2020 (10) TMI 539 - Tri - Insolvency and Bankruptcy

Tribunal Protects Creditor Rights in PPA Termination Case

The Tribunal asserted jurisdiction to entertain the application, emphasizing the direct link between PPA termination and the corporate debtor's ... Locus standi of a secured creditor to challenge termination of contract - interpretation and interplay of contractual empowerment to assign/subrogate and contractual event of default - jurisdiction of Adjudicating Authority under section 60(5)(c) of the I&B Code to decide questions arising in liquidation - protection of secured creditor's right to realise secured asset as ongoing concern under section 52 of the I&B Code - injunction against exercise of contractual termination pending realization of secured assetLocus standi of a secured creditor to challenge termination of contract - interpretation and interplay of contractual empowerment to assign/subrogate and contractual event of default - The secured creditor has locus standi to challenge the termination notice issued under the PPA. - HELD THAT: - The Tribunal found that although the applicant is not a direct party to the PPA, Article 12.9 of the PPA recognises and contemplates rights of the financing parties (secured creditors) to cause assignment, sale or lease of the Project and to have any assignee assume the rights and obligations arising thereafter. The liquidator did not dispute the applicant's status as secured creditor with security over the Bhadrada Project and its cash flows. In view of Article 12.9, the applicant is entitled to take shelter under that provision and therefore has sufficient interest to challenge the termination issued by GUVNL. [Paras 19]Applicant, as secured creditor, has locus standi to maintain the challenge to the termination notice.Interpretation and interplay of contractual empowerment to assign/subrogate and contractual event of default - Article 12.9 of the PPA operates upon occurrence of the event of default in Article 9.2.1(e); the two provisions are not independent and Article 12.9 governs the relief available to financing parties after such default. - HELD THAT: - The Tribunal rejected GUVNL's submission that Article 9.2.1(e) and Article 12.9 operate in entirely different fields. It held that occurrence of an event of default under Article 9.2.1(e) brings Article 12.9 into play, since Article 12.9 explicitly recognises financing parties' rights to assignment, sale or lease of the Project and to have successors assume obligations under the PPA. Thus Article 9.2.1(e) cannot be applied in a manner that negates the contractual recognition afforded to financing parties by Article 12.9. [Paras 20, 21]Article 12.9 is operative on occurrence of the default under Article 9.2.1(e), and Article 9.2.1(e) is not to be treated as independent of Article 12.9.Jurisdiction of Adjudicating Authority under section 60(5)(c) of the I&B Code to decide questions arising in liquidation - protection of secured creditor's right to realise secured asset as ongoing concern under section 52 of the I&B Code - The Tribunal has jurisdiction under section 60(5)(c) of the I&B Code to entertain the applicant's challenge to the termination notice issued during liquidation and to decide questions affecting realization of secured assets. - HELD THAT: - The Adjudicating Authority's jurisdiction under section 60(5)(c) extends to any question of law or fact arising out of or in relation to insolvency resolution or liquidation proceedings. The termination of the PPA was issued when the corporate debtor was under liquidation and directly affects the secured creditor's ability to realize the asset as an ongoing concern. Section 52(5) enables a secured creditor to approach the Adjudicating Authority where resistance affects realization; the Tribunal held that termination of the PPA impairs maximisation of value since the asset fetches maximum value when sold as a going concern and allowed the application to be entertained by the Adjudicating Authority. [Paras 25, 27, 28]Tribunal has jurisdiction under section 60(5)(c) to adjudicate the challenge and to protect the secured creditor's rights under section 52 where termination during liquidation would impede realization as an ongoing concern.Injunction against exercise of contractual termination pending realization of secured asset - protection of secured creditor's right to realise secured asset as ongoing concern under section 52 of the I&B Code - The termination notice dated 30.08.2019 issued by GUVNL is set aside and GUVNL is restrained from acting on it pending disposal of the secured asset by the applicant under SARFAESI. - HELD THAT: - Applying the objectives of the Code to maximise the value of assets, the Tribunal held that termination of the PPA solely because the corporate debtor is in liquidation would impede maximisation since the power plant's value depends on continued generation and supply under the PPA. On that basis, and having recognised the secured creditor's rights under Article 12.9 and section 52, the Tribunal set aside the impugned termination notice and directed that the applicant be permitted to dispose of the secured asset under the SARFAESI Act, while restraining GUVNL from proceeding pursuant to the termination notice during that process. [Paras 28, 33]Termination notice dated 30.08.2019 set aside; GUVNL restrained from acting on that notice pending realization/disposal of the secured asset by the applicant.Final Conclusion: The Tribunal held that the secured creditor has standing to challenge the PPA termination, that Article 12.9 operates on occurrence of the default in Article 9.2.1(e) and protects financing parties' rights, that the Adjudicating Authority has jurisdiction under section 60(5)(c) to decide the dispute in liquidation, and consequently set aside the termination notice dated 30.08.2019 and restrained GUVNL from acting thereon while permitting the applicant to realise the secured asset under SARFAESI. Issues Involved:1. Jurisdiction of NCLT to entertain the application.2. Validity of the termination notice issued by the respondent.3. Rights of the secured creditor under the Power Purchase Agreement (PPA) and the Insolvency and Bankruptcy Code (IBC).4. Applicability of Article 12.9 of the PPA in the context of liquidation.5. Maximization of asset value under the IBC.Detailed Analysis:1. Jurisdiction of NCLT to entertain the application:The respondent contended that the Gujarat Electricity Regulatory Commission (GERC) is the appropriate forum to adjudicate the dispute under Clauses 6.6 and 10.4 of the PPA. However, the applicant argued that the NCLT has jurisdiction under section 60(5)(c) of the IBC to decide any question of law or facts arising out of or in relation to the insolvency resolution or liquidation proceedings. The Tribunal concluded that it has jurisdiction to entertain the application as the termination of the PPA is directly related to the liquidation process of the corporate debtor.2. Validity of the termination notice issued by the respondent:The respondent issued a termination notice dated 30.08.2019 under Article 9.3.1(a) of the PPA, citing the initiation of liquidation proceedings as an event of default. The applicant argued that the termination was arbitrary and illegal, as the secured asset is a viable power-generating asset and the termination would impede the secured creditors' rights under section 52(1)(b) of the IBC. The Tribunal found that the termination notice was issued solely on the ground of liquidation, which is not a valid reason to terminate the PPA under the IBC framework.3. Rights of the secured creditor under the PPA and the IBC:The applicant, being a secured creditor, claimed that it has security over the entirety of the Bhadrada Project, including the cash flow under the PPA. The Tribunal recognized the applicant's right to proceed with the secured asset as an ongoing concern by virtue of section 52 of the IBC. The Tribunal also noted that the applicant has the locus standi to challenge the termination notice as it directly affects the realization of the secured asset.4. Applicability of Article 12.9 of the PPA in the context of liquidation:Article 12.9 of the PPA allows the financing parties to cause the power producer to assign the interests, rights, and obligations under the PPA to a third party in the event of default. The Tribunal held that Article 9.2.1(e) of the PPA, which provides for termination in case of liquidation, is subject to Article 12.9. Therefore, the applicant can take shelter under Article 12.9, which recognizes the rights of the financing creditors even in the event of liquidation.5. Maximization of asset value under the IBC:The Tribunal emphasized that the objective of the IBC is to maximize the value of the assets. Termination of the PPA would hinder the maximization of the asset's value, as the power plant's value lies in its ability to generate and supply power. The Tribunal concluded that the termination notice would impede the realization of the secured asset's maximum value and set aside the termination notice to allow the secured creditor to dispose of the asset as an ongoing concern.Conclusion:The Tribunal set aside the termination notice dated 30.08.2019 issued by the respondent under Article 9.3.1(a) of the PPA. The Tribunal directed the respondent not to proceed against the applicant in pursuance of the termination notice pending the disposal of the secured asset by the applicant. The application was accordingly allowed, ensuring the maximization of the asset's value and protecting the rights of the secured creditor under the IBC.