GUJARAT URJA VIKAS NIGAM LTD VS. AMIT GUPTA : CASE SUMMARY
The Supreme Court in Gujarat Urja Vikas Nigam Ltd Vs Amit Gupta (2020) 5 SCC 185 held that Resolution Professional can approach the NCLT for adjudication of disputes that are related to insolvency resolution process. However, the adjudication of such disputes that arise de hors the insolvency of the Corporate Debtor, the RP has to approach the relevant competent authority
FACTS OF THE CASE
The Government of Gujarat notified Solar Power Policy , 2009 on 6th January, 2009 for development of solar power projects in State. The Government of Gujarat allocated 25 megawatt capacity to the Corporate Debtor for developing and setting up a solar photovoltaic based power project in Gujarat. The corporate Debtor set up Solar Photovoltaic Grid Interactive Power Plant and exercised its option for sale of entire electrical energy produced from the plant to the appellant for commercial purposes.
Gujarat Electricity Regulatory Commission issued Tariff Order dated 29th January, 2010 for procurement of power by the appellant from power producers.
The Appellant and the Corporate Debtor entered into PPA according to which the Appellant has to purchase all the power generated by the Corporate Debtor.
The plant of the Corporate Debtor was shut for two months due to heavy rainfall in 2015. The Plant was severally damaged. Normalacy was restored and plant was working at capacity of 70%. Again in 2017 the plant was damaged because of flood and the plant was working at 10-15% of capacity.
On 4th May, 2018, the Second Respondent declared the Corporate Debtor to be NPA. On 20 November, 2018 the NCLT admitted Petition under Section 10 of the Insolvency and Bankruptcy Code, 2016.
The Appellant issued two notices of default to the Corporate Debtor on 1st May, 2019 and stated that if default is not cured within stipulated time PPA will be terminated.
1st and 2nd Respondent filed application before NCLT seeking injunction restraining the appellant from terminating PPA, which was allowed by the NCLT. An appeal was preferred before NCLAT which was also dismissed.
FINDINGS OF THE SUPREME COURT
The Supreme Court has to determine two issues in this matter – (i) Whether NCLT/NCLAT can exercise jurisdiction under IBC over disputes arising from contracts such as PPA ? and (ii) Whether appellant’s right to terminate the PPA is regulated by IBC ?
Section 60 (5) provides for jurisdiction of the Supreme Court as under :
(5) Notwithstanding anything to the contrary contained in any other law for the time being in force, the National Company Law Tribunal shall have jurisdiction to entertain or dispose of –
(a) any application or proceedings by or against the corporate debtor or corporate person
(b) any claim made by or against the Corporate Debtor or Corporate Person , including claims by or against the corporate debtor or corporate person, including claims by or against any of its subsidiaries situated in India and
(c) any question of priorities or any question of law or facts , arising out of or in relation to the insolvency resolution or liquidation proceedings of the corporate debtor or corporate person under this Code.
Section 60 (5) (c) grants wide jurisdiction to NCLT to determine any question of law or facts arising out of or in relation to insolvency resolution or liquidation proceedings. The Supreme Court held that the RP can approach the NCLT for adjudication of disputes that are related to insolvency resolution process. However, the adjudication of disputes that arise dehors the insolvency of the Corporate Debtor, the RP must approach the relevant competent authority.
The Supreme Court agreed with the view taken by NCLT. The supreme Court observed that Section 238 is prefaced by non-obstante clause. NCLT’s jurisdiction could be invoked in the present case because termination of PPA was sought solely on the ground that the Corporate Debtor has become subject to an insolvency resolution process under the IBC.
The residuary jurisdiction of the NCLT under Section 60 (5) (c) IBC provides it wide jurisdiction to determine question of law or fact arising from or in relation to the insolvency resolution proceedings. If jurisdiction of NCLT was to be confined to actions prohibited under Section 14 IBC, there would have been no requirement for the legislature to enact Section 60 (5 ) (c) of the Code. However NCLT can not exercise matters its jurisdiction over matters de hors the insolvency proceedings since such matters will fall outside realm of IBC.
Validity of Ipso Facto Clauses
Ipso Facto clauses are contractual provisions which allow a party to terminate the contract due to occurrence of an event of default. The Supreme Court noted that Report of the Expert Committee on Company Law headed by J. J. Irani recommended for need for invalidating ipso facto clauses so as to prevent the value of a Corporate Debtor’s assets from becoming diluted during insolvency process. Current IBC does not contain any clear-cut provision which invalidates ipso facto clauses.
Vide amendment in 2020 in IBC, an explanation was introduced to Section 14 (1) which prohibits some ipso facto clauses i.e. Government licenses, registrations, quotas, concessions, clearances or a similar grant or right given by central government, state government, local authority, sectoral regulator or any other authority constituted under any law for the time being in force.
Section 14 (2) and 2A prohibits termination of contracts where the counter-party supplies essential/critical goods, and services to the Corporate Debtor
The Supreme Court observed that no clear position emerges in respect of ipso facto clauses in other contracts. The Supreme Court appealed to the Legislature to give concrete guidance on this aspect.
The Supreme Court held that NCLT was empowered to restrain the appellant from terminating the PPA as it is the sole contract for sale of electricity which was entered into by the Corporate Debtor. The appellant has terminated PPA solely on the ground of insolvency. Accordingly, the appeal was dismissed.
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Mukesh Kumar Suman is an advocate and legal author based at Delhi. He regularly appears before various Judicial Forums including NCLT, NCLAT, High Courts and the Supreme Court. He can be approached at mukesh_suman@outlook.com or +91 9717864570.
