Gujarat Urja Vikas Nigam Limited v. Mr. Amit Gupta & Ors.
(Civil Appeal No. 9241 of 2019)
The Hon'ble Supreme Court in its order dated 08.03.2021 in matter titled Gujarat
Vikas Nigam Limited Vs. Mr. Amit Gupta & Ors. (“Instant Matter”), while
upholding order of the National Company Law Appellate Tribunal (“NCLAT”) held
that National Company Law Tribunal (“NCLT”) has jurisdiction to adjudicate
contractual disputes which arise solely from or which relate to corporate
In the Instant Matter, the Hon'ble Court has dealt with
the role/power of NCLT to determine party's right to terminate the Power
Purchase Agreement (“PPA”) owing to initiation of insolvency proceedings under
the Insolvency and Bankruptcy Code, 2016 (“IBC”), and the intersection of a
party's right to terminate such agreement and its regulation under IBC.
The present case analysis is an attempt to study the case and highlight various
facets, the issues involved and the final judgment. The article ends with a
final conclusion and the author's opinion on the judgment.
- The peculiar facts of this case arise from a PPA entered between
Gujarat Urja Vikas Nigam Ltd.(“GUVNL”), and Astonfield Solar Gujarat Pvt.- a
solar power developer (“Corporate Debtor/CD”). The PPA was entered on
30th April, 2010, in accordance with which GUVNL was to purchase all the power
generated by the solar power plant (“Plant”) of the Corporate Debtor for the
term of the PPA i.e., for 25 years.
- Due to persistent default by Corporate Debtor in fulfilling its
contractual obligations arising out of financial documents, on 4th May,
2018, Lenders declared Corporate Debtor to be a Non Performing Asset (“NPA”). Post
declaration of NPA, Corporate Debtor filed a petition before the NCLT under
Section-10 of IBC to initiate the Corporate Insolvency Resolution Procedure (“CIRP”).
The said petition was admitted on 20th November, 2018 and the Resolution
Professional (“RP”) was appointed by the NCLT in February, 2019.
- GUVL issued Notices for Default on 1st May, 2019 (“Default
Notice”) to Corporate Debtor on following two grounds:
- Corporate Debtor undergoing CIRP under Insolvency and Bankruptcy Code,
2016 amounts to an event of default under PPA.
- There was default in the operation and maintenance of the plant.
- Default Notice specifically stated that the PPA will be
terminated if the Corporate Debtor does not cure the defaults mentioned in the
Default Notice. This led RP to file an application under Section 60 (5) of the
IBC before the NCLT praying issuance of an injunction restraining GUVNL from
terminating the PPA. In the meanwhile, GUVNL issued the termination notice after
the stipulated period of 30 days.
The termination notice was stayed by the NCLT
by its order dated 29th August, 2019 whereby it issued the following directions:
- Restrained GUVNL from terminating the PPA.
- Held that the clauses of the PPA cannot be placed on a higher pedestal
than the provisions of IBC. PPA is an instrument within the meaning of Section
238 of IBC and in the present case, the clauses of the PPA are inconsistent with
the provisions of IBC.
- GUVNL, filed an appeal against the said order before NCLAT.
However, NCLAT vide its judgment dated 15th October, 2019 dismissed the appeal
and held that:
- GUVNL attempted to terminate the PPA on the sole ground that the CIRP has
been initiated against the Corporate Debtor.
- It was observed that during the CIRP, the RP has to maintain the
Corporate Debtor as a going concern and termination of the PPA would render the
Corporate Debtor defunct.
- Aggrieved by the NCLAT Judgment, GUVNL approached the Hon'ble
Supreme Court mainly on the two grounds:
- NCLT and NCLAT do not possess requisite jurisdiction under IBC to
adjudicate on a contractual dispute between GUVNL and Corporate Debtor.
- The Termination of PPA was validly made under Article 9.2.1 (e) and
Article 9.3.1 of the PPA.
- Hon'ble Supreme Court while affirming order of the NCLAT, dwelled
upon the following issues:
- Jurisdiction of the NCLT/NCLAT over contractual disputes
- The Apex Court observed that the IBC contemplated the establishment of
single forum in order to deal with the maters of insolvency, which were
distributed earlier across multiple fora. The Apex Court placing reliance on
“Arcelor Mittal (India) (Private) Limited vs. Satish Kumar Gupta” (2019) 2 SCC
1, observed that the NCLT alone has jurisdiction when it comes to applications
and proceedings by or against a corporate debtor covered by the Code, and no
other forum has jurisdiction to entertain or dispose of such applications or
proceedings which arise solely from or which relate to the insolvency of the
- In the Instant Matter, PPA was threatened to be terminated solely on
the ground of insolvency. In the absence of the insolvency of the Corporate
Debtor, there is no other ground to terminate the PPA. It is to be noted that
other ground namely O&M Default was cured by the Corporate Debtor and this issue
was also not pressed by the Corporate Debtor before NCLT and NCLAT. Therefore,
the present dispute solely arises out of and relates to the insolvency of the
Corporate Debtor as is contemplated under Section 60 (5) (c) of the IBC.
- Jurisdiction of NCLT and Gujarat Electricity Regulatory Commission (GERC)
- The Hon'ble Court recognised that Section 86 (1) (f) of the
Electricity Act empowers GERC to adjudicate dispute between generating company
and the distribution licensee, however, NCLT will have the power to adjudicate
the present dispute under Section 60(5)(c) of the IBC because the sole default
attributed by GUVNL to the Corporate Debtor was that it was undergoing an
insolvency resolution process.
- The Hon'ble Court further held that Section 238 of the IBC stipulates
that IBC would override other laws, including an instrument having effect by
virtue of any such law.
- Residuary jurisdiction of the NCLT under Section 60(5)(c) of IBC
The Hon'ble Court also relied on residuary power vested in NCLT by virtue of
Section 60 (5) (c) of IBC to hold that Section 60 (5) (c) of IBC provides NCLT a
wide discretion to adjudicate questions of law or fact arising from or in
relation to the insolvency resolution proceedings. However, the Hon'ble Court
cautioned NCLT that a fine line has to be drawn between ensuring that a
residuary jurisdiction is not rendered otiose due to an excessively restrictive
interpretation, as well as, guarding against usurpation of power by a court or a
tribunal not vested in it.
- Validity of ipso facto clauses
The Hon'ble Court, in order to determine the validity of the ispo facto clauses,
carried out a detailed discussion and analysis of the laws of various other
national jurisdictions. However, it refrained to resolve the question of the
validity/invalidity of ipso facto clause in the present case as this is a matter
which raises complex issues of legal policy and balancing between distinct and
conflicting values. Rather, it appealed to the legislature to provide concrete
guidance on this issue.
- GUVNL's right to terminate the PPA in the present case
- The Hon'ble Court, after analysing the PPA and the impugned orders
of NCLT & NCLAT, observed that but for the subsistence of the PPA, the Corporate
Debtor would no longer remain as a ‘going concern'. GUVNL is the sheet-anchor of
the Corporate Debtor's business and consequently of the CIRP, therefore
continuation of the PPA assumes enormous significance for the successful
completion of the CIRP. The termination of the PPA will render the CIRP
- The Hon'ble Court held that NCLT was empowered to restrain GUVNL from
terminating the PPA and clarified that the decision is premised upon a
recognition of the fact that PPA was central in the present case for the success
for the CIRP, since it was the sole contract for the sale of electricity which
was entered into by the Corporate Debtor.
This case will be a guiding factor for future disputes. This precedent will have
to be weighed by the other tribunals (other than NCLT/NCLAT) while determining
its jurisdiction over matters having flavour of insolvency. In the present case,
NCLT restrained GUVNL from exercising its rights available under the PPA.
Hon'ble Court specifically observed that IBC, being a special law, enacted after
the Electricity Act will prevail upon the Electricity Act for questions of fact
and law relating to the insolvency process.
Hon'ble Court rightly recognised the importance of the PPA for the corporate
debtor because PPA was the sole reason for Corporate Debtor's existence and
This Judgment will give a positive message to the power sector. Because similar
clauses of the Events of Default are present in all PPAs and this was always a
concern of the developers/lenders/investors that if company goes under
insolvency proceedings, this clause will make life tougher for the generator.
If this dispute would have been adjudicated by Electricity Regulatory
Commissions (“ERCs”), they would not have any option except to recognise the
right given under the PPA and it would have disastrous consequences and would
defeat the objectives of enactment of the IBC.
However, the Hon'ble Court has also rightly cautioned the NCLT and NCLAT to
ensure that they do not usurp the legitimate jurisdiction of other courts,
tribunals and fora when the dispute is one, which does not arise solely from or
relate to the insolvency of the corporate debtor.
- Aditya K Singh, Associate Partner
- Anukriti Jain, Senior Associate