Chitta Ranjan Sahu vs Government Of Odisha
2021 Latest Caselaw 665 Ori

   THE HIGH COURT OF ORISSA AT CUTTACK

         WRIT PETITION (CIVIL) No. 9247 OF 2018

(An application under Articles 226 & 227 of the Constitution of
India. Public Interest Litigation)


Chitta Ranjan Sahu                    ......         Petitioner

                             Versus

Government of Odisha, Department of
Steel and Mines and Six Others.    .......       Opposite Parties

Advocate(s) who appeared in this case by Video Conferencing
mode:-
 For Petitioner       : Mr. Gopal Sankaranarayanan, Senior
                        Advocate,
                        with Mr. Ashok Kumar Das, Advocate.

For Opposite Parties     : Mr. Harish Salve, Senior Advocate,
                           with Ms. Ruby Singh Ahuja, and Mr.
                           Bibhu Prasad Tripathy, Advocates.
                           (for Opposite Party No.5-Essar Steel
                           India Ltd.)
                           Mr. Bimbisar Dash, Central Govt.
                           Counsel (for Opposite Party No.3)
                           Mr. M.S. Sahoo,Additional Government
                           Advocate,
                           (for State of Odisha-Opposite Party Nos.
                           1 and 2).
                           Mr. Sreejit Mohanty, Advocate
                           (for Opposite Party No.4-SBI Capital
                           Markets Ltd.)
                           Mr. S.P. Sarangi, Advocate
                           (for Opposite Party No.6-Bhushan Steel
                           Ltd.)

                           Mr. P.C. Mohapatra, Advocate
                           (for Opposite Party No.7-Bhushan Power
                           and Steel Ltd.)

W.P.(C)No.9247 of 2018                              Page 1 of 10
              CORAM : THE CHIEF JUSTICE
                     JUSTICE C.R. DASH

                             JUDGMENT

21st January, 2021

Dr. S. Muralidhar, CJ.

1. In this writ petition, styled as a Public Interest Litigation (PIL), the Petitioner has, inter alia, prayed for cancellation of the auction process initiated by the Department of Steel and Mines, Government of Odisha by Notices Inviting Tender (NIT) for grant of mining leases by auction in respect of three Iron Ore Blocks : (1) Ghoraburhani Sagasahi (NIT dated 23rd December, 2015), (2) Kalamanga West (NIT dated 7th March, 2017), and (3) Netrabandha Pahar (NIT dated 7th March, 2017).

2. The Petitioner also prayed for quashing of Letters of Intent (LOI) issued in favour of the preferred Bidders for the aforementioned Iron Ore Blocks (IOBs), those are : LOI dated 28th March, 2016 in favour of Essar Steel Limited (ESL) (Opposite Party No.5) for Ghoraburhani Sagashi; LOI dated 24th June, 2017 in favour of Bhushan Steel Limited (BSL) (Opposite Party No.6) for Kalamanga West, and (3) LOI dated 24th June, 2017 in favour of Bhushan Power and Steel Limited (BPSL) (Opposite Party No.7) for Netrabandha Pahar.

3. The case of the Petitioner is that said three entities, to which the LOI in respect of three Iron Ore Blocks were issued, were on the verge of bankruptcy and/or are being proceeded against the Insolvency and Bankruptcy Code, 2016 (IBC, 2016) and despite that

they were permitted to continue to participate in the bidding process and have been declared preferred bidders. According to the Petitioner, the very fact that all the three auctioned mines went to companies "who were just thereafter declared insolvent, creates a suspicion towards a larger malice as the mines are now being treated as part and parcel of the assets of the insolvent companies and the same will stand transferred to the subsequent purchaser/acquirer of the insolvent companies."

4. The allegation is that the allocation of said three Iron Ore mines being conducted in a manner de hors the provisions of the Mines and Minerals (Development and Regulation) Act, 1957 (MMDR Act) as well as the Mineral (Auction) Rules, 2015 ('MAR').

5. Reference has also been made in the petition to a common order dated 2nd August, 2017 passed by the National Company Law Tribunal (NCLT), Ahmedabad Bench. The said cases were filed under the IBC, 2016 by the State Bank of India (SBI) and Standard Chartered Bank (SCB), London respectively against the ESL, which showed that the latter either by itself or by through its subsidiary took huge sums from two financial institutions. They also showed that a Corporate Insolvency Resolution Process (CIRP) was initiated by the NCLT against the ESL, and according to the Petitioner the ESL could not have participated in the bidding process in view of this development.

6. As far as BSL is concerned again reference is made to the application filed against it and BPSL by the SBI and Punjab National Bank (PNB) in the NCLT in July, 2017 under the IBC, 2016 on account of failure of repayment of loan by those companies. The

Petitioner appears to have made a detailed representation dated 13th April, 2018 to the State Government to investigate into the above facts and take necessary action, since the mines in question are valuable resources of the State of Odisha. When no response was forthcoming, the present petition was filed.

7. The Petitioner also notes that when the BSL was undergoing CIRP process, M/s. Bamnipal Steel Ltd. (Bamnipal), a wholly owned subsidiary of M/s. Tata Steel Ltd. (TSL), won the bid to successfully acquire the controlling stake of 72.65% of BSL in accordance with the approved resolution plan under the CIRP of the IBC, 2016.

8. It appears that when the petition initially was listed on 30th May, 2018, time was sought by the Additional Government Advocate appearing for the State of Odisha to obtain instructions. Later on 18th July, 2018 the application filed by the State Government seeking time to file reply was allowed. On 27th August, 2018, while issuing notice to the Opposite Party Nos. 5, 6 and 7, an interim order was passed directing the State Government to restrain Opposite Party Nos. 5, 6 and 7 from carrying out any mining activities within the State of Odisha.

9. Pursuant to the notice issued, counter affidavits have been filed by each of the Opposite Parties. As far as Opposite Party Nos. 1 and 2 are concerned, i.e. the Government of Odisha, the chronological sequence of events leading to the auction of the three Iron Ore blocks has been set out in detail. This affidavit filed on 19th August, 2019 explains that the auction of major minerals is done as per the provisions contained in the MAR notified by the Central government under the provisions of the MMDR Act. The eligibility of the

applicants for participation in such auction is prescribed under Rule 6 of the MAR, which reads as thus:

"Rule-6 - Eligibility for mining lease -(1) For the purpose of participating in the auction of mining lease, an applicant shall meet the requirements as specified in Section 5 and the terms and conditions of eligibility as specified in Schedule I."

10. The Schedule-I appended to the MAR provides terms and conditions of eligibility relating to financial net worth of the applicant(s), which reads thus:

"Schedule-I : The following net worth requirements shall be applicable for an auction of mining lease depending on the Value of Estimated Resources,-

(a) If the value of Estimated Resources is more than Rupees 25 Crores, the applicant, including an individual, shall have a net worth more than 4% of Value of Estimated Resources."

11. Further, Explanation-2 under Schedule-I of the MAR reads as under:

"In case of a Company, the Net worth shall be the sum of paid up share capital and the free Reserves as per the audited Balance Sheet of the immediately preceding financial year."

12. Sub-Rule 5 of Rule 6 of the MAR further provides as follows:

"6(5) the eligibility for participating in the auction shall be determined as per the terms and conditions of eligibility for participating in the auction and the Successful Bidder shall be decided solely on the basis of financial bids submitted by the eligible bidders."

13. It is stated by Opposite Party Nos. 1 and 2 that each of the successful bidders was the higher bidder and possessed the requisite net worth as per the audited balance sheet of the immediately preceding financial year as on the date of publication of the NIT, and the same have been certified by the Charted Accountant of the respective Companies. It is pointed out that Opposite Party Nos. 1 and 2 have meticulously adhered to every step in the auction process as prescribed under the MAR. In a tabular column the compliance to the eligibility conditions by the three preferred bidders has been explained as under:

Details Ghoraburhani Kalamanga Netrabandha Pahar Net worth Rs.741 crore Rs. 358 crore Rs. 262 crore needed for Preferred Essar BSL BPSL Bidder Nationality Indian Indian Indian of the entity Company* Company* Company* End use Production/ Production of No such Manufacturing Iron & steel condition.

                   of Iron & steel
   % of value
   of mineral 44.35%              100.05%        87.15%
   dispatched
   offered by
   Preferred
   Bidder

* formed under the Indian Companies Act, 1956.

14. The affidavit of Opposite Party Nos. 1 and 2 notes that in case of ESL, the CIRP was initiated more than a year after the LOI was issued to it. In case of BSL and BPSL, the CIRP was initiated more than a month after the respective LOI was issued. While the case of BSL has been resolved, the bids of ESL and BPSL are being

evaluated and in both the cases CIRP was expected to be resolved in due course. As it transpires, in fact the CIRP in respect of other two entities has since been resolved and this position has not even been disputed by the Petitioner.

15.As far as ESL is concerned, an additional affidavit has been filed by the Authorised Signatory of Arcelor Mittal Nippon Steel India Limited, explaining that the CIRP under the IBC is culminated into ArcelorMittal Indian Private Limited since taking over the business of the ESL on 16th December, 2019 after making an investment in excess of Rs.50,000 Crores and resolving the financial affairs of the ESL and this has been approved by the Supreme Court of India by its judgment dated 15th November, 2019 in Committee of Creditors of Essar Steel India Limited v. Satish Kumar Gupta, (2019) SCC Online 1478. ArcelorMittal India Private Limited has taken over 100% ownership of the ESL and as on 8th January, 2020, the name of the ESL was changed from Essar Steel India Limited to ArcelorMittal Nippon Steel Limited.

16. As far as BSL is concerned, the resolution plan submitted by the TSL was approved by CoC in the best interest of the Company and later the same was upheld by NCLT and NCLAT. It is mentioned that the upfront payment of Rs.4.47 crores was paid under Rule 10(2) of the MAR and BSL was awarded the LOI. Against the net worth needed for participating in the auction of Rs. 358 crores, the net worth of BSL at the time of auction was Rs.1,190 crores.

17. As far as BPSL is concerned, an affidavit has been filed on 7th December, 2018 at which time the CIRP was still underway. However, that CIRP admittedly has since been successfully

concluded. The net worth of the BPSL on the relevant date was Rs.4418.58 Crores, which was far in excess of the required net worth in terms of the NIT itself. BPSL also submitted the upfront first instalment of Rs.3.43 Crores on 1st June, 2017 and the LOI was thereafter issued to it.

18. What is significant is that the major premise on which the Petitioner filed the present petition viz., that 'three companies, to whom the LOIs were issued were declared insolvent' is contrary to the factual position. The initiation of the process under the IBC is not to be equated with insolvency. This is not even disputed by Mr. Gopal Sankaranarayanan, learned Senior Counsel appearing for the Petitioner.

19. The IBC process involves appointing a resolution professional and it is only if the CIPR is unsuccessful that the question whether the entity should be declared insolvent arises. In the cases of Opposite Party Nos. 5, 6 and 7, the CIPR was successful and this is not even disputed by the Petitioner.

20. The altered reality makes the very basis of filing of the present petition non-existent. Each of the three entities, i.e. Opposite Party Nos. 5, 6 and 7 are back to functioning as fully solvent companies with all the creditors dues being satisfied. The apprehension, therefore, that their alleged bankruptcy rendered them ineligible and incapable of operating the mining lease, if granted in their favour, is not factually or legally tenable.

21. Mr. Sankaranarayanan, however, submitted that the question that still arises is whether the past illegalities should be 'condoned'? The

Court is unable to accept the submission for the simple reason that each of the three entities have met all the eligibility conditions. Initiation of any proceeding against them under the IBC was not specified as a condition of ineligibility. The three entities fully met the requirement of 'net worth', which is a well understood expression in the world of finance. Merely because an entity might have unpaid loans owing to financial institutions would not mean that it has lost its 'net worth'. In fact the very process of initiating the CIPR under the IBC is to see how a company, which otherwise has a high net worth, can be restored to its full operational potential through restructuring, notwithstanding that it might have defaulted on the loans borrowed from financial institutions.

22. The Petitioner appears to have been under a misconception that merely because a proceeding under the IBC was initiated against three entities around the time when they were issued with LOI, that by itself rendered them ineligible for issuance of the LOI. It must be noted here that there are two more stages to be crossed in the entire process, which includes the actual grant of the mining lease in favour of the entities. As a result of the interim order passed by this Court, those stages could not be completed. In fact, on account of the mining leases having not been executed and the iron ore not being extracted, the State of Odisha has lost valuable revenue, which it could have earned from royalties. Consequently, the continuance of the present writ petition does not, in any manner, advance public interest.

23. For all the aforementioned reasons, the Court vacates the interim stay granted by it and disposes of the present writ petition with the above observations. However, there shall be no order as to costs.

24. As restrictions are continuing due to COVID-19 situation, learned counsel for the parties may utilize the soft copy of this judgment available in the High Court's official website or print out thereof at par with certified copies in the manner prescribed, vide Court's Notice No.4587 dated 25.03.2020.

............................

S. Muralidhar Chief Justice

......................

C.R. Dash Judge

21st January, 2021.

//A.Dash, Secretary//