The Hon'ble Supreme Court in the recent judgment in Gujrat Urja Vikas Nigam Ltd. v. Amit Gupta and Ors.1held that the National Company Law Tribunal would have jurisdiction to adjudicate all matters relating to the insolvency resolution and the liquidation of the corporate debtor. However, for adjudication of disputes that do not have any connection with the insolvency of the corporate debtor, the relevant authority must be approached. The instant decision was rendered while the Hon'ble Supreme Court decided whether a Power Purchase Agreement (PPA) could be terminated during the subsistence of a moratorium under the Insolvency and Bankruptcy Code, 2016 (IBC). The present article briefly examines how the Hon'ble Supreme Court construed the key provisions of law to arrive at its judgment.

Brief Facts

The present matter has its origin in a PPA entered into between Gujrat Urja Vikas Nigam Ltd. (GUVNL) and Astonfield Solar Gujrat Pvt. Ltd. (Corporate Debtor). As per the terms of the PPA dated 30 April 2010, GUVNL was required to purchase all power generated by the Corporate Debtor's solar power plant for 25 years. While the initial years of the PPA's operationalisation were relatively calm, the first significant issue arose between July to December 2015. The solar power plant was severely damaged due to floods, and the generation of electricity was temporarily paused. In similar circumstances, due to the harm caused by floods in June and July 2017, the solar power plant was only able to operate at 10 to 15 per cent of its original capacity. The financial distress caused by the disruption and damages led to the Corporate Debtor defaulting on its debt to the financing parties, i.e., the second respondent and Power Finance Corporation.

Consequently, the Corporate Debtor was declared a Non-Performing Asset (NPA). Post being declared an NPA, the Corporate Debtor approached the National Company Law Tribunal (NCLT) through a petition under Section 10 of the IBC to initiate the Corporate Insolvency Resolution Process (CIRP). The petition came to be admitted on 20 November 2018, and the NCLT appointed the Resolution Professional (RP) in February 2019.

The appellant issued two default notices (Default Notices) on 1 May 2019 stating that the Corporate Debtor undergoing CIRP under the IBC would amount to an event of default. The appellant called upon the Corporate Debtor to remedy this default failing which it would terminate the PPA. On 21 May 2019, a meeting was scheduled between the RP, and the appellant wherein the RP emphasised that if the PPA were to be terminated, the Corporate Debtor's revival would be at stake since the prospective resolution applicants may not submit resolution plans. Declining to accede to this position, the appellant made it clear that it would be terminating the PPA.

In May 2019, the first and the second respondents filed applications under Section 60(5) of the IBC before the NCLT concerning the Default Notices sent by the appellant to the Corporate Debtor. On 29 August 2019, the NCLT issued its final order through which it allowed the applications filed by the first and the second respondents, thereby restraining the appellant from terminating the PPA. The NCLT held that the clauses of a PPA could not be placed above the provisions of the IBC. Moreover, the PPA was held to be an instrument as per the meaning of Section 238 of the IBC. Therefore, the clauses of the PPA, which are inconsistent with the provisions of the IBC, would stand overridden.

The NCLAT dismissed the appeal noting that the appellant attempted to terminate the PPA on the sole ground that a CIRP has been initiated against the Corporate Debtor. The NCLAT further restrained the appellant from terminating the PPA even if the Corporate Debtor underwent liquidation. Aggrieved by the decision of the NCLAT, the appellant approached the Hon'ble Supreme Court on the ground that the NCLT and the NCLAT do not possess requisite jurisdiction under the IBC to adjudicate on a contractual dispute between the appellant and the Corporate Debtor. Hence, the present matter.

Held

The Hon'ble Supreme Court rendered its findings on several aspects as follows:

  1. Jurisdiction of the NCLT and the NCLAT over contractual disputes

The Hon'ble Supreme Court observed that while construing Section 60(5), a starting point for the analysis must be to decipher parliamentary intent of enacting the IBC. The decision in Swiss Ribbons (P) Ltd. v. Union of India2 was referred to highlight the problems that arose in the erstwhile regime due to the multiplicity of statutes and fora concerning corporate insolvency. The Supreme Court observed that one of the objectives of IBC was to bring the insolvency law in India under a single unified umbrella with the object of speeding up the insolvency resolution process.

Keeping this objective of the IBC in mind, and while considering the text of Section 60(5)(c), it was observed that where matters pertaining to the corporate debtor's insolvency were concerned, no other forum has jurisdiction to entertain the same except the NCLT and then the NCLAT. Further, while interpreting Section 60(5)(c) in the current factual matrix, the Supreme Court observed that the PPA's termination had happened solely based on the initiation of the insolvency proceedings against the Corporate Debtor. Thus, the present dispute "arose out of" and "related to" the Corporate Debtor's insolvency, giving rise to the jurisdiction of NCLT and NCLAT as per the language of Section 60(5)(c) of the IBC.

  1. Jurisdiction of NCLT and Gujarat Electricity Regulatory Commission (GERC)

The Hon'ble Supreme Court recognised that Section 86(1)(f) of the Electricity Act, 2003 (Electricity Act) empowered the GERC to adjudicate the disputes between the power generating company (the Corporate Debtor in this case) and the distribution licensee. However, it was clarified that by virtue of Section 238, the IBC would override other laws and instruments, including the Electricity Act and the PPA.

  1. Residuary jurisdiction of NCLT under Section 60(5)(c)

Commenting upon the residuary jurisdiction of the NCLT under Section 60(5)(c) of the IBC, the Hon'ble Supreme Court referred to a catena of decisions3 to hold that the said section endows a broad residuary jurisdiction upon the NCLT to decide any question of law or fact "arising out of" or "in relation to" the insolvency and liquidation under the IBC. It was also held that if the jurisdiction of the NCLT were confined to the actions mentioned under Section 14 of the IBC, there would be no requirement to enact Section 60(5)(c) of the IBC.

Given the broad import of the powers under Section 60(5)(c), the Hon'ble Supreme Court held that the NCLT was empowered to restrain GUVNL from terminating the PPA. The instant decision was premised upon recognising the centrality of the PPA to the success of the CIRP since it was the only contract for the sale of electricity that was entered into by the Corporate Debtor. However, as a cautionary note, the Hon'ble Supreme Court clarified that the findings on the validity of the exercise of residuary power by the NCLT were premised on this case's facts and would not act as a general principle. Consequently, the appeal was dismissed.

Comments

The instant matter brings much-needed clarity on the scope of the powers of the adjudicating authority under Section 60(5)(c) of the IBC. Although the decision on whether the PPA could be terminated may be restricted to the facts at hand, it still serves as a yardstick to the extent to which the adjudicating authority can go to ensure that the corporate debtor is brought back upon its feet.

The decision also holds vital due to the clear demarcation made in the matters that can be referred to the adjudicating authority. The test for whether a matter is amenable to the adjudicating authority under the IBC is to check if the matter arises out of the insolvency or liquidation of the corporate debtor. The adjudicating authority cannot exercise its jurisdiction over matters dehors the insolvency proceedings since such matters would fall outside the realm of the governing legislation, i.e., the IBC.

The authors wish to acknowledge the research and assistance rendered by Harshvardhan Korada, a student of the Amity Law School, Delhi.

Footnotes

1. Gujrat Urja Vikas Nigam Ltd. v. Amit Gupta and Ors., 2021 SCC OnLine SC 194.

2. Swiss Ribbons (P) Ltd. v. Union of India, 2019 4 SCC 17; Arcelor Mittal (India) (Private) Limited v. Satish Kumar Gupta, 2019 2 SCC 1.

3. Essar Steel India Limited v. Satish Kumar Gupta, 2020 8 SCC 531; Remdeo Chauhan v. Bani Kant Das, 2010 14 SCC 209; D.R. Kohli v. Atul Products Ltd., 1985 2 SCC 77; Johri Lal Soni v. Bhanwari Bai, 1977 4 SCC 59.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

Mr Vasanth Rajasekaran
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