Tribunal rules on Power Purchase Agreement's conflict with Corporate Insolvency Resolution provisions under IBC 2016

The tribunal determined that the Power Purchase Agreement (PPA) qualifies as an 'instrument' under Section 238 of IBC 2016. Additionally, clauses 9.2.1(e) and 9.3.1 of the PPA were found to be inconsistent with the statutory timelines of the Corporate Insolvency Resolution (CIR) process under IBC 2016. As a result, the provisions of IBC 2016 were held to override the PPA, leading to the setting aside of default notices dated 01.05.2019. However, the Respondent Company retained the right to terminate the PPA in case of the Corporate Debtor's liquidation.

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Issues Involved:
1. Whether the Power Purchase Agreement (PPA) is an 'instrument' in the context of provisions of Section 238 of IBC.
2. Whether clause 9.2.1(e) read with clause 9.3.1 of the Power Purchase Agreement dated 30.10.2010 is inconsistent with Section 238 of IBC 2016.

Detailed Analysis:

Issue 1: Whether the Power Purchase Agreement (PPA) is an 'instrument' in the context of provisions of Section 238 of IBC.
The tribunal examined the definition of 'instrument' under various legislative acts and dictionaries. Section 238 of the IBC states that "the provisions of this Code shall have effect, notwithstanding anything inconsistent therewith contained in any other law for the time being in force or any instrument having effect by virtue of any such law." The tribunal noted that the term 'instrument' is not defined under IBC 2016 but referred to Section 3(37) of the Code, which directs to definitions in other acts like the Indian Contract Act, 1872, and the Indian Stamp Act, 1899. According to Section 2(14) of the Indian Stamp Act, 1899, an 'instrument' includes every document by which any right or liability is created, transferred, limited, extended, extinguished, or recorded. The tribunal concluded that since the PPA creates enforceable rights and liabilities, it qualifies as an 'instrument' under Section 238 of IBC 2016.

Issue 2: Whether clause 9.2.1(e) read with clause 9.3.1 of the Power Purchase Agreement dated 30.10.2010 is inconsistent with Section 238 of IBC 2016.
The tribunal evaluated the clauses of the PPA in light of Section 238 of IBC 2016. Clause 9.2.1(e) of the PPA allows termination if the power producer becomes subject to insolvency proceedings. Clause 9.3.1 provides a 30-day period for remedying the default. The tribunal observed that the CIR process was initiated on 20.11.2018 and extended by 90 days on 16.05.2019. The default notices issued on 01.05.2019 demanded curing of defaults within 30 days, which conflicted with the statutory timelines of the CIR process under IBC 2016. The tribunal emphasized that any agreement cannot override the statutory provisions of IBC, which prescribe a 330-day timeline for CIR processes. Hence, it concluded that the PPA clauses are inconsistent with Section 238 of IBC 2016.

Conclusion:
The tribunal concluded that the PPA is an 'instrument' under Section 238 of IBC 2016, and the clauses 9.2.1(e) and 9.3.1 are inconsistent with the provisions of IBC 2016. Therefore, the provisions of IBC 2016 shall have an overriding effect over the PPA. The default notices dated 01.05.2019 were set aside. However, the tribunal clarified that if the Corporate Debtor goes into liquidation, the Respondent Company may terminate the PPA. The applications were allowed accordingly.

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