TMI Blog2020 (10) TMI 916X X X X Extracts X X X X X X X X Extracts X X X X ..... is the economics behind such projects and this economic value of the project of the corporate debtor the IBC seeks to maximize during the resolution process. The solar power project, which generates and supplies solar power turns into an economic entity with the help of an instrument such as PPA, thereby converting the physical entity i.e. solar power plant into an economically useful entity for production of solar power. As explained above, the physical entity of the power plant when the becomes an economic project when a financial creditor provides capital after deriving comfort and assurance from the steady flow revenue by sale of solar power - the proposition that the solar power plant and the PPA related to the plant form one integrated economic asset appears to be a rational one. Therefore this asset needs to be kept intact and preserved during the process of corporate resolution and liquidation so that the liabilities of creditors and other stakeholders can be taken care of. Whether the contractual provisions of the PPA permit either of the contracting parties to terminate the PPA in view of the liquidation process of the corporate debtor which is underway under IBC? ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d Bankruptcy Code, 2016 (hereinafter called IBC). 2. The brief facts of the case is as follows:- 2.1 The Adjudicating Authority admitted the application u/s 9 of the IBC, filed by IDBI Bank Limited against Lanco Infratech Ltd., the corporate debtor, vide order dated 07.08.2017 and appointed Shri Savan Godiawala (Respondent No.2 in the present appeal) as Liquidator of the corporate debtor vide order dated 27.08.2018. Consequently, the liquidation process of the corporate debtor Lanco Infratech Ltd. commenced. 2.2 As per averments in the Interim Application No. 809 of 2019 before the Adjudicating Authority, the corporate debtor availed a loan of ₹ 63,50,00,000/- from Yes Bank Limited (Respondent No. 1 in the present appeal) vide Facility Letter dated 24.05.2010 read with loan agreement dated 04.08.2010 executed between the Yes Bank Limited and the corporate debtor. In order to avail the said facility advanced by Yes Bank Limited, the corporate debtor, under the terms and conditions of the loan agreement, has an exclusive charge by way of (i) hypothecation of movable fixed assets and current assets, including receivables (present and future) pertaining to a 5 MW grid ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the supply of solar power as required under PPA despite initiation of Corporate Insolvency Resolution Process (CIRP). It is generating power and will be a viable asset, if the existence of PPA is ensured, which will help in maximizing the value of the asset which is a basic requirement in insolvency proceedings. 2.7 Yes Bank Limited has also averred that GUVNL cannot be allowed to take undue advantage of the standard contractual provision of clause 9 of the PPA, thereby posing hindrance in the realisation of maximization of value of the asset. 2.8 Yes Bank Limited has stated in its application that the fundamental aim of Insolvency Bankruptcy Code is to resolve the insolvency of the corporate debtor while securing the financial interest of all the stakeholders and simultaneously taking all necessary steps for maximizing the value of the assets of the corporate debtor. 3.1 GUVNL has raised the question of jurisdiction of the Adjudicating Authority in adjudicating the issues raised by either of the parties of the PPA and contended that under clauses 6.6 and 10.4 of the PPA, the Gujarat Electricity Regulatory Commission is the appropriate forum to adjudicate all issues unde ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed oral arguments in support of their respective cases. 6. As its main argument, the Appellant has referred to clause 9.2.1(e) of the PPA wherein, it is stated as follows, If the Power Producer becomes voluntarily or involuntarily the subject of proceeding under any bankruptcy or insolvency laws or goes into liquidation or dissolution or has a receiver appointed over it or liquidator is appointed, pursuant to law, except where such dissolution of the Power producer is for the purpose of a merger, consolidated or reorganization and where the resulting entity has the financial standing to perform its obligations under the Agreement and credit worthiness similar to the Power producer and expressly assumes of obligations under the agreement and is in a position to perform them. 7. The Appellant has argued that the default notice was served on the corporate debtor through liquidator in accordance with clause 9 of the PPA and after expiry of 30 days from the date of delivery of the default notice, the termination notice was sent to the corporate debtor and thereafter termination of the PPA was effected. 8. The Appellant has also contended that Yes Bank Limited is not exer ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the basis of steady and assured accrual of revenue from sale of solar power during the term of the PPA as specified therein. 12. The issues that are pertinent in this case are two-fold :- (i) Whether the moratorium declared under Section 14 of IBC applies to the PPA along with other immovable and moveable properties of the corporate debtor? (ii) Whether the contractual provisions of the PPA permit either of the contracting parties to terminate the PPA in view of the liquidation process of the corporate debtor which is underway under IBC? 13. It is a fact that PPA was executed on 24.9.2010 between the corporate debtor Lanco Infratech Limited, which is engaged in the business of generation and supply of solar power, and the Appellant GUVNL under which the corporate debtor agreed to generate and supply 15 MW of solar power to the Appellant. An application filed in CP No.111/07/HBD/2017 by the financial creditor IDBI Bank for initiation of CIRP in respect of corporate debtor, the Adjudicating Authority admitted the application and initiated CIRP on 7.2.2017. During the CIRP, since no successful resolution could be effected, the Adjudicating Authority passed the order of liq ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... new lessee or purchaser of the Project to assume all of the interests, rights and obligations of the Power Producer thereafter arising under the Agreement. 15. Section 14.1(b) of the IBC prohibits transferring, encumbering, alienating or disposing off by the corporate debtor any of its assets or any legal right and beneficial interest therein. In this case, the second contracting party to the PPA i.e. GUVNL is admitting to terminate the PPA, which is in the nature of beneficial interest of the corporate debtor in the Solar Power Project. Such an action will have a direct bearing on the assets and their value of the corporate debtor Lanco Infratech Ltd. 16. The GUVNL has taken recourse to the event of default as enumerated and included in clause 9.2.1(e) to terminate the PPA in the event of liquidation of the corporate debtor. It is important to note that the same sub-clause 9.2.1(e) provides an exception to the event of default if such dissolution of the power producer is for the purpose of a merger, consolidation or reorganization and where the resulting entity has the financial standing to perform its obligations under the Agreement and creditworthiness similar to the pow ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the interests of all the stakeholders including alteration in the priority of payment of government dues and to establish an Insolvency and Bankruptcy Fund, and matters connected therewith or incidental thereto. 20. The report of the Insolvency Law Committee, March, 2018 (para 1.1) reiterates the objective stated in the Preamble of IBC 2016, which is as hereunder:- 1.1 The preamble of the Insolvency and Bankruptcy Code, 2016 (the Code ) gives a clear indication of the objective that the Code seeks to achieve to maximize the value of assets, to promote entrepreneurship, to promote availability of credit and to balance the interests of all the stakeholders In addition, the Parliamentary Joint Committee also recommended in its Report dated 28.4.2016 that an effective legal framework for timely resolution of insolvency and bankruptcy would support development of credit markets and encourage entrepreneurship. It would also improve Ease of Doing Business, and facilitate more investments leading to higher economic growth and development. It is clear that the law relates to reorganization and insolvency resolution of corporate persons among other entities for maximization ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hat the liabilities of creditors and other stakeholders can be taken care of. 25. On the basis of such a proposition, this Appellate Tribunal in Company Appeal (AT) (Insolvency) Nos. 224 and 286 of 2018 (Y. Shivram Prasad Vs. S. Dhanapal) has held as follows:- In view of the provision of Section 230 and the decision of the Hon ble Supreme Court in Meghal Homes (P) Ltd and Swiss Ribbons (P) Ltd. , we direct the Liquidator to proceed in accordance with law. He will verify claims of all the creditors; take into custody and control of all the assets, property, effects and actionable claims of the corporate debtor , carry on the business of the corporate debtor for its beneficial liquidation etc. as prescribed under section 35 of the I B Code. The Liquidator will access information under Section 33 and will consolidate the claim under Section 38 and after verification of claim in terms of Section 39 will either admit or reject the claim, as required under Section 40. Before taking steps to sell the assets of the corporate debtor(s) (companies herein), the Liquidator will take steps in terms of Section 230 of the Companies Act, 2013. The Adjudicating Authority, if so re ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nstrument' inter alia, includes an 'agreement', we are of the view, that the PPA is an 'Instrument' for the purpose of Section 238 of IBC 2016. That termination of PPA at this stage may have adverse consequences on the status of the Corporate Debtor as going concern and eventually, may jeopardize the entire CIRP. Thus, the clauses of the PPA cannot be kept at a higher pedestal in comparison to the statutory provisions of IBC 2016, in context of drawing a timeline for completion of the CIRP. Further in the appeal made against this order of NCLT which is Gujarat Urja Vikas Nigam Ltd. Vs. Mr. Amit Gupta (Company Appeal (AT) (Insolvency)No. 1045 of 2019) it was observed by this Appellate Tribunal that the Appellant cannot terminate the Power Purchase Agreement , if the Corporate Debtor goes into liquidation, as during the liquidation process also, the liquidator is to ensure that the Corporate Debtor remains a going concern. It was hence acknowledged in the judgment that subsistence of PPA is imperative to ensure that corporate debtor remains going concern. 28. The law requires the liquidator to take custody and control of all the assets, property, ef ..... X X X X Extracts X X X X X X X X Extracts X X X X
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