Gujarat Urja Vikas Nigam Ltd Vs Amit Gupta: Termination of PPA by creditor contrary to objective of IBC

The Supreme Court of India in the case of Gujarat Urja Vikas Nigam Limited Vs Amit Gupta and others, delivered its judgment on March 8, 2021. The case was about the termination of a Power Purchase Agreement (PPA) by Gujarat Urja Vikas Nigam Ltd (GUVNL) after the corporate debtor, Astonfield Solar (Gujarat) Private Limited (ASGPL), initiated insolvency proceedings under the Insolvency and Bankruptcy Code, 2016 (IBC).

The Supreme Court held that GUVNL could not terminate the PPA under Article 9.3.1 of the PPA, which allowed GUVNL to terminate the PPA if the corporate debtor went into liquidation. The Supreme Court found that such a termination would be contrary to the objective of the IBC, which is to revive and rehabilitate a corporate debtor.

The Supreme Court also held that Gujarat Urja Vikas Nigam Ltd could not terminate the PPA under Section 36 of the IBC, which allows a creditor to terminate a contract if the corporate debtor is unable to perform its obligations under the contract. The Supreme Court found that Section 36 of the IBC could not be applied to a PPA, as a PPA is a commercial contract and not a loan agreement.

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The Supreme Court’s judgment has been welcomed by the insolvency resolution professionals and the corporate debtor community. The judgment has clarified that the IBC does not allow creditors to terminate commercial contracts simply because the corporate debtor has initiated insolvency proceedings. This will help to protect the interests of corporate debtors and ensure that they have a fair chance of being revived and rehabilitated under the IBC.

Here are some of the key takeaways from the Supreme Court’s judgment:

• The IBC does not allow creditors to terminate commercial contracts simply because the corporate debtor has initiated insolvency proceedings.
• A PPA is a commercial contract and not a loan agreement, and therefore Section 36 of the IBC cannot be applied to it.
• The termination of a PPA by a creditor would be contrary to the objective of the IBC, which is to revive and rehabilitate a corporate debtor.

The Supreme Court’s judgment is a significant development in the field of insolvency law. It has clarified the law on the termination of commercial contracts by creditors and will help to protect the interests of corporate debtors.

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