Alerts & Updates 4th Nov 2024
The NCLAT Principal Bench, New Delhi, in Avil Menezes (RP) v. Ministry of Coal and Ors. (Company Appeal (AT) (Insolvency) No. 944 of 2024, decided on 23-Oct-2024), addressed a significant question regarding the treatment of certain statutory dues within the context of an ongoing Corporate Insolvency Resolution Process (CIRP) under the Insolvency and Bankruptcy Code (IBC), specifically the Annual Mine Closure Cost (AMCC) obligations and their priority in insolvency proceedings. The case primarily examined whether the AMCC constituted an asset of the Corporate Debtor or a separate trust asset that could be excluded from the CIRP pool, testing the boundaries of the IBC’s supremacy over other statutory provisions.
The NCLAT upheld the supremacy of the IBC over other laws, including the Mines and Minerals (Development and Regulation) Act (MMDR Act) and Coal Mines (Special Provisions) Act, 2015 (CMSPA).
The Tribunal ruled that:
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– Topworth Urja & Metals Ltd. (Corporate Debtor) was awarded a mining lease for the MM-1 Coal Block by the Ministry of Coal and entered into a Coal Mine Development and Production Agreement (CMDPA) in 2015.
– It had to deposit Annual Mine Closure Costs (AMCC) into an escrow account for environmental and mine closure obligations.
– However, the Corporate Debtor defaulted on AMCC payments from FY 2018-19, despite reminders and the submission of a Performance Bank Guarantee (PBG).
– Bank of Baroda filed a Section 7 application under IBC against the Corporate Debtor, and CIRP was initiated in August 2022.
– During CIRP, Respondent No. 1 (Ministry of Coal) terminated the CMDPA and subsequently withdrew mine-opening permission, citing unpaid AMCC.
– The Resolution Professional (RP) filed an application to challenge the withdrawal of the mine-opening permission, and the matter was escalated to the NCLAT.
– AMCC dues should be treated as part of the Corporate Debtor’s assets and subject to the IBC’s resolution framework.
– IBC overrides other laws, and the Ministry of Coal cannot recover AMCC independently.
– The Adjudicating Authority erred in directing the RP to keep aside AMCC and assigning personal liability for mined coal disposal, which was not prayed for in the original application.
– AMCC represents funds held in trust to safeguard environmental obligations and the public good.
– AMCC is not part of the Corporate Debtor’s assets and should not be subjected to IBC’s framework or a “haircut” on dues.
– Cited the public trust doctrine, claiming that AMCC funds should be preserved outside the insolvency process.
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– NCLAT rejected the claim that AMCC deposits were held in trust, noting the absence of any dedicated trust account or separate legal framework governing these deposits outside the Escrow Agreement.
– AMCC funds, therefore, fall within the purview of the CIRP, and the claim by the Ministry of Coal should be addressed as part of the resolution process.
– The Tribunal upheld that the IBC, as a comprehensive code with a later non-obstante clause, supersedes any conflicting provisions under MMDR Act or CMSPA.
– Relying on Supreme Court precedents, the Tribunal concluded that the IBC’s overriding effect mandates uniform treatment of creditors, including statutory authorities.
– NCLAT reiterated that pre-CIRP dues cannot be met outside the IBC framework, ensuring no differential treatment for similarly situated creditors.
– Allowed the Ministry’s claim as an operational creditor under CIRP, disallowing any independent recovery attempts.
– The Tribunal clarified that without an explicit statutory first charge, as seen in the Rainbow Papers Ltd. case, government dues do not enjoy an inherent secured status.
– The NCLAT set aside the impugned order that treated AMCC as a non-CIRP asset and removed personal liability for the RP regarding mined coal.
– The case was remanded for further processing consistent with the IBC’s resolution framework.
Reaffirmed IBC’s comprehensive framework and supremacy over other laws.
Public trust doctrine; asserted government’s role as a trustee of natural resources for public benefit.
Held that public health responsibilities of local authorities cannot be undermined by IBC; distinguished from the current case.
Affirmed the supremacy of IBC’s Section 238.
Discussed the secured status of government dues under statutory first charge, applicable only where explicit legislative provision exists.
| This NCLAT ruling reinforces the principle that the IBC, as a later legislative enactment with a non-obstante clause, takes precedence over earlier statutes with conflicting provisions, even those directed toward public welfare obligations.
The judgment clarifies that statutory dues, such as AMCC, should be treated as part of the Corporate Debtor’s estate and processed within the CIRP framework, ensuring equitable treatment of all creditors and preserving the IBC’s core objective. This decision underscores the importance of maintaining the IBC’s structured approach to insolvency and disallows piecemeal recoveries by statutory authorities under the guise of trust obligations, fortifying the CIRP’s collective process. |
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Mukesh Chand, Senior Counsel – Email – mukeshchand@elp-in.com
[i] CIVIL APPEAL NOs. 8337-8338 OF 2017- Decided on August 31, 2017
[ii] CIVIL APPEAL NO. 4273 OF 2010- Decided on May 07, 2010
[iii] CIVIL APPEAL NO. 6350 OF 2019- Decided on November 15, 2019
[iv] 2022 SCC OnLine SC 1101
[v] CIVIL APPEAL NO. 1661 OF 2020- Decided on September 06, 2022
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