SC stays termination of power purchasing agreement by Gujarat Urja Vikas Nigam Ltd on grounds of insolvency
In an important judgment, the Supreme Court has said that the NCLT/NCLAT had correctly stayed the termination of the Power Purchasing Agreement (PPA) by Gujarat Urja Vikas Nigam Ltd (GUVNL), since the court felt that allowing it to terminate the PPA would certainly result in the corporate death of Astonfield Solar (Gujarat) Private Limited.
The Supreme Court agreed that the ‘going concern’ status of the corporate debtor – Astonfield Solar — will be negated by a termination of its sole contract.
The apex court cited Section 14 of Insolvency and Bankruptcy Code (IBC), which “clarifies that a license, permit, quota, concession, grant or right given by a government cannot be suspended or terminated on the grounds of insolvency, subject to certain exceptions.”
The court further cited the report of the Insolvency Law Committee on 20 February 2020, which noted that without such government grants ―the business of the corporate debtor would lose its value and it would not be possible to keep the corporate debtor running as a going concern during the CIRP period, or to resolve the corporate debtor as a going concern.
The court gave this verdict while hearing an appeal by Gujarat Urja Vikas Nigam Ltd against an October 2019 NCLAT order which had agreed with the NCLT’s order staying termination of a PPA agreement between the GUVNL and Astonfield Solar.
Gujarat Urja Vikas Nigam Ltd had assailed NCLAT’s 15 October 2019 order on two broad grounds — First, that the NCLT and NCLAT do not possess jurisdiction under the IBC to adjudicate on a contractual dispute between the appellant and the Corporate Debtor; and second, the termination of the PPA was validly made as per provisions of the PPA.
However, the Supreme Court argued that the PPA was terminated solely on the ground of insolvency, which gives the NCLT jurisdiction to adjudicate this matter and invalidate the termination of the PPA as it is the forum vested with the responsibility of ensuring the continuation of the insolvency resolution process, which requires preservation of the Corporate Debtor as a going concern.
Facts of the case
GUVNL and the corporate debtor had entered into a PPA on 30 April 2010, in accordance with which it had to purchase all the power generated by the Corporate Debtor.
As per the terms of the agreement, the PPA was to remain in force for 25 years, from the Commercial Operation Date, which, in accordance with agreement, was the date on which the Solar Photovoltaic Grid Interactive power plant is available for commercial operation and such date as specified in a written notice given at least ten days in advance by the corporate debtor] to GUVNL.
On 20 November 2018, the NCLT admitted a petition filed by the Corporate Debtor under Section 10 of the IBC. NCLT commenced the Corporate Insolvency Resolution Process in respect of the Corporate Debtor, issued an order of moratorium.
In May 2019, GUVNL sent notice to the corporate debtor threatening it with termination of the PPA. In the same month, the corporate debtor filed applications under Section 60(5) of the IBC before the NCLT in regard to the notices issued by GUVNL, and sought an injunction restraining the appellant from terminating the PPA. By an interim on 31 May 2019, NCLT restrained the appellant from terminating the PPA till the next date of hearing.
Also Read: Power purchasing agreement cannot be terminated if power company goes into insolvency
