NCLT set aside termination of a contract that was terminated on account of non-payment of dues during CIRP period

Oriental Bank of Commerce Vs. M/s. Yamuna Infradevelopers Private Limited (NCLT Delhi)

NCLT New Delhi Bench II set aside the termination of a contract that was terminated on account of non-payment of dues during CIRP period

The Hon’ble National Company Law Tribunal, New Delhi Special Bench-II vide its judgement dated 04.03.2022 in IA No. 5484/2021 in CP (IB) No.479/2019 set aside and quashed the order dated 26.11.2020 passed by the Director General, Mines and Geology, State of Haryana wherein the mining contract of the Corporate Debtor was terminated on account of non-payment of monthly instalments during the period of CIRP.

The Liquidator of the Corporate Debtor, Yamuna Infradevelopers Pvt Ltd had preferred an application under Section 60(5) read with Section 33(5) of the Insolvency and Bankruptcy Code, 2016 against the termination order. It was alleged that if the termination order was not quashed, the same would virtually result in death of Corporate Debtor since the mining contract was the only contract of the Corporate Debtor.

The brief facts are that the Corporate Debtor was allotted mining block by the DGMG, Government of Haryana and a mining contract was entered on 11.04.2016. The CIRP was admitted qua the Corporate Debtor vide order dated 01.05.2019 passed by the Hon’ble NCLT and due to reasons of no Resolution Applicant coming forward, an order of liquidation was passed on 18.12.2019.

Despite having the knowledge of the CIRP and thereafter liquidation proceedings, the Mining Department did not file any claim either before IRP/RP or before the Liquidator, and instead ran parallel proceedings under the Haryana Minor Mineral Concession, Stocking, Transportation of Minerals and Prevention of Illegal Mining Rules, 2012 and terminated the mining contract vide the order dated 26.11.2020.

The Liquidator approached the NCLT seeking to set aside and quash the termination of the contract by the DGMG, Government of Haryana as being in contravention of Section 238 of the IBC.

The Hon’ble Bench considered that the factum of initiation of CIRP and thereafter Liquidation proceedings was well within the knowledge of the Mining Department, however, no claim whatsoever was filed either before the IRP/RP or before the Liquidator. Further, the Mining officials afforded the opportunity of being heard to the suspended directors, which was in any case not permissible. Thus, referring to Section 238 of the IBC which states that the provisions of IBC would override all other laws, and relying upon the spirit and dictum of the Hon’ble Supreme Court of India in Arcelor Mittal India Private Limited Vs. Satish Kumar Gupta and others [2018 SCC Online (SC) 1733] and Swiss Ribbons Private Limited Vs. Union of India and others [2019 SCC Online (SC) 73] wherein the Hon’ble Apex Court has emphasized that every effort must be made to avoid the death of the Corporate Debtor and every effort must be made to run the Corporate Debtor as a going concern, the Hon’ble NCLT quashed the termination of mining contract vide its judgement dated 04.03.2022.

The law on this issue is settled now. The Hon’ble Supreme Court of India in Gujarat Urja Vikas v. Amit Gupta & Ors. [(2021) 7 SCC 209] has held that the NCLT is empowered under Section 60(5)(c) of the IBC to restrain the third parties from termination of contracts, and to set aside the termination of contracts. Further, it is also settled that as per Section 238 of the IBC, the provisions of IBC would prevail over all other laws, whether general or special. Once moratorium has been ordered by this Hon’ble Tribunal, the contract of the Corporate Debtor cannot be terminated due to initiation of the CIRP or liquidation proceedings, as was held in “Rajendra K Bhutta v MHADA” [Judgement dated 19.02.2020 in CA No.12248/2018]

Further, the Hon’ble NCLT in terms of the judgement of the Hon’ble NCLAT in “Prerna Singh v CoC, Xalta Food and Beveranges Pvt Ltd. [Contempt Case (AT) No.3/2020 dated 17.12.2021], directed the Liquidator to include the rent of the mining property as CIRP cost.

FULL TEXT OF THE NCLT DELHI ORDER

Ms. Rita Gupta, Liquidator (hereinafter referred to as the “Applicant”) of M / s Yamuna Infradevelopers Private Limited (hereinafter referred to as “Corporate Debtor”) has filed the present IA No. 5484 of 2020 under Section 60(5)(c) of Insolvency and Bankruptcy Code, 2016 (hereinafter referred to as the “Code”) read with Section 33(5) of the code and Rule 11 of the NCLT Rules, 2016.

2. That the Applicant has made the following prayers :

a) set aside the order dated 26.11.2020 as passed by the Director General, Mines and Geology, State of Haryana for having been passed against the provisions and spirit of Insolvency and Bankruptcy Code, 2016; and/or;

b) stay the operation of order dated 26.11.2020 as passed by the Director General, Mines and Geology, State of Haryana for having been passed against the provisions and spirit of Insolvency and Bankruptcy Code, 2016; and/or;

c) Pass such other order as this Hon’ble Tribunal may deem fit and proper in the facts and circumstances of the case.

3. To put succinctly, the background of the case is that the Financial Creditor, M/s. Oriental Bank of Commerce filed an Application bearing No. (IB)-479(ND) 2019 under Section 7 of IBC, 2016 for initiation of Corporate Insolvency Resolution Process (CIRP) against the Corporate Debtor namely, M/s. Yamuna Infradevelopers Pvt. Ltd. (hereinafter referred to as “YIPL”). This Adjudicating Authority vide order dated 01.05.2019 had initiated the CIR Process against the Corporate Debtor. It has been submitted that since no resolution applicant came forward to take over the business of YIPL under the CIRP, on an application filed by the RP, this Adjudicating Authority vide order dated 18.12.2019 initiated the liquidation proceedings against the Corporate Debtor and appointed Ms. Rita Gupta as the Liquidator of the Corporate Debtor.

4. That the main grievance of the Applicant is against the order dated 26.11.2020 passed by the Director General, Mines and Geology (DGMG), State of Haryana, whereby the rights granted to the Corporate Debtor YIPL for extraction of boulders, gravel and sand from the minor mineral block, namely, Begampur Block/YNR/B-37 have been terminated on account of non-payment of outstanding amount of contract money, R&R Fund and TCS. The applicant has termed this action of DGMG as violation of Sections 14 and 33(5) of the IBC, 2016.

5. It is stated by the Applicant that before initiation of the CIR process, the Corporate Debtor YIPL participated in the e-auction and by offering the highest bid, it obtained the mining contract of Minor Mineral Block, namely, “Begampur Block/YNR-B37” having tentative area of 39.50 hectares for extraction of boulders, gravel and sand. The mining operation in the Block commenced from 16.09.2017.

6. It is submitted by the Applicant that on commencement of CIRP, it has intimated all the stake holders, including, the Mines and Geology Department, Government of Haryana, regarding factum of appointment of the applicant as the Liquidator and also sought details of the mining sites leased out to YIPL through auction.

7. It is further submitted by the Applicant that the fact of initiation of the liquidation proceedings was intimated vide letter dated 04.01.2020 to the Mines and Geology Department, Yamuna Nagar, which was received by the said Department on 10.01.2020. It has been added that vide the same letter the Applicant sought details regarding MMP1 and MMP2 returns and documents pertaining to the mining operations of YIPL. That the emails dated 11.01.2020, 15.01.2020 and 07.02.2020 were also sent to collect the said details but the same were not provided.

8. It is further added by the Applicant that constrained by the no response, she personally visited the office of the Mines and Geology Department, Office of District Industry Centre – Yamuna Nagar, on 10.02.2020 and met the Mining Officer Mr. Ashok Kumar and intimated him the entire facts. It is added that one letter dated 10.02.2020 was also submitted to Shri Ashok Kumar and monthly instalment report was taken by the Applicant from the said officer. It is further submitted that upon seeking information with regard to YIPL, the concerned Officer refused to divulge any details and stated that it is an internal matter of YIPL and in the absence of any direction from the Court, no information can be provided to the Applicant. It was suggested by him that any information required by the Applicant can be obtained through RTI.

9. It is further submitted by the Applicant that vide email dated 26.02.2020, the Applicant informed the Mining Officer, Mines and Geology Department, Government of Haryana, at Yamuna Nagar regarding the order dated 18.12.2019 passed by the NCLT New Delhi, ordering for liquidation of YIPL. It was informed in the said email that all the assets, including the contractual rights are the part of liquidation estate of YIPL and cannot be appropriated other than by the mode provided under the Code.

10. It is averred by the Applicant….

“That on 13.08.2020, a suspension order-cum-Show Cause Notice was sent from the office of the District Mining Officer, Mines and Geology Department, Yamuna Nagar, Haryana, regarding non-payment of dues to the tune of Rs. 37,22,50,669/- and for suspending the mining operations altogether. The said notice was duly responded and it was intimated that under Regulation 27 of Insolvency and Bankruptcy Board of India (Liquidation Process) Regulations, 2016, any payment which is of periodical nature, the claim in respect of such payment can be made only up to the liquidation commencement date i.e. up to 27.12.2019. Further, it was also submitted to the District Mining Officer that no claim in respect of the outstanding dues of YIPL was submitted by the District Mining Officer before the due date that was 26.01.2020.”

11. It is stated by the Applicant that time again, the facts of initiation of liquidation proceedings and appointment of the Applicant as the liquidator of YIPL, were intimated to the concerned Mining Officer at Yamuna Nagar and it was also intimated that in terms of the provisions of Insolvency and Bankruptcy Code, 2016, there was no obligation on the part of the YIPL to pay any contract money pursuant to initiation of the liquidation proceedings and the appropriate course of action for the concerned department would have been to file their claim before the Applicant and participate in the process of liquidation. However, ignoring all the facts and the fact of pendency of various applications filed by the Applicant, the DGMG Haryana vide order dated 25/26.11.2020 terminated the contract granted in favour of YIPL for extraction of miner minerals from Begampur Block of District Yamuna Nagar.

12. It is further stated by the Applicant that despite being aware of the pendency of the applications as preferred by the applicant, the DGMG Haryana went ahead to pass the impugned order without giving an opportunity of hearing to the Applicant/Liquidator. It is recorded in the order dated 25/26.11.2020 that an opportunity of hearing was given to the erstwhile promoter/management on 11.08.2020 and letters duly signed by them were accepted by the competent authority while giving them an opportunity to make good of the defaults, however, the defaults were not made good and the payments remained outstanding. It is submitted by the Applicant that the erstwhile Management/ Promoters in any case had no authority to represent the Corporate Debtor before the competent authority in view of the CIRP proceedings initiated against them. They had no role whatsoever in the affairs of business of the Corporate Debtor. The fact of liquidation of the corporate debtor was well within the knowledge of the competent authority, who while ignoring the same, passed the order dated 25/26.11.2020 ordering termination of the contract awarded to the Corporate Debtor.

13. It is further submitted by the Applicant that the termination of the said contract would ultimately lead to the closure and virtual death of the Corporate Debtor and no attempts whatsoever may result in its revival as the primary asset of the Corporate Debtor was this mining contract and in absence of the contract in respect of the said mines, the entire exercise would not yield any results. It has been contended by the applicant in its written submissions that the said order dated 25/26.11.2020 is even otherwise contrary to the spirit and dictum of the Hon’ble Supreme Court of India as held in the case of Arcelor Mittal India Private Limited Vs. Satish Kumar Gupta and others 2018 SCC online (SC) 1733 and Swiss Ribbons Private Limited Vs. Union of India and others 2019 SCC Online (SC) 73, wherein the Hon’ble Apex Court has emphasized that every effort must be made to avoid the death of the Corporate Debtor and every effort must be made to run the Corporate Debtor as a going concern. 9. Thus, it is prayed that the order dated 25/26.11.2020 passed by the DGMG (Respondent No.4) terminating the mining contract of the Corporate Debtor be set aside. Further, since the mining contract commenced from 16.09.2017 was for a period of 8 years, the period from the date of liquidation till the date the contract is restored by the Tribunal be excluded from the tenure of 8 years in order to put in efforts for revival of the business of Corporate Debtor.

14. That despite repeated service of notice to the Respondents no 3 and 4, there was no representation on their behalf and accordingly, the Respondents no. 3 & 4 were proceeded ex-parte vide order dated 29.11.2021 passed by this Bench.

After hearing submissions and perusing the documents placed on record by the Applicant, this Bench is of the view that that in order to determine whether the order dated 25/26.11.2020 passed by the DGMG (Respondent No.4) is in violation of Section 33(5) of IBC, 2016, it is necessary to examine the same. The scanned copy of the order dated 25/26.11.2020 is reproduced below :

16. That from perusal of order dated 25/26.11.2020 (Supra), it is observed that the DGMG Haryana/Respondent No.4 has made the following observations against the Liquidator :

“5. Whereas, the contractor was operating the mine but was not paying the Government dues. Furthermore, this office received communication from Smt. Rita Gupta, Liquidator appointed as a Liquidator for the CD by the National Company Law Tribunal, New Delhi Bench (NCLT) informing that the Liquidation process under the Insolvency and Bankruptcy Code, 2016 (“Code”) had been commenced against the contractor (M/s. Yamuna Infradevelopers Pvt. Ltd) vide order dated 18.12.2019 passed by the NCLT.

6. Whereas, the contractor company was not paying the Government dues on regular basis and at the same time the company was facing liquidation process. The Mining Officer, Yamuna Nagar was directed vide letter dated 06.08.2020 to take action to suspend the mining operations as per the provisions of the State Rules, 2012 and was further directed to recover the outstanding dues. The Mining Officer, Yamuna Nagar suspended the mining operations of ‘Begampur Block/ YNR B-37’ vide order dated 13.08.2020.

7. Whereas, the contractor has become insolvent but was operating the mine and was not paying Government dues as per the schedule and is in default in payment. Accordingly, they were afforded an opportunity of hearing on 11.08.2020 and at the time of hearing the contractor submitted a letter dated 11.08.2020 and undertook to clear all the outstanding dues. The contractor company did not clear the Government dues in time, accordingly vide letter dated 25.09.2020, they were directed to submit their final submission by 30.09.2020. The contractor company vide letter dated 30.09.2020 again requested for one-month time.

8. Whereas, the contractor company failed to pay up to date Government dues as per their commitment so, in exercise of the powers conferred under rule 56 (7)(vi) of the Haryana Minor Mineral Concession, Stocking, Transportation of Minerals and Prevention of illegal Mining Rules, 2012, the contract granted in favour of M/s Yamuna Infradevelopers Pvt. Ltd., for extraction of minor mineral from ‘Begampur Block/ YNR B-37 of District Yamuna Nagar is hereby terminated with adjustment of security amount of Rs. 02,60,12,500/ – against outstanding dues. It is directed that outstanding amount of contract money, R & R Fund and TCS till date of possession along with interest shall be paid failing which the same shall be recovered as arrears of land revenue.

(Emphasis Supplied)

17. That from the bare reading of para 5 of the order dated 25/26.11.2020 (Supra), it is evident that the Respondent No.3 & 4 were having full knowledge of commencement of the Liquidation proceedings against the Corporate Debtor. However, they did not file their claim before the Liquidator. Further, from the contents of the para 7 of the said order, it clearly emerges that the Respondent No. 3 & 4 were aware of the Insolvency proceedings of the Corporate Debtor and this has been the main ground for terminating the subsisting mining contract of the Corporate Debtor.

18. In our considered view, after the initiation of CIRP or liquidation proceedings, the dues could have been claimed by the Respondent No. 3 & 4 by filing a claim before the then RP / Liquidator respectively. We notice that even after the initiation of Liquidation proceedings, the Respondent No. 3 & 4 instead of filing its claim with the Liquidator, resorted to initiation of parallel proceedings against the Corporate Debtor and termination of its mining contract.

19. Furthermore, we observe that despite being aware of commencement of the Liquidation proceedings against the Corporate Debtor, the Respondent No. 3 & 4 afforded an opportunity of hearing on 11.08.2020 to the contractor (Ex-management) who, as it appears from the content of para 7 of the order, submitted a letter dated 11.08.2020 to clear all the outstanding dues. Obviously, the Ex-management had no locus to represent the Corporate Debtor before the Respondent No. 3 & 4 in view of the CIRP proceedings initiated against them/corporate debtor.

20. That we further observe that the Respondent no 3 had earlier issued a show cause notice dated 13.08.2020 for an outstanding demand of Rs.37,22,50,669/-, which was duly replied by the Liquidator vide letter dated 17.08.2020. The scanned copy of the said show cause notice is reproduced overleaf :

21. That from perusal of the show cause notice above, it is observed that the Respondent No.3 had claimed an amount of Rs. 12,45,62,984/-(towards the contract money from 01.10.2019 to 31.08.200) and Rs.2,05,28,374 as an interest thereon up to 10.08.2020. Further, an amount of Rs 01,30,03,269/- has been claimed towards the R & R Fund etc for the period from 01.09.2019 to 31.08.2020. That the aforesaid claims pertain to the period, when Corporate Debtor has been either under CIRP or Liquidation.

22. Further vide order dated 25/26.11.2020, the Respondent No.3 86 4 while exercising the powers under Rule 56(7) (vi) of the Haryana Minor Mineral Concession, Stocking, Transportation of Minerals and Prevention of Illegal Mining Rules, 2012 terminated the mining contract with an adjustment of the security amount of Rs.02,60,12,500/- against the outstanding dues. This action has been taken on the ground of non­payment of dues. That at this stage, we refer to the provision under Section 238 of IBC 2016, as per which IBC has the overriding effect over all other enactments and instruments. The contents of the same are reproduced below:

“Section 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…”

23. Hence, in our considered view, for recovery of its dues from the Corporate Debtor, which has been under CIRP/Liquidation, the Respondent No. 3 86 4 instead of exercising the powers under Rule 56(7) (vi) of the Haryana Minor Mineral Concession, Stocking, Transportation of Minerals and Prevention of Illegal Mining Rules, 2012, should have initiated action as per the provisions of IBC, 2016.

24. That further, knowing fully well that the Corporate Debtor has been under Liquidation, the Respondent ran the parallel proceedings and passed the order dated 25/26.11.2020 under Rule 56(7) (vi) of the Haryana Minor Mineral Concession, Stocking, Transportation of Minerals Company Petition No. (IB)-479/(ND)/2019 in IA. 5484/ND/2020 (?Sl..” Page 16 of 18 M/s Oriental Bank of Commerce Vs M/s. Yamuna Infradevelopers Pvt. Ltd. and Prevention of Illegal Mining Rules, 2012, which in our considered view, is also inconsistent with Section 33(5) of IBC, 2016. For immediate reference, the contents of Section 33(5) are reproduced below:

Section 33: Initiation of liquidation.

(5) Subject to section 52, when a liquidation order has been passed, no suit or other legal proceeding shall be instituted by or against the corporate debtor:

Provided that a suit or other legal proceeding may be instituted by the liquidator, on behalf of the corporate debtor, with the prior approval of the Adjudicating Authority.

25. Hence, we are of the considered view that it is an apt situation where this Adjudicating Authority is constrained to exercise its powers under Section 60(5) of IBC, 2016 to quash and set aside the order dated 25/26.11.2020 passed by Director General Mines & Geology Department Haryana.

26. It is observed that right of the Respondents to recover its rental, lease dues are affected on account of the moratorium during the CIRP. Accordingly, we refer to the Judgment of Hon’ble NCLAT passed in the matter of Prerna Singh Vs. Committee Of Creditors of M/s Xalta Food and Beverages Pvt. Ltd. Contempt Case (AT) No. 03 of 2020 in Company Appeal (AT) (Insolvency) No. 104 of 2019 dated 17.12.2021 where in the following is held :

“19. Section 14(1) (d) provides that during the moratorium period the lessor or an owner of the property cannot recover the possession of the property from the Corporate Debtor. Regulation 31 of the Insolvency and Bankruptcy Board of India (Insolvency Resolution Process for Corporate Persons) Regulations 2016 is as under:-

31. Insolvency resolution process costs. “Insolvency resolution process costs” under Section 5(13)(e) shall mean-

(a) amounts due to suppliers of essential goods and services under Regulation 32;

(b) amounts due to a person whose rights are prejudicially affected on account of the moratorium imposed under section 14(1)(d);

(c) expenses incurred on or by the interim resolution professional to the extent ratified under Regulation 33;

(d) expenses incurred on or by the resolution professional fixed under Regulation 34; and

(e) other costs directly relating to the corporate insolvency resolution process and approved by the committee

20. As per Regulation 31 Insolvency Resolution Process costs under Section 5(13) (e) mean defined in clause (a) to (e). for the present case, Regulation 31 (b) is relevant which provides that amounts due to a person whose rights are prejudicially affected on account of the moratorium imposed under Section 14(1) (d). Due to moratorium period the lessor could not recover the possession of the property from the Corporate Debtor. Thus, the right of lessor to recover rent are affected on account of moratorium. Therefore, the lessor is entitled to recover the rent and which shall include in CIRP costs.

21. Thus, we find no substance in the argument that the rent cannot be included in the CIRP costs…”

27. Accordingly, in terms of the judgement of the Hon’ble NCLAT (supra), we direct the Liquidator to include the rent of the property, ‘Begampur Block/YNR B-37 for the CIRP/liquidation period or till the time it was used by the Corporate Debtor, to be included as CIRP cost.