TMI Blog2022 (4) TMI 432X X X X Extracts X X X X X X X X Extracts X X X X ..... the minimum and maximum quantity of Water to be transported was revised for the initial period of two years. Further, it is stated that the amendment agreement included a review process for considering prolonging of the amendments. The Amended Agreement was based upon certain developments taken place subsequent to 2014 Agreement and according to the parties the same have impacted the project s its functioning which required the said amendments. The parties to the 2014 Agreement are the same to the Amendment Agreement. The sequence of events that led to file the application before the Adjudicating Authority is that the letter addressed by the Respondent No. 1 dated 31.03.2017 supra to the Appellant after taking over as IRP and invoice dated 17.05.2021 for the month of April, 2021 and the Appellant replied to the said letter on 25.05.2021 and also various correspondences took place between the Appellant and the first Respondent. The first Respondent vide letter dated 31.05.2021 intimated the Appellant that the water supply from KWIPL shall stand suspended from 01.06.2021 due to non-payment of invoice dated 17.05.2021 and absence of an O M Contract. Reference to Section 62 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nd adjudicate upon the disputes pertaining to the contractual obligations. This Tribunal comes to an irresistible and inescapable conclusion that the view taken by the Adjudicating Authority with regard to passing of the order is free from any legal and factual error and therefore, does not warrant any interference - This Tribunal comes to a resultant conclusion that the Appellants have not made out any case to be interfered with accordingly both the Appeals stand dismissed. - Company Appeal (AT) (CH) (Insolvency) Nos. 234, 239 of 2021 - - - Dated:- 29-3-2022 - [ Justice M. Venugopal ] Member ( Judicial ) And [ Kanthi Narahari ] Member ( Technical ) For the Appellant : Mr. Vaijayant Paliwal, Mr. Zeeshan Khan, Mr. Allwin Godwin, Ms. Charu Bansal, Ms. Simran Kaur, Mr. Sandeep Bajaj, Ms. Niranjana Pandian, Ms. Mohana Nijhawan, Advocates. Mr. Anoop Rawat for RP. Mr. Arun Kathpalia, Sr. Advocate for RP. For Respondent No.1/RP: Mr. Y. Suryanarayanan, Advocate, Ms. Aditi Deshpande, Advocate, Mr. Tushar Nagar, Advocate, Mr. Badri Narayanan, Advocate For Respondent No. 2 Mr. Anirudh Krishnan, Mr. Advaidh Nelakanttan, Mr. K. Mohit Kumar, Ms. Lakshana Viravalli, Mr. Adarsh ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... iver specifically for supply to the Power Project being operated by KMPCL. 3. The Learned Senior Counsel submitted that the KWIPL and KMPCL entered into an agreement dated 14.03.2014 for transport of water from KWIPL to KMPCL viz, Water Transport Agreement in short (WTA). Due to certain delay the KMPCL was able to operationalize only 2 units by March 2015. Accordingly, the parties entered into an amendment agreement dated 01.03.2015 namely 2015 Amendment Agreement to the Water Transport Agreement in terms of which the parties have revised the minimum off-take requirements for the next two years to 2.2 MCM Per Month. The same was to be reviewed on the commissioning of subsequent units of the Power Project. 4. The Learned Senior Counsel further submitted that the KMPCL and its lenders entered into the amended and restated Common Loan Agreement in October, 2016 in short (CLA) and in terms of which it was agreed that the Water Transportation Charges payable by KMPCL to KWIPL would be limited to certain Operation and Maintenance ( O M ) expenses being incurred by KWIPL for Water Transportation. In that regard the KMPCL had engaged the services of ACB India Power Ltd as the O M ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the RP of KWIPL) 4. Jul-21 2,193,826 35,101,216 91,354,845 Total 7,559,305 120,948,880 317,914,845 7. It is submitted that in absence of further Amendment both the parties are only contractually/obligated to a minimum take or pay for 2.55 MCM Per Month with minimum of 31 MCM Per Annum and maximum 42 MCM Per Annum beyond 31.03.2017 and since there is no provision for levy of minimum take or pay of 6 MCM Per Month as levied by the RP of KWIPL. 8. The Learned Senior Counsel submitted that the Respondent No. 1 issued an invoice dated 17.05.2021 for the month of April, 2021 demanding payment for supply of water. The Appellant was not able to clear the invoice since the matter was pending deliberation before the Respondent No. 3. The Respondent No.1 stopped supply of water to KMPCL and despite repeated request to resume the water supply, the Respondent did not supply the water, the Appellant constrained to file an Application being I.A. No. 270 of 2021 seeking directions against the F ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the same is not as per the existing arrangement continued since 2016 without giving an opportunity to Respondent No. 3 to consider the commercial as the same is a related party transaction. 16. It is submitted that the Section 14 (2A) of the I B Code, 2016 cannot be interpreted to benefit one party i.e. KWIPL and disrupt the operations of the other party i.e. KMPCL. It is not in dispute that the Corporate Debtor cannot be excused from making payments with regard to supply of critical goods/services. However, the payments sought for by the Respondent No.1 to be made by KMPCL will have to be as per the agreed commercial understanding between the parties since October, 2016 and not as per the overridden Water Transport Agreement 2014 which only contemplates a payment mechanism for six units whereas only three units of KMPCL or Operation as on today. 17. The Learned Senior Counsel in support of their case relied upon the Judgments. (i) Tata Consultancy Services Ltd. vs Vishal Gishulal Jain RP, SK Wheels Pvt. Ltd. (Civil Appeal No. 3045 of 2020) dated 23.11.2021 Paragraph no. 28, 29. (ii) Gujarat Urja Vikas Nigam Ltd. vs Amit Gupta Ors. Paragraph no. 165. (iii) ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... upply be KWIPL instead of ₹ 16 per cubic meter charges by KWIPL which is comparatively at a higher side, pending disposal of this Appeal. Direct payment by KWIPL for a total amount of INR 252 crores to KMPCL as damages due to daily EBITDA loss os INR 6 crores per day for non-supply of water for 42 (Forty Two) days during the months of June and July (until 6 July 2021) due to which KMPCL was unable to operate its power plant for want to supply of services of water to KMPCL by KWIPL; Direct KWIPL to refund the amounts paid under protest by KMPCL towards the invoices dated 17 May 2021, 25 June2021 and 02 August 2021 raised by KWIPL, to the extent that they are in excess of the amounts to be paid as per the October 2016 arrangement between the parties; Set aside the Impugned Order passed by the Hon ble National Company Law Tribunal, Hyderabad on 17 June 2021 in I.A. 270 of 2021 in C.P. (IB) 492/7/HBD/2019 in so far as the direction to pay the transport charges as per the Agreement (2014) and invoices raised consequently, and substitute the same with a direction ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t before expiry of the tenure of Amendment Agreement dated 01.03.2015, the lenders of KMPCL entered into an amended and restated Common Loan Agreement ( CLA ) for KMPCL on 22.11.2016. 25. While matter stood thus, the KWIPL issued a letter dated 30.03.2017 to the KMPCL that the Amendment dated 01.03.2015 to the Agreement was valid up to 31.03.2017 and the terms of original Agreement dated 14.03.2014 is effective thereafter. The content of the letter dated 30.03.2017 is extracted hereunder: .... Considering the above-referred executed agreements to enable to transportation of water to the project of KSK Mahanadi Power Company Limited, we would like to submit that the first amendment of Water transportation agreement is valid till 31st March 2017. In absence of any further arrangement, we consider that the first amendment agreement will expire on 31st March 2017. Accordingly from 1st April 2017, the agreements executed on 14th March 2014 will become effective till the tenor of the respective agreement.... 26. It is submitted that the above letter was accepted and acknowledged by KMPCL and the minimum take or pay quantity was no longer applicable from 01.04. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... B Code, 2016. In Reply, the Learned Counsel for the Respondent submitted that Water in the present case does not fall within the ambit of essential goods and services as set out in Section 14 (2) of the Code. Regulation 32 of the Insolvency and Bankruptcy Board of India (Insolvency Resolution Process for Corporate Persons) Regulations, 2016 lists, inter alia water as essential supplies covered under Section 14 (2) of the Code, it categorically provides that the same is an essential supply only to the extent it is not a direct input to the output produced are supplied by the Corporate Debtor. 30. In view of the above provision and the Regulations, the Supply of water by KWIPL does not fall within the purview of essential goods and services but it is a direct input to the output produced by KMPCL which is electricity. Further, it is made clear that the water in the instant case is not for drinking or sanitation purpose but for enabling generation of electricity to be sold by KMPCL to generate revenue and make profits. Therefore, it is submitted that restrictions under Section 14(2) is not applicable to KWIPL. 31. In support of the contention, the Learned Counsel for the Res ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... taking any such action which adversely affects the ongoing CIRP of KMPCL. 37. It is an admitted fact that KWIPL and KMPCL entered into an agreement dated 14.03.2014 (WTA) for supply and transport of water through pipelines from Mahanadi River to KMPCL Plant to meet KMPCL s water requirements for generation of electricity from its Thermal Power Plant. The Agreement records the commercial terms for such water supply and transport and the commercial terms of the agreement were based in ordinary course of business with the knowledge of lenders of KMPCL and KWIPL and an arm s length basis. 38. It is also an admitted fact that the Amendment Agreement dated 01.03.2015 was valid for a limited period of 2 years i.e. from March, 2015 to March, 2017. While so KWIPL vide its letter dated 30.03.2017 has reiterated that all the original terms of Agreement dated 14.03.2014 would continue from April, 2017 till the subsistence of the agreement. The above letter was in line with the sanction of lenders of KWIPL wherein the lenders revised the repayment schedule based on the continuation of rates under original agreement dated 14.03.2014. The content of the letter is extracted here at: .. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Kishori Lal Gupta Ors. (1960 1 SCR 493) (ii) RN Kumar vs. RK Soral (1988 2 SCC 508) (iii) Lata Construction Ors. vs. Doctor Ramesh Chandra Ramniak Lal Shah Anr. (1 SCC 586) 43. The Learned Counsel submitted that the contention of the Appellant that the Water Transport Agreement ought to be declared as onerous, is beyond the jurisdiction of this Tribunal. Such a declaratory relief will have to be adjudicated first by Learned Adjudicating Authority. It is submitted that even assuming that this Tribunal has the power to declare a contractual arrangement onerous then the conditions imposed under the CLA qua KWIPL ought to be declared as onerous giving the fact that KWIPL was never a party to it. 44. The Learned Counsel also relied upon the Judgement of the Hon ble Supreme Court in Tata Consultancy Services vs. Vishal Gisulal Jain reported in 2021 SCC Online SC 1113. 45. In view of the reasons as stated above the Learned Counsel prayed this Bench to dismiss the Appeal with cost. Analysis/Appraisal 46. Heard the Learned Counsel appeared for the respective parties perused the pleadings, documents and Citations relied upon by them. After analysing the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... more than what has been stated under the Law. 5. In view of the above provision of Law, we direct the Respondents to restart the water supply subject to payment of the transport charges as claimed as per 2014 water supply agreement and as per invoices raised by the Respondent. The application stands allowed and stands dispose of. 48. The Appellant who filed an application before the Adjudicating Authority sought relief to direct the Respondent No.1 therein to provide uninterrupted supply of water from KWIPL to KMPCL in terms of commercial arrangements that has been subsisted between the parties since October, 2016. Further, the Appellant sought direction to the Respondent to refrain from taking any such action which adversely affects the ongoing Corporate Insolvency Resolution Process of KMPCL including disruption of water supply to KMPCL. 49. The Appellant sought following reliefs in this Appeal as under: Reliefs sought in the present Appeal [@ Pg. 30 of Appeal] (a) As an interim direction, to direct continuous supply of water from KWIPL to KMPCL; (b) Direct status quo between the parties as was subsisting since October 2016 per the commercial arra ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Units) Power Plant and on that basis KMPCL and KWIPL entered into a Water Transport Agreement dated 14.03.2014 for transportation of water by KWIPL through Pipelines from the off-take points of KSK Water to the designated point at the Power Plant of KSK Mahanadi. It is stated that due to certain delays KMPCL was able to operationalize only 2 units by March, 2015. Accordingly, the parties entered into an Amendment Agreement on 01.03.2015, in terms of which the parties have revised the minimum off-take requirements for the next 2 years to 2.2 MCM per month. One of the point raised is that the 2015 Agreement contemplated a review process after 2 years pursuant to subsequent commissioning of the remaining units of KSK Mahanadi. It is apt to mention the preamble of the Agreement dated 14.03.2014. The Agreement entered into between KSK Mahanadi Power Company Ltd. (KMPCL) and KSK Water Infrastructure Pvt. Ltd. (KWIPL) which contains 19 Articles and both the parties have signed the Agreement. The Preamble of the Agreement is recapitulated as under: Whereas - KMPCL is setting up a 6 x 600MW Coal-based power plant in Nariyara, Janjgir-Champa District in Chhattisgarh (hereinafter re ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ril 2014 to 31st March 2015 1.92 MCM per month 1st April 2015 to 31st March 2016 4.92 MCM per month 1st April 2016 to 31st March 2017 and every year thereafter 6 MCM per month 53. Subsequent thereto the Water Transport Agreement (2014) was amended on 01.03.2015 (Amended Agreement) and as per the Amended Agreement the minimum and maximum quantity of Water to be transported was revised for the initial period of two years. Further, it is stated that the amendment agreement included a review process for considering prolonging of the amendments. The Amended Agreement was based upon certain developments taken place subsequent to 2014 Agreement and according to the parties the same have impacted the project s its functioning which required the said amendments. The parties to the 2014 Agreement are the same to the Amendment Agreement. Basically, the quantity which encapsulated under Article 5 of 2014 Agreement i.e. 5.1 and 5.2 have been amended vide Amendment Agreement as under: 5.1.a Subject always to availability of Water in Mahanadi River and Article 9, KWIPL ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ue after deliberating on Common Loan Agreement ( CLA ) dated 22.11.2016 and the letter of the Respondents dated 30.03.2017. 55. Now we advert to the Common Loan Agreement (2016) and the letter of the Respondent dated 30.03.2017. Page 72 of the Appeal Paper Book of Vol. 1 the Amended and Restated and Common Loan Agreement is enclosed. The Common Loan Agreement (CLA) is amongst KMPCL (as Borrower) and the lenders i.e. the Banks, Power Finance Corporation Ltd., Rural Electrification Corporation Ltd. and Power Finance Corporation Ltd. From the CLA it is evident that the KWIPL is not a party. The Learned Counsel for the Appellant contend that as per clause 5.1.2.2 with regard to conditions precedent for remaining cost overrun facility and the borrower shall comply with the terms as stipulated under this clause. The sub clause A (XXIII) of Clause 5.1.2.2 states that the water transport charges payable by borrower i.e. KMPCL to KWIPL for the interim period prior to the merger of KWIPL with borrower would be limited to O M expenses being incurred by KWIPL for water transportation infrastructure and its interest and debt repayment. Further, the Learned Counsel contend that the same c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ote the arrangement. Thanking you, Yours faithfully, For KSK Water Infrastructures Pvt. Ltd. 57. The Learned Counsel for the Appellants contends that the above letter is not a genuine letter and cannot be relied upon by the Respondents. On the other hand, the Learned Counsel for the Respondents submitted that the above letter is genuine one and the Amendment Agreement dated 01.03.2015 is valid for a period of only two years and from 01.04.2017 the original water transport agreement will be enforceable. As stated supra the water transport agreement dated 14.03.2014 contained Article 5.1 and 5.2 with regard to take or pay quantity obligation (TOPQ). As per the said original agreement the minimum take or pay quantity (MTPQ) from 01.04.2014 to 31.03.2015 is 1.92 MCM per month, and from 01.04.2015 to 31.03.2016 is 4.92 MCM per month and from 01.04.2016 to 31.03.2017 and every year thereafter is 6 MCM per month. The original transportation agreement was amended vide amendment agreement dated 01.03.2015 to Article 5.1 and 5.2 by incorporating 5.1 a and 5.2 a and as per the said amendment Article 5.1 a is stated as under: Since the Power Project being implemented by ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of Contract- If the parties to a contract agree to substitute a new contract for it, or to rescind or alter it, the original contract need not be performed. As per the above provision one of the essential requirements of novation as contemplated under Section 62 is that there should be complete substitution of a new contract in place of the old, it is in that situation that the original contract need not be performed. As per Black s Law Dictionary, Sixth Addition at page 1064 defines novation thus Novation- A type of substituted contract that has the effect of adding a party, either as obligor or obligee, who was not a party to the original duty. Substitution of a new contract, debt or obligation for an existing one, between the same or different parties. The substitution by mutual agreement of one debtor for another are of one creditor for another, whereby the old debt is extinguished. A novation substitutes a new party and discharges one of the original parties to a contract by agreement of all parties. The requisites of a novation are a previous valid obligation, an agreement of all the parties to a new contract, the extinguishment of the old obligation, and ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... or may be specified shall not be terminated or suspended or interrupted during moratorium period . Sub-Section (2A) of Section 14 reads as under: Where the interim resolution professional or resolution professional, as the case may be considers the supply of goods or services critical to protect and preserve the value of the Corporate Debtor and the Operations of such Corporate Debtor as a going concern, then the supply of such goods or services shall not be terminated, suspended or interrupted during the period of moratorium, except where such corporate debtor has not paid dues arising from such supply during the moratorium period or in such circumstances as may be specified . The above provision i.e. Sub-Section (2A) of Section 14 has been inserted by Act 1 of 2021 with effect from 28.12.2019. 62. The Learned Counsel for the Appellant by defining the above provision stated that the said provision provides for (i). Continuation of supply of critical service, (ii). In order to protect the Corporate Debtor being run as a going concern, (iii) by making payment against such supply . The above provision was amended on the basis of suggestions made by the Insolvency ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... WIPL. While so, the dispute arises after the initiation of CIRP s of both the Corporate Debtors. 64. One of the point raised is that the KMPCL and KWIPL are related parties and the R-1 cannot undertake any related party transaction without the prior approval of the KWIPL s CoC. It is stated that the CoC of KWIPL in its 4th Meeting ratified and approved the transportation of water to KMPCL in terms of the water transportation agreement under Section 28 (1) (f). As per the said provision the approval of CoC for certain actions i.e. to undertake any related party transaction is required. Accordingly, the CoC ratified the same. Once the CoC has exercised its commercial wisdom it is neither open to the Appellant nor the Respondent no.1 to alter the terms contrary to such ratification under Section 28 (1) (f). In catena of decisions of the Hon ble Supreme Court held that the commercial wisdom of CoC cannot be interfered with. 65. The Powers of the RP: During the course of hearings, it is contended that the RP exercised its jurisdiction beyond the scope of powers is concern, Section 18 of the Code, 2016 specifies the duties of IRP to inter alia to take control and custody of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e sale of electricity which was entered into by the corporate debtor. In doing so, we reiterate that NCLT would have been empowered to set aside the termination of PPA in this case because the termination took place solely on the ground of insolvency. The jurisdiction of NCLT under Section 60 (5) (c) of IBC cannot be invoked in matters where a termination may take place on grounds unrelated to the insolvency of the corporate debtor. Even more crucially, it cannot even be invoked in the event of a legitimate termination of a contract based on an ipso facto clause like Article 9.2.1 (e) herein, if such termination will not have the effect of making certain the death of the corporate debtor. As such, in all future cases, NCLT would have to be wary of setting aside valid contractual terminations which would merely dilute the value of the corporate debtor, and not push it to its corporate death by virtue of it being the corporate debtor s sole contract (as was the case in this matter s unique factual matrix). 177. The terms of our intervention in the present case are limited. Judicial intervention should not create a fertile ground for the revival of the regime under Section 22 of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y of the corporate debtor. Even more crucially, it cannot even be invoked in the event of a legitimate termination of a contract based on an ipso facto clause like Article 9.2.1 (e) herein, if such termination will not have the effect of making certain the death of the corporate debtor. As such, in all future cases, NCLT would have to be wary of setting aside valid contractual terminations which would merely dilute the value of the corporate debtor, and not push it to its corporate death by virtue of it being the corporate debtor s sole contract (as was the case in this matters unique factual matrix). 67. As the law laid down by the Hon ble Supreme Court in the decisions above, the NCLT and NCLAT should not interfere with a parties contractual right. 68. Findings/Conclusions Admittedly the parties have entered into a WTA dated 14.03.2014 and Amendment Agreement dated 01.03.2015 whereby certain amendments made to Articles by incorporating Article 5.1 a and Article 5.2 a to the original Agreement. However, there is a dispute with regard to substitution to the original agreement by way of amendment agreement and the amendment agreement only subsists. On the other hand, ..... X X X X Extracts X X X X X X X X Extracts X X X X
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