Informist, Friday, Jul 26, 2024

NEW DELHI – The Delhi High Court today set aside the government's order barring OCL Iron and Steel Ltd, now under the management of HI A MMT Pvt Ltd, from participating in all coal mine auctions. The court said that the government order that OCL Iron remains ineligible to participate in coal mine auctions until outstanding dues to it were cleared, cannot sustain.

"By holding the petitioner (OCL Iron) accountable for liabilities that have been legally extinguished, the respondent (government) has failed to adhere to the statutory mandate of the IBC (Insolvency and Bankruptcy Code, 2016) and the broader objectives of insolvency resolutions," said the court. The insistence on clearing past dues contradicts the rehabilitative intent and purpose of the insolvency law, and calls for judicial intervention, said the court.

The government had debarred the company on the basis of certain outstanding unsettled dues. The petitioner had said that having undergone a corporate insolvency resolution process, it must not be held liable for past dues, which stood addressed in the resolution plan. However, the government said that its claims survived despite the insolvency process and the petitioner's disqualification is consistent with their established policy and tender conditions requiring the bidders to clear all past dues.

The high court today said that the insolvency law underscored that a resolution plan, once ratified by the adjudicating authority, must absolve the corporate debtor of past liabilities, enabling the successful resolution applicant to commence operations unencumbered by previous debts. Thus, excluding the petitioner from participating in tenders on the basis of prior dues attributable to the corporate debtor, contradicts the fundamental tenets of insolvency law.

The decision by the government overlooked the fact that the primary goal of the insolvency law was the rejuvenation of the corporate debtor, enabling a revival free from the encumbrances of past liabilities, thereby allowing the entity to operate as a competitive entity in the marketplace. By requiring the settlement of past dues as a precondition for tender participation, the government not only undermines the statutory framework and purpose of the insolvency law, but also imposes an unreasonable restriction that potentially stifles competition and innovation in the sector, said the court. "Such demands for pre-resolution liabilities, post the approval and implementation of a resolution plan, are inconsistent with the doctrine of 'fresh start' under the IBC," it added.

The court said that the claims of 922.52 mln rupees and 92.14 mln rupees by the government against the company cannot be considered as pending or active against its new management. "Such actions would be deemed unreasonable, arbitrary, and in violation of the spirit of the IBC, thus, infringing Article 14 of the Constitution of India, which ensures equality before the law," said the court. End

Reported by Surya Tripathi

Edited by Ashish Shirke

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