2022 (4) TMI 432 - AT - IBC

NCLAT upholds essential water supply obligations during moratorium under Section 14(2A) of IBC despite payment disputes

Mr. Sumit Binani, (RP of M/s KSK Mahanadi Power Company Ltd.) Versus Mr. V. Venkatachalam, RP, M/s KSK Water Infrastructures Pvt. Ltd. & Ors., Committee of Creditors, KSK Water Infrastructures Pvt. Ltd., Committee of Creditors, KSK Mahanadi Power Company Ltd. And Committee of Creditors of KSK Mahanadi Power Company Ltd through Power Finance Corporation Ltd. Versus Mr. V. Venkatachalam, RP of KSK Water Infrastructure Pvt. Ltd., Committee of Creditors of KSK Water Infrastructures Pvt. Ltd., Mr. Sumit Binani, RP of KSK Mahanadi Power Company Ltd.

The NCLAT Chennai dismissed appeals regarding water supply during moratorium period. KWIPL was required to supply water to KMPCL under a 2014 Water ... Essential items during Moratorium period - Supply of water by KWIPL - water is required for enabling generation of electricity to be sold by KMPCL to generate revenue and make profits - essential goods and services or not - Meaning and Essential requirements of 'novation' - HELD THAT:- From the agreement it is clear that the KWIPL under took to supply water to KMPCL and the terms are governed in the Articles. Article 2 deal with Water Transportation and Article 5 deal with quantity of Water - 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. 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 of Indian Contract Act, 1872 - HELD THAT:- 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 the validity of the new one - It is not in dispute that the KMPCL is into CIRP vide order dated 03.10.2019 and the KWIPL is into CIRP, vide order dated 01.01.2021 and imposed moratorium in respect of both the Corporate Debtors. In respect of both KWIPL the first Respondent was appointed as RP vide order dated 08.04.2021. While so after taking over the affairs of the Corporate Debtor i.e. KWIPL the first Respondent vide letter dated 23.04.2021 addressed to the KMPCL requesting for payment of outstanding dues with reference to water transported to KMPCL and also made a note with regard to the water transport agreement and amended agreement. Applicability of Section 14(2A) of the I & B Code, 2016 - HELD THAT:- The Law is very clear on the aspect and cannot be interpreted to suit either to the Appellants or the Respondents. However, we are unable to accept the contentions of the Learned Counsel for the Appellants that “such supply” meaning thereby the quantity mentioned in the amended agreement dated 01.03.2015. As per the definition of Black’s Law Dictionary Sixth Addition, the word ‘such’ defined as “of that kind, having particular quality or character specified”. “Identical with, being the same as what has been mentioned”. Be that as it may, this Tribunal cannot interpret “such supply to actual supply” in view of clear and unambiguous provision as enshrined in Section 14 (2A) of I & B Code - 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. 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 - this Tribunal is not expected to function as original and Appellate Jurisdiction to decide and 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. Issues Involved:1. Jurisdiction of the Tribunal to adjudicate the issues/reliefs sought by the Appellants.2. Validity and enforceability of the order passed by the Adjudicating Authority.3. Entitlement of the Appellant to the reliefs prayed for.Detailed Analysis:Issue 1: Jurisdiction of the Tribunal to Adjudicate the Issues/Reliefs Sought by the AppellantsThe Tribunal examined whether it could adjudicate the issues and reliefs sought by the Appellants. The Appeals were filed against the order passed by the Adjudicating Authority, which directed the Respondents to resume water supply to the Corporate Debtor (KMPCL) as per the 2014 Water Transport Agreement and invoices raised by KWIPL. The Tribunal noted that the reliefs sought in the Appeal included directions for continuous water supply, status quo based on the 2016 commercial arrangement, and refund of amounts paid under protest. The Tribunal concluded that it could not adjudicate these issues as they were not raised before the Adjudicating Authority and involved original reliefs. The Tribunal emphasized that it could not function as an original jurisdiction to decide contractual disputes between the parties, including the interpretation and enforcement of contract terms.Issue 2: Validity and Enforceability of the Order Passed by the Adjudicating AuthorityThe Tribunal reviewed the order passed by the Adjudicating Authority, which directed the Appellants to make payments as per the 2014 Water Transport Agreement and invoices raised by KWIPL. The Tribunal noted that the Adjudicating Authority relied on Section 14(2A) of the Insolvency and Bankruptcy Code, 2016 (I&B Code), which mandates the continuation of supply of critical goods or services to protect and preserve the value of the Corporate Debtor and manage its operations as a going concern. The Tribunal found that the Adjudicating Authority's order was in line with the law and did not warrant any interference. The Tribunal also emphasized that the commercial wisdom of the Committee of Creditors (CoC) in ratifying the water supply arrangement under Section 28(1)(f) of the I&B Code could not be interfered with.Issue 3: Entitlement of the Appellant to the Reliefs Prayed ForThe Tribunal examined whether the Appellants were entitled to the reliefs sought in the Appeal. The Appellants argued that the 2015 Amendment Agreement, which revised the minimum off-take requirements for water supply, should be considered as a substitution to the 2014 Water Transport Agreement. The Respondents contended that the 2015 Amendment Agreement was valid only for two years and that the 2014 Agreement became effective again from 01.04.2017. The Tribunal concluded that the dispute over which agreement to follow could not be decided by the Tribunal, as it involved contractual obligations and interpretation of contract terms. The Tribunal also noted that the Appellants had not made out a case for the reliefs sought, as the Adjudicating Authority's order was free from any legal and factual error.Conclusion:The Tribunal dismissed the Appeals, finding no merit in the Appellants' arguments and upholding the Adjudicating Authority's order. The interim order passed by the Tribunal was vacated, and all pending applications were closed.