TaxTMI 
TaxTMI 
TaxTMI 
2022 (4) TMI 432
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....uryanarayanan, Advocate, Ms. Aditi Deshpande, Advocate, Mr. Tushar Nagar, Advocate, Mr. Badri Narayanan, Advocate For Respondent No. 2 Mr. Anirudh Krishnan, Mr. Advaidh Nelakanttan, Mr. K. Mohit Kumar, Ms. Lakshana Viravalli, Mr. Adarsh Subramaniam, Shiva. K, Advocates For Mr. P.S. Raman, Sr. Advcoate For Respondent No. 3 Mr. Bishwajit Dubey, Ms. Srideepa Bhattacharyya, Ms. Neha Shivhare, Advocates For Mr. Ramji Srinivasan, Sr. Advocate JUDGMENT KANTHI NARAHARI, MEMBER (TECHNICAL) (A) Company Appeal (AT) (Ins) No. 234 of 2021 filed by Resolution Professional of KSK Mahanadi Power Company Ltd. challenging the impugned order dated 17.06.2021 passed in I.A. No. 270 of 2021 in CP (IB) No. 492 of 2019, and (B) Company Appeal (AT) (Ins) No. 239 of 2021 filed by Committee of Creditors of KSK Mahanadi Power Company Ltd. challenging the impugned order dated 17.06.2021 passed in I.A. No. 270 of 2021 in CP (IB) No. 492 of 2019. (C) Since in both the Appeals the facts and issues are common and in both the Appeals the Appellants challenged the common impugned order, hence this Tribunal decided to take up both the Appeals together by addressing the common issues arises there under. Preambl....
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....ed to certain Operation and Maintenance ('O & M') expenses being incurred by KWIPL for Water Transportation. In that regard the KMPCL had engaged the services of ACB India Power Ltd as the O & M Contractor to carry out the aforementioned O & M for the Water Transport Infrastructure. It is submitted that both KWIPL and KMPCL are related parties and are under Corporate Insolvency Resolution Process ('CIRP'), the Appellant and the first Respondent being the Resolution Professionals of KMPCL and KWIPL, cannot undertake any related party transaction between them without prior approval of Respondent No. 2 & 3 in line with the provisions of Section 28 (1) (f) of the I & B Code, 2016. 5. It is submitted that pursuant to the Respondent No. 1 taking control of the management of KWIPL, there have been several correspondences that have been exchanged between the Appellant and the Respondent No.1 inter alia regarding the issue of payments to be made under the Water Transport Agreement failing which KWIPL would not supply water to KMPCL. The payments under the Water Transport Agreement are not required to be paid by KMPCL owing to the Commercial arrangement existing between KMPCL and KWIPL sinc....
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....ndent to enjoy the uninterrupted supply of water to KMPCL. 9. It is submitted that the Appellant made ad hoc payment to the first Respondent as follows: (i) Invoice dated 17.05.2021 for the month of April, 2021 on 25.06.2021. (ii) Invoice dated 25.06.2021 for the month of May, 2021 on 12.07.2021. (iii) Invoice dated 02.08.2021 for the month of July, 2021 on 13.08.2021. The above payments were made under protest. 10. It is submitted that the payments as made above does not amount to an admission of liability of KMPCL to make payments as per the invoice dated 17.05.2021. 11. The Learned Senior Counsel submitted that the KMPCL has been making rightful payments as per the terms of the revised Commercial Arrangement that existed between the parties since October, 2016 in due compliance of Law. 12. The Learned Senior Counsel submitted that the impugned order to the extent that it has directed the payment of water supply charges as per the Water Transport Agreement dated 14.03.2014 and any invoices raised by the first Respondent and not as per the revised commercials between KMPCL and KWIPL being followed since October, 2016 is erroneous and bereft of logic and completely contr....
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....nnot be granted by this Tribunal in exercise of its Appellate Jurisdiction for the reason that the Appellant is seeking grant of original reliefs and it never raised before the Learned Adjudicating Authority therefore there was no opportunity to consider the reliefs sought by the Appellant herein. 19. It is submitted that the following reliefs sought by the Appellant in the Application before the Learned Adjudicating Authority and in the present Appeal is set out hereunder: Reliefs sought before Ld. Adjudicating Authority [2 Pg. 447-448 of Application] Reliefs sought in the present Appeal [@Pg. 30 of Appeal] * As an interim measure, direct Respondent No. 1 to provide uninterrupted supply of water from KWIPL to KMPCL as far as KMPCL reimburses the operation and maintenance and other payments to KWIPL aligned with the terms of the commercial arrangements that has subsisted between the parties since October 2016 as detailed in paragraph 11 above; * Direct Respondent no. 1 to refrain from taking any such action which adversely affects the ongoing corporate insolvency resolution process of KMPCL, including disruption of water supply to KMPCL. &nbs....
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....d KMPCL entered into an agreement dated 14.03.2014 for transport of water through pipeline to the power plant of KMPCL. Since the terms and conditions of the Agreement were agreed between KMPCL and KWIPL related parties, no specific approval under Section 188 of the Companies Act, 2013 was required. 22. In terms of Article 2.1 of the Agreement dated 14.03.2014 (WTA) KWIPL was responsible for undertaking the transportation of water to KMPCL. Under Article 5.2 of the agreement KMPCL had a minimum take or pay obligation for a quantity of 6 MCM of water on and from 1st April, 2017 to 31st March, 2018 and every year thereafter. In accordance with the said Article the KMPCL was obligated to pay for a minimum of 6 MCM of water irrespective of whether it took supply of such quantity and irrespective of its project size. The billing and payment mechanism is set out under Article 11. 23. Owing to delay in implementation of Power Project of KMPCL, both KMPCL and KWIPL entered into an Amendment Agreement on 01.03.2015 whereby Article 5.1 (a) and 5.2 (a) were amended and in terms of the Amendment the minimum and maximum quantity of water to be transported by KWIPL to KMPCL was revised for the....
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.... accordance with an understanding under the CLA and no payments were made by KMPCL resulting repayment defaults by KWIPL to its lenders. In view of the aforesaid reasons the this Respondent after deliberations with the CoC of KWIPL and having not received any response from the Appellant despite repeated requests, the CoC of KWIPL advised this Respondent to stop water supply to KMPCL and raise an invoice for the services rendered by KWIPL to KMPCL during the CIRP in the interest of KWIPL. However, in good faith the Respondent No.1 took immediate steps to restore water supply to KMPCL. Thereafter, extensive correspondences were exchanged between the Appellant and this Respondent and set out in Table No. 2 at pages 19 to 25 of the first Respondent's Reply Affidavit. 28. The Learned Counsel further submitted that the Appellant is required to pay for the services availed by it from KWIPL in terms of Section 14 (2A). It is submitted that from the reading of Article 5.1.2.2 of CLA it is clear that the lenders have stipulated certain arrangements in CLA was only an interim arrangement whereby the charges of water transportation were limited to payment of O & M Cost and debt servicing of K....
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....ing concern, then the supply of such goods/services cannot be terminated, suspended or interrupted during the period of moratorium, except in cases where the Corporate Debtor has not paid dues arising from such supply during the moratorium. Therefore, it is submitted that the KMPCL is statutorily mandated to pay KWIPL for the transportation of water during moratorium of KMPCL (w.e.f 03.10.2019) failing which KWIPL is well within its right to suspend the supply until receipt of such payment and the same is also settled position of law. 33. It is submitted that the Hon'ble Adjudicating Authority while passing the impugned order enforced payment of legitimate consideration as per terms of valid and subsisting agreement for upholding spirit of Section 14(2A) of I & B Code, 2016 and has not interfered in the commercials or terms of contract. 34. It is submitted that the Respondent No.1 being the RP of the KWIPL is duty bound to ensure going concern status of KWIPL. 35. The Learned Counsel submitted that there is no illegality in the order passed by the Ld. Adjudicating Authority and the Appeal is devoid of any merits and liable to be dismissed. 2nd Respondent's Submissions (CoC of K....
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....1.2016 whereby the Water Transportation Charges payable to KWIPL for the interim period prior to the proposed merger of KWIPL and KMPCL was limited to operation and maintenance. 40. While so on 17.05.2021 the R-1 raised an invoice for services rendered in April, 2021. However, the Appellant was unable to release payments against the May,2021 invoice and the R-1 forced to suspend water transport service to KMPCL on 02.07.2021 temporarily and as per the directions of Hon'ble NCLT the water transportation services was resumed subject to payment of transport charges as agreed between the parties under Water Transport Agreement of 2014. 41. It is submitted that the commercial arrangement under the Water Transportation Agreement dated 14.03.2014 was only amended vide Amendment Agreement dated 01.03.2015 on a temporary basis but not novated. The said Amendment Agreement was applicable for a period of two years and subject to review once the remaining units of KMPCL's Power Plant were commissioned. Further, clauses 5.1.(a) and 5.2.(a) does not contemplate quantities under the said clauses and it is valid only for a period of two years and it is not a substitution of original transportati....
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.... 17.06.2021 passed the following order which is impugned in these Appeals and recapitulated as under: "1. This application by the RP of M/s. KSK Mahanadi Power Company Ltd. requesting inter-alia to give directions to the Respondents to resume uninterrupted flow of water to the Corporate Debtor so as to enable the Corporate Debtor to generate electricity, which is the business of the Corporate Debtor. 2. It is submitted that in order to keep the Corporate Debtor as going concern, free flow of the water requires but the Respondent stopped water supply on the ground of non-payment of water transport charges. 3. We heard the Learned Senior Counsel for the Applicant, Learned Sr. Counsel for CoC and the RP/Respondents. Section 14(2A) of the Insolvency and Bankruptcy Code, 2016 states as under: "(2A) Where the interim resolution professional or resolution professional as the case may be, considers the supply of goods or services critical to protect and preserve the value of the corporate debtor and manage the operations of such corporate debtor as a going concern, then the supply of such goods or services shall not be terminated, suspended or interrupted during the period of mor....
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....or non-supply of water for 42 (Forty two) days during the months of June and July (until 6 July 2021) due to which KMPCL was unable to operate its power plant for want of supply of essential services of water to KMPCL by KWIPL; (e) Direct KWIPL to refund the amounts paid under protest by KMPCL towards the invoices dated 17 May 2021, 25 June 2021 and 02 August 2021 raised by KWIPL, to the extent that they are in excess of the amounts to be paid as per the October 2016 arrangement between the parties; (f) Set aside the Impugned Order passed by the Hon'ble National Company Law Tribunal, Hyderabad on 17 June 2021 in I.A. 270 of 2021 in C.P. (IB) 492/HBD/2019 in so far as the direction to pay the transport charges as per the Agreement (2014) and invoices raised consequently, and substitute the same with a direction for payments to be made by KMPCL as per the commercial arrangement between the parties since October 2016; 50. Incorporation of Companies and its present status: The KMPCL was incorporated and is in the business of operating 1800 MW Coal based Thermal Power Project at Nariyara Village, Janjgir Champa District, Chhattisgarh is to generate Power and supply to various stat....
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....e, the Articles which deal with quantity and the main issues/disputes starts with regard to Article 5.1 and 5.2 the same is reproduced here at for beneficial reference: "5.1 (a) Subject always to availability of water in Mahanadi River and Article9, KWIPL agrees to transport water, at the Delivery Point to KMPCL as detailed below. Particulars FY 2014-2015 FY 2015-16 FY 2016-17 and onwards Minimum Quantity 23 MCM 59 MCM 72 MCM Maximum Quantity 31 MCM 67 MCM 80 MCM (b)Further, KWIPL shall have the necessary infrastructure to draw water (i) to undertake temporary storage at Intermediate reservoir for at least 7 MCM and (ii) capabilities to draw up to maximum quantity of 100 MCM form the off take point throughout any year and (iii) KMPCL may request for supply of water beyond the Minimum Quantity as stated in above table, but the supply of water over and above the Maximum Quantity, will be at the sole discretion of KWIPL. 5.2 Take or Pay Quantity Obligation (TOPQ Obligation) (a) Notwithstanding Article 11, Article 16, for each Year for quantities mentioned under Article 5.1 (a) there shall be Minimum Take or Pay Quantity (MTPQ), to be taken or paid for, on monthly b....
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....f the Amendment to the Agreement dated 14.03.2014, the Amended Agreement only subsists. On the other hand the Learned Senior Counsel for the Respondents contend that the Amendment Agreement of 2015 valid for a period of 2 years and after completion of 2 years i.e. 31.03.2017, the original Agreement i.e. 2014 will be enforceable. The Learned Senior Counsel for the Appellants contend that in view of the Amendment Agreement (2015), the (2014) Agreement is not a valid and novated automatically. In answer to this argument the Learned Counsel appearing for the Respondents submitted that the Amendment Agreement of 2015 is only a substitution to the 2014 Agreement for a period of 2 years and it is not a novation as contended by the Appellants. This Tribunal will deal with this issue after deliberating on 'Common Loan Agreement' ('CLA') dated 22.11.2016 and the letter of the Respondents dated 30.03.2017. 55. Now we advert to the Common Loan Agreement (2016) and the letter of the Respondent dated 30.03.2017. Page 72 of the Appeal Paper Book of Vol. 1 the Amended and Restated and Common Loan Agreement is enclosed. The Common Loan Agreement (CLA) is amongst KMPCL (as Borrower) and the lenders....
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.... 500033. Sir, Sub: Water Transportation Agreement Ref: Water Transportation Agreement dated 14th March 2014 First Amendment to Water Transportation Agreement dated 1st March 2015. Considering the above-referred executed agreements to enable to transportation of water to the project of KSK Mahanadi Power Company Limited, we would like to submit that the first amendment of Water Transportation agreement is valid till 31st March 2017. In absence of any further arrangement, we consider that the first amendment agreement will expire on 31st March 2017. Accordingly from1st April 2017, the agreement executed on 14th March 2014 will become effective till the tenor of the respective agreement. Therefore, you are requested to note the arrangement. Thanking you, Yours faithfully, For KSK Water Infrastructures Pvt. Ltd. 57. The Learned Counsel for the Appellants contends that the above letter is not a genuine letter and cannot be relied upon by the Respondents. On the other hand, the Learned Counsel for the Respondents submitted that the above letter is genuine one and the Amendment Agreement dated 01.03.2015 is valid for a period of only two years and from 01.04.2017 the ....
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....y novated as per Section 62 of the Indian Contract Act, 1872 in view of amendment agreement dated 01.03.2015. On the other hand, the Learned Counsel for the Respondents contend that the amended agreement dated 01.03.2015 is valid for a period of 2 years i.e. up to 31.03.2017 and the original WTA 2014 will become effective with effect from 01.04.2017 and submitted that the amendment agreement is not a whole substitution of WTA 2014 it is only a partial modification/ amendment to the WTA 2014. In view of question of law raised by the Learned Counsel for the Appellant it is apt to refer to Section 62 of the Indian Contract Act, 1872. Section 62 reads as: "Effect of novation, rescission, and alteration of Contract- If the parties to a contract agree to substitute a new contract for it, or to rescind or alter it, the original contract need not be performed. As per the above provision one of the essential requirements of novation as contemplated under Section 62 is that there should be complete substitution of a new contract in place of the old, it is in that situation that the original contract need not be performed. As per Black's Law Dictionary, Sixth Addition at page 1064 defin....
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....ith the Provisions of Law Section 14 (2A) of IBC: The Adjudicating Authority while passing the order also dealt with Section 14(2A) of the I & B Code, 2016. To elaborate and discuss and to address the said provision of law, in this regard it is apt to refer to Section 14 of the Code which deal with moratorium. Sub-Section 1 of Section 14 reads as under: "Subject to provisions of Sub-Sections 2 and 3, on the Insolvency Commencement date, the Adjudicating Authority shall by order declared moratorium for prohibiting all of the following namely, (a), (b), (c), (d)". "Sub-Section 2 of Section 14 reads as; "the supply of essential goods or services to the Corporate Debtor may be specified shall not be terminated or suspended or interrupted during moratorium period". "Sub-Section (2A) of Section 14 reads as under: "Where the interim resolution professional or resolution professional, as the case may be considers the supply of goods or services critical to protect and preserve the value of the Corporate Debtor and the Operations of such Corporate Debtor as a going concern, then the supply of such goods or services shall not be terminated, suspended or interrupted during the period....
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....greement 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. Further, this Tribunal acknowledges that there is a contractual dispute between the parties and it is an admitted fact that the 2014 WTA and amended agreement dated 01.03.2015 and CLA 2016 are pre CIRP of both the Corporate Debtors i.e. KMPCL and KWIPL. While so, the dispute arises after the initiation of CIRP's of both the Corporate Debtors. 64. One of the point raised is that the KMPCL and KWIPL are related parties and the R-1 cannot undertake any related party transaction without the prior approval of the KWIPL's CoC. It is stated that the CoC of KWIPL in its 4th Meeting ratified and approved the transportation of water to KMPCL in terms of the water transportation agreement under Section 28 (1) (f). As per the said provision the approval of CoC for certain actions i.e.....
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....trained from terminating the contract only if it is central to the success of the CIRP. Crucially, the termination of the contract should result in the corporate death of the Corporate Debtor. In Gujarat Urja (supra), this Court held thus: "176. Given that the terms used in Section 60(5)(c) are of wide import, as recognised in a consistent line of authority, we hold that NCLT was empowered to restrain the appellant from terminating PPA. However, our decision is premised upon a recognition of the centrality of PPA in the present case to the success of CIRP, in the factual matrix of this case, since it is the sole contract for the sale of electricity which was entered into by the corporate debtor. In doing so, we reiterate that NCLT would have been empowered to set aside the termination of PPA in this case because the termination took place solely on the ground of insolvency. The jurisdiction of NCLT under Section 60 (5) (c) of IBC cannot be invoked in matters where a termination may take place on grounds unrelated to the insolvency of the corporate debtor. Even more crucially, it cannot even be invoked in the event of a legitimate termination of a contract based on an ipso facto c....
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....r, our decision is premised upon a recognition of the centrality of the PPA in the present case to the success of the CIRP, in the factual matrix of this case, since it is the sole contract for the sale of electricity which was entered into by the Corporate debtor. In doing so, we reiterate that the NCLT would have been empowered to set aside the termination of the PPA. In this case because the termination took place solely on the ground of insolvency. The Jurisdiction of the NCLT under Section 60 (5) (c) of the IBC cannot be invoked in matters where a termination may take place on grounds unrelated to the insolvency of the corporate debtor. Even more crucially, it cannot even be invoked in the event of a legitimate termination of a contract based on an ipso facto clause like Article 9.2.1 (e) herein, if such termination will not have the effect of making certain the death of the corporate debtor. As such, in all future cases, NCLT would have to be wary of setting aside valid contractual terminations which would merely dilute the value of the corporate debtor, and not push it to its corporate death by virtue of it being the corporate debtor's sole contract (as was the case in this ....