Union Of India & Anr vs Videocon Industries Ltd. & Ors

(arising out of order dated 13th March, 2019 passed by National Company Law Tribunal, Mumbai Bench, in M.A. No. 1300/2018 in C.P. (IB) - 02/(MB)/2018)

IN THE MATTER OF:

Union of India & Anr. ...Appellants

Versus

Videocon Industries Ltd. & Ors. ...Respondents

Present:

For Appellant : Mr. Moninder Acharya, Senior Advocate with Mr. Anurag Ahluwalia, CGSC, Ms. Nidhi Mohan Parashar, Mr. Pratyaksh Sharma and Mr. Viplav Acharya, Advocates

For Respondents : Mr. Arun Kathpalia, Senior Advocate with Mr. S. S. Ladda, Mr. Devender Singh, Mr. Yashvardhan, Ms. Kritika Nagpal and Mr. Kanishk Rana, Advocates for Respondent No. 1

Mr. P.K. Jain and Mr. Saurabh Jain, Advocates for Respondent No. 3

JUDGMENT

SUDHANSU JYOTI MUKHOPADHAYA, J.

During the 'Corporate Insolvency Resolution Process' against

'Videocon Industries Limited' (Corporate Debtor), the Union of India, Ministry

of Petroleum & Natural Gas (Exploration Division), Shastri Bhawan, New 2

Delhi - 110 001 issued Demand Notice dated 22nd October, 2018 to the

'Corporate Debtor' raising demand as quoted below:

"3. You are, therefore, advised to assign and

allocate 100% of the Sale Proceeds/Oil and Gas

Invoices in favour of Government, with immediate

effect for recovering the provisional sum of US $ 314

million together with applicable interest towards the

unpaid Government share of Profit Petroleum. You

are also advised to remit the above assigned

amount to Pay and Accounts Officer (PAO), Ministry

of Petroleum and Natural Gas (MoPNG) under

intimation to this office."

2. Against the aforesaid Demand Notice, the 'Resolution Professional' filed

a 'Miscellaneous Application' under Section 60(5) of the 'Insolvency and

Bankruptcy Code, 2016 (hereinafter referred to as the 'I&B Code') before the

Adjudicating Authority (National Company Law Tribunal), Mumbai Bench,

Mumbai on the ground that during the period of Moratorium, the 'Corporate

Debtor' cannot be asked to part away with any amount including the share of

profit. The Adjudicating Authority by impugned order dated 13th March, 2019

has allowed the prayer and passed the following order:

Company Appeal (AT) (Insolvency) No. 408 of 2019 3

"8. In the light of the foregoing detailed discussion

it is judicious to direct the concerned

Government authority not to press or

implement the impugned Notice dated

22.10.2018 during the commencement of

Insolvency proceeding and as long as the

"Moratorium" is applicable on this Corporate

Debtor. At the most, the Ministry of Petroleum

can lodge its claim of any legally enforceable

right or recovery to the appointed Resolution

Professional, being not rendered remediless,

as prescribed under The Code. Further

directed that Respondent No. 3 to 6 i.e.,

Chennai Petroleum Corporation Ltd.;

Mangalore Refinery and Petrochemicals

Limited; GAIL (India) Limited; and Bharat

Petroleum Corporation Ltd. are restrained

and not to remit sale proceeds which are

due to this Corporate Debtor i.e. Videocon

Industries Limited. Status quo shall be

Company Appeal (AT) (Insolvency) No. 408 of 2019 4

maintained i.e. the Respondent No. 3 to 6 shall

continue to pay the share to VIL as adopted

hitherto.

9. This Miscellaneous Application is disposed

of accordingly."

3. The aforesaid order dated 13th March, 2019 has been challenged by

'Union of India and another'.

4. The brief facts of the case are that a 'Production Sharing Contract' was

executed on 28th October, 1994 between the government and the following

four parties on 28th October, 1994, having percentage of participating interest

as follows:

Name of Party % S. Participating No. Interest 1 ONGC Ltd. ("ONGC") 40%

2. Videocon Industries Limited (Corporate 25% Debtor) 3. Vedanta Ltd. ("VIL") (company in which 22.5% Cairn India Ltd. Stands merged) 4. Ravva Oil (Singapore) Pte. Ltd. ("ROS") 12.5%

5. The dispute arose between 'Government of India' and 'Videocon

Industries Limited (Corporate Debtor) on 19th August, 2002 which was

referred to the 'International Arbitration Tribunal', which passed 'Partial

Award' on 31st March, 2005 upholding the 'Videocon Industries Limited'

contentions and dismissing Government of India's contention.

Company Appeal (AT) (Insolvency) No. 408 of 2019 5

6. Thereafter, the Government of India filed an appeal on 10th May, 2005

before the Hon'ble High Court of Kuala Lumpur, Malaysia which by its

decision accepted the objections of Videocon Industries Limited and held that

it had no jurisdiction to hear the appeal of the Government of India and

dismissed the appeal on 5th August, 2009. Subsequently, an appeal was filed

by the Government of India before the Hon'ble Federal Court of Malaysia

which was also dismissed on 16th May, 2016.

7. Thereby the award of the International Tribunal in favour of the

'Corporate Debtor' became final and binding on the Government of India.

8. The aforesaid facts were brought to the notice of the Adjudicating

Authority by the 'Resolution Professional' which on hearing the parties,

passed the impugned order on 13th March, 2019, as quoted above.

9. Learned counsel appearing on behalf of the Appellants submitted that

the petroleum is the property of the Union of India and 'profit petroleum' of

public property. The 'Resolution Professional' had miserably failed to prove

as to why Union of India is not entitled to claim its share of profit on the

petroleum product. Reliance has been placed on Article 28.1 of the

''Production Sharing Contract' to suggest that Union of India is the sole owner

of the entire petroleum from the Contract Area. It was further submitted that

as per Articles 15.8 and 16.4 of the 'Production Sharing Contract', the

allocation of petroleum towards 'cost petroleum' and 'profit petroleum'

requires the approval of the Management Committee and the Central

Government. It was alleged that the 'Corporate Debtor' through 'Resolution

Professional' is trying to defeat the terms of the 'Production Sharing Contract'

Company Appeal (AT) (Insolvency) No. 408 of 2019 6

by falsely claiming that the 'profit petroleum' do not fall in the share of the

Union of India.

10. According to the learned counsel for the Union of India the Demand

Notice dated 22nd October, 2018 does not come within the ambit of 'recovery'

from the 'Corporate Debtor'. It relates to 'profit petroleum' which falls to the

share of the Appellant - Union of India. It was also contended that the

'Resolution Professional' cannot place reliance on any proceedings/orders or

awards of the Arbitral Tribunal since the awards are not a decree of the court

until executed in accordance with the Arbitration Act.

11. Learned counsel appearing on behalf of the 'Resolution Professional'

submitted that the money received from Respondent Nos. 2 to 5 namely

'Chennai Petroleum corporate Ltd' (R-2); 'Mangalore Refinery and

Petrochemicals Limited' (R-3); 'GAIL (India) Limited' (R-4) and 'Bharat

Petroleum Corporation Ltd.' (R-5) are essential for 'Videocon Industries

Limited' to keep it as a going concern while undergoing 'Corporate Insolvency

Resolution Process'.

12. Referring to a 'Production Sharing Contract' dated 28th October, 1994

between the Union of India and other parties, it was further submitted that

the 'ONGC Limited'; 'Videocon Industries Limited'; 'Vedanta Ltd.' and 'Ravva

Oil (Singapore) Pte. Ltd.' are 4 parties to the Contract with Union of India and

defined as 'participating interest' in the Ravva Oil & Gas Field

(Unincorporated) joint venture. Clause 8.3 (b) of the 'Production Sharing

Contract' provides that the contractor shall conduct all petroleum operations

within the contract area diligently, expeditiously, efficiently and in safe and

workman like manner in accordance with good international petroleum

Company Appeal (AT) (Insolvency) No. 408 of 2019 7

industry practices pursuant to the approved work programme. Clause 7.2 of

the 'Production Sharing Contract' provides that the 'operating function'

required of the contractor under this contract has to be performed by the

operator on behalf of all the parties comprising contractor subject to, and in

accordance with, the terms and provisions of the contract and generally

accepted international petroleum industry practice.

13. According to 'Resolution Professional' all joint petroleum operations are

conducted by operator (Vedanta Limited) in accordance with policies, work

programme and budgets approved by all the constituents of the contractor

unanimously in accordance with the provisions of the contract and agreement

between the contractors. As per agreement between the contractors, all costs

and expenses incurred by the operator on behalf of the parties in carrying out

such joint operations are to be borne and paid by the parties in advance for

the following month in proportion to their participating interests and / or

allocated in accordance with the current accounting procedures as prescribed

in the 'Joint Operation Agreement'. As per Clause 7.9 (ii) of the 'Joint

Operation Agreement', each party acknowledge and accepts that a

fundamental principle of the said Agreement is that each party must pay its

participating interest share of all amounts due under the 'Joint Operation

Agreement'.

14. It was submitted that if amount of invoices raised by 'Videocon

Industries Limited' upon Respondent Nos. 2 to 5 towards supply of petroleum

and gas is not ordered to be paid pending 'Corporate Insolvency Resolution

Process', it will hamper the 'Corporate Insolvency Resolution Process' and

'Videocon Industries Limited' cannot be maintained as a going concern.

Company Appeal (AT) (Insolvency) No. 408 of 2019 8

Reliance has also been placed on the decision of the Arbitral Tribunal, which

according to the 'Resolution Processional has reached finality.

15. On hearing the parties and from perusal of the record we find that the

as per procedure the amount in question has been deposited with the

'Videocon Industries Limited (Corporate Debtor) in the light of the 'Joint

Operation Agreement' and 'Production Sharing Contract' as discussed above.

It is in this background, the impugned notice dated 22nd October, 2018 was

issued by Union of India, Ministry of Petroleum & Natural Gas (Exploration

Division), Shastri Bhavan, New Delhi.

16. It is true that the aforesaid demand notice has no relevancy with the

award and the 'Resolution Professional' cannot rely on the award for the

purpose of deciding whether it is payable to the Union of India or not, during

the 'Corporate Insolvency Resolution Process'.

17. The Adjudicating Authority rightly held that it was concern about the

enforcement of the provision of Section 14 of the I&B Code as per which after

declaration of 'Moratorium' prohibition is enforced from recovery of any

amount from the 'Corporate Debtor. Prohibition is also towards institution of

any suit or execution of any judgment, decree or order of any court of law,

Tribunal, Arbitration Panel etc. once the order of 'Moratorium' is passed.

However, it is open to the 'Corporate Debtor' to recover any amount as per law

and award, if any, passed in its favour. It was in this background the

Adjudicating Authority rightly held that during the period of 'Moratorium',

Union of India, Ministry of Petroleum & Natural Gas (Exploration Division),

cannot recover any amount nor can issue demand notice to the Corporate

Debtor through 'Interim Resolution Professional' to pay any amount. In the

Company Appeal (AT) (Insolvency) No. 408 of 2019 9

aforesaid background, we hold that the Adjudicating Authority rightly stayed

demand notice dated 22nd October, 2018 during the pendency of the

resolution process as long as the 'Moratorium' is applicable on the 'Corporate

Debtor'. The Adjudicating Authority rightly held that the Ministry of

Petroleum can lodge its claim for any legally enforceable right of recovery

through 'Resolution Professional', thereby not rendered it remediless.

'Chennai Petroleum Corporation Ltd.'; 'Mangalore Refinery and

Petrochemicals Limited'; 'GAIL (India) Limited' and 'Bharat Petroleum

Corporation Ltd.' have been rightly restrained from remitting the amount from

the sale proceeds to the Union of India, which are due to the 'Corporate

Debtor' during the pendency of the 'Moratorium'.

In absence of any merit, the appeal is dismissed. No costs.

[Justice S.J. Mukhopadhaya] Chairperson

[ Justice A.I.S. Cheema ] Member (Judicial)

[ Kanthi Narahari ] Member (Technical) New Delhi

30th August, 2019

//ns//

Company Appeal (AT) (Insolvency) No. 408 of 2019