2020 (8) TMI 388 - AT - Insolvency and Bankruptcy

CIRP Process - Restoration of PPA - violation of Moratorium declared by the Adjudicating Authority - Section 14(1) of the Insolvency and Bankruptcy Code, 2016 - principles of unjust enrichment - whether the termination of PPA is in violation of Section 14(1) of the I B Code justifying the same being set aside in terms of the impugned order and if not, whether the Appellant could have validly terminated the same unilaterally? HELD THAT - The Appellant is a Government concern supplying electricity in bulk after purchasing power from four different generation Companies. The role of the Appellant is that of a trading licensee. Corporate Debtor- M/s. Alex Green Energy Pvt. Ltd. , engaged in the business of Solar Power Generation in Patnagarh in the State of Odisha was to supply power to Appellant under the PPA which had been approved by the OREC. Admittedly, the PPA was executed pursuant to a bidding process in which Corporate Debtor had participated. It was to last for 25 years and power was to be supplied to Appellant at the rate of ₹ 7 per KWH for the entire period of 25 years - On a plain reading of Clause 7 of the PPA, it emerges that the tariff at the rate of ₹ 7/- per KWH was quoted by the Corporate Debtor as per tariff bid submitted by it through Odisha Renewable Energy Development Agency (OREDA) and same was accepted with Corporate Debtor being the L1 bidder. The bid process culminated in acceptance of quoted tariff of Corporate Debtor for 25 years for Solar Power Plant at the fixed rate of ₹ 7/- per KWH and the terms and conditions agreed upon crystallized into the PPA executed inter se the Corporate Debtor and Appellant. The argument that presently the tariff of solar power is much less than ₹ 7/ KWH does not hold water as the tariff in PPA was decided on commercial consideration obtaining at the time the PPA was executed. Admittedly, PPA does not contain a provision for revision of tariff though it makes a provision for force majeure and default and termination. A bare perusal of provision contained in Clause 17.4 leaves no room for doubt that the affected party/ buyer viz the Appellant in the instant case, in the event of default in performance of obligation on the part of seller/ project proponent, was required to issue a default notice to the seller/ project proponent and in the event of the default not being set right i.e. power supply not being restored to Appellant, the Appellant was required to seek specific performance of agreement till the time default is corrected. Clause 17.5 provides that in case of default being cured, the agreement will revive and its provisions shall become enforceable automatically within a maximum period of six months. Admittedly, in the instant case, power supply from Corporate Debtor to Appellant got disrupted and completely stopped on account of damage to the plant of Corporate Debtor due to a storm on 24th May, 2018 which rendered the plant non-operational. According to Corporate Debtor, the cessation of power supply to Appellant did not arise out of any act of nonfeasance, misfeasance or malfeasance on the part of the Corporate Debtor but on account of storm damaging the plant and rendering it non-operational and such eventuality is squarely covered under the force majeure clause viz Clause 14 of the PPA. In these circumstances, termination of the PPA purportedly for failure on the part of Corporate Debtor to restore the plant and power supply almost one year after power supply had ceased and about five months after commencement of Moratorium as a sequel to the initiation of the Corporate Insolvency Resolution Process of the Corporate Debtor communicated by the Resolution Professional to Appellant in terms of letter dated 25th February, 2019, being in violation of Section 14(1) of the I B Code would not sustain. There is no hesitation in accepting the Respondents contention that the termination of PPA on the part of Appellant in the given circumstances would not sustain. In view of this finding, endeavours on the part of the Appellant to show his willingness and make overtures for reinstatement/ revival of PPA at the revised rates would be unacceptable and the argument raised on behalf of the Appellant on this score has to be repelled. The effect of approval of the Resolution Plan of Respondent No.4 and such approval having been upheld by this Appellate Tribunal which stands un-assailed is that the Resolution Plan of Respondent No.4 is binding on the Corporate Debtor and all other stakeholders involved in the Resolution Plan which encompasses the Appellant within its fold who had the notice of pendency of Corporate Insolvency Resolution Process culminating in approval of the Resolution Plan of Respondent No.4. There is no merit in this appeal - Appeal dismissed.

Summary

Issues Involved:
1. Termination of the Power Purchase Agreement (PPA) by GRIDCO.
2. Violation of Section 14(1) of the Insolvency and Bankruptcy Code, 2016 (I&B Code) due to termination.
3. Validity of unilateral termination of PPA by GRIDCO.
4. Effect of the approved Resolution Plan on the termination of the PPA.

Detailed Analysis:

1. Termination of the Power Purchase Agreement (PPA) by GRIDCO:
The PPA between GRIDCO and the Corporate Debtor was for a period of 25 years at a fixed tariff of ?7 per KWH. The Corporate Debtor stopped supplying power in June 2018 due to damage caused by a storm. GRIDCO terminated the PPA on 8th July 2019, citing the non-restoration of power supply.

2. Violation of Section 14(1) of the Insolvency and Bankruptcy Code, 2016 (I&B Code) due to termination:
The Corporate Insolvency Resolution Process (CIRP) was initiated against the Corporate Debtor on 18th February 2019, and a moratorium was declared on the assets of the Corporate Debtor. The termination of the PPA by GRIDCO was challenged and the Adjudicating Authority held that the termination was in violation of Section 14(1) of the I&B Code. The PPA was directed to be restored.

3. Validity of unilateral termination of PPA by GRIDCO:
GRIDCO argued that the termination was justified as the Corporate Debtor failed to restore power supply despite requests. However, the PPA did not allow for unilateral termination without following the due process. Clause 17 of the PPA required a default notice and a one-month period for the default to be corrected. GRIDCO did not issue such a notice, making the termination invalid.

4. Effect of the approved Resolution Plan on the termination of the PPA:
The Resolution Plan submitted by Respondent No.4 was based on the subsistence of the PPA and was approved by the Committee of Creditors and the Adjudicating Authority. This plan was binding on all stakeholders, including GRIDCO. The approval of the Resolution Plan was upheld by the Appellate Tribunal, making the termination of the PPA by GRIDCO unsustainable.

Conclusion:
The termination of the PPA by GRIDCO was in violation of Section 14(1) of the I&B Code and did not follow the contractual provisions for termination. The approved Resolution Plan, which was based on the subsistence of the PPA, is binding on all stakeholders, including GRIDCO. Therefore, the appeal by GRIDCO was dismissed, and the PPA was restored.