Page 27 of 31 Company Appeal (AT) (Insolvency) No. 944 of 2024 haircut. On the rejection of their claim, it has also been contended that in view

of the law laid down by the Hon'ble Supreme Court in State Tax Officer Vs

Rainbow Papers Ltd. (2023) 9 SCC 545 ('Rainbow' in short) if a resolution

plan fails to include statutory demands payable to the government, the

resolution plan is bound to be rejected.

34. We are not inclined to agree with the above standpoint of Respondent

No. 1 & 2 for Rainbow judgment does not support the argument that all

government dues will be secured dues under all circumstances. The reasoning

of Rainbow Papers will be applicable only in such cases where the statutory

provision creating first charge in favour of the relevant government or

statutory authority is pari materia with the provision of Section 48 of the GVAT

Act. In the present facts of the case, we do not find that the CMSPA or MMDR

Act or Colliery Control Rules contain any provision that imposes a first and

paramount lien, charge or any form of security on the money towards AMCC.

Since no such security interest has been created with respect to AMCC by

operation of law, the defence of the Respondent No. 1 & 2 falls to the ground.

35. The IBC was introduced in order to overhaul the insolvency and

bankruptcy regime in India to dismantle many of the unhealthy, pernicious

and ineffective practices of the past in addressing insolvency issues. One of

the cardinal recalibrations was the treatment of dues owed to government or

statutory authorities. The said intent is also manifest in the Preamble to the

IBC which provides as follows:

"An Act to consolidate and amend the laws relating to reorganisation and insolvency resolution of corporate persons, partnership firms and

Page 28 of 31 Company Appeal (AT) (Insolvency) No. 944 of 2024 individuals in a time bound manner for maximisation of value of assets of such persons, to promote entrepreneurship, availability of credit and balance the interests of all the stakeholders including alteration in the order of priority of payment of Government dues and to establish an Insolvency and Bankruptcy Board of India, and for matters connected therewith or incidental thereto."

The same legislative stance, is manifested in the IBC's waterfall mechanism,

which positions government dues, including taxes, below financial creditors.

IBC as it stands today is a carefully considered and well thought out piece of

legislation and due caution should be exercised that the efficacy and

robustness of the insolvency and liquidation landscape embedded therein is

not allowed to be rocked easily. This cautionary principle applies equally to

both the adjudicatory as well as the appellate authority under the IBC to

refrain from judicially interfering in the framework envisaged under the IBC

and keep such interference at its bare minimum so as not to disturb the

foundational principles of the IBC.

36. Having said that we are constrained to note that the present finding of

the Adjudicating Authority is clearly at odds with one of the stated legislative

intents behind IBC. 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. Basis the foregoing discussion, we do not agree with

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. 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

Page 29 of 31 Company Appeal (AT) (Insolvency) No. 944 of 2024 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. This would cause serious prejudice to

the discipline of IBC and would set at naught the salutary provisions of the

IBC. Such ingenious method of recovering pre-CIRP dues will be setting a bad

precedent and open room for government/statutory entities to device

contrivances to recover pre-CIRP dues in the garb of public trust doctrine.

This will open flood-gates for innovating new strategies to defeat the statutory

scheme of IBC which is a complete code in itself for insolvency resolution

process of the Corporate Debtor. We must be careful not to supplant and

substitute the mechanism which has been laid down in the IBC framework

with new mechanisms under judicial directions in the guise of the doctrine of

public good and public interest.

37. Given this backdrop, we find sufficient reasons to allow the Appeal. The

impugned order at para 33 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. Further,

the observations of the Adjudicating Authority fixing personal responsibility

on the RP-Appellant for any deviation from the Coal Mine Development &

Production Agreement is expunged subject to the RP not acting in breach of

the statutory provisions of the IBC and Rules and Regulation framed

thereunder. We must add that we are not expressing any opinion on the merits

of the resolution plan. The Adjudicating Authority may bear in mind the above

Page 30 of 31 Company Appeal (AT) (Insolvency) No. 944 of 2024 directions while considering the approval of the resolution plan proposal. Rest

of the impugned order at para 33 will remain unchanged. Intervention

application filed by Successful Resolution Applicant is also disposed of with

the above directions.

[Justice Ashok Bhushan] Chairperson

[Barun Mitra] Member (Technical)

[Arun Baroka] Member (Technical)

Place: New Delhi Date: 23.10.2024

Abdul/Harleen

Page 31 of 31 Company Appeal (AT) (Insolvency) No. 944 of 2024