Invalid Termination of PPA Deemed Unlawful - Appellate Tribunal Upholds Resolution Plan

GRIDCO's unilateral termination of the Power Purchase Agreement (PPA) with the Corporate Debtor was deemed invalid by the Adjudicating Authority for violating Section 14(1) of the Insolvency and Bankruptcy Code, 2016. The termination lacked the required notice and corrective period stipulated in the PPA's terms. The approved Resolution Plan, contingent on the PPA's existence, was upheld by the Appellate Tribunal, rendering GRIDCO's termination unsustainable. Consequently, the appeal by GRIDCO was dismissed, and the PPA was ordered to be restored.

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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 Rs. 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.

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