The Supreme Court refused to stay the ruling of the National Company Law Appellate Tribunal (NCLAT) that power distribution firms cannot cancel their power purchase agreements (PPAs) with insolvent generating companies during the corporate bankruptcy resolution process (CIRP).
While declining to provide any relief to the power distribution and trading business Gujarat Urja Vikas Nigam (GUVNL), a bench led by Justice L.N. Rao stated that the matter will be decided in the second week of September.
The NCLAT had dismissed GUVNL's appeal against a decision by the National Company Law Tribunal's Hyderabad bench that the termination of its PPA with debt-ridden Lanco Infratech was not justified because such insolvent companies must maintain their going concern status throughout the resolution process.
The NCLAT upheld the NCLT's decision, saying that a power project's asset classification includes the generation plant and its PPA and that the two should be considered together rather than separately.
The decision was made during the CIRP process of Lanco Infratech, which is facing liquidation due to unpaid debts, including Rs 63 crore owed to Yes Bank. In August 2017, the NCLT granted IDBI Bank's insolvency petition against Lanco Infratech.
The problem concerns a Power Purchase Agreement (PPA) signed by GUVNL in April 2010 for the purchase of power from Lanco's solar power project, which is now in liquidation. The appeal said that when Lanco went into liquidation and a liquidator was appointed, GUVNL sent a default notice to the former for terminating the PPA. The NCLAT maintained the termination notice, which had been overturned by the NCLT in May last year, citing another case filed by GUVNL versus Amit Gupta, GUVNL claimed in its appeal, adding that the Amit Gupta case is still ongoing before the SC.
Senior counsel C.U. Singh, appearing for GUVNL, argued that the NCLAT had failed to appreciate that termination is a commercial decision by GUVNL to enforce its right under the PPA and that the NCLAT had ignored the fact that there was no provision in the IBC to extinguish or adversely affect its right to terminate the PPA.
Senior attorney MG Ramachandran, who is opposing the appeal, challenged the amount requested by GUVNL, claiming that no bills were raised on the basis of the state energy account.
The NCLT and NCLAT had set aside the termination notice on the grounds that it would be contrary to the IBC's goal of maximising asset value, it said, adding that there is no specific provision in the Code prohibiting the termination of the PPA and that in the absence of such a provision, the termination could not be held to be against the Code.
GUVNL argued that it cannot be forced to prolong the PPA or give up its contractual rights after exercising its right under the PPA. "The apparent benefit to Lanco from extending the PPA cannot be used to compel the state-owned company to do so. Lanco can enter into a PPA with any other entity if it believes it is necessary or useful. There are no legal or technical obstacles for Lanco or any other purchaser of a power plant to engage in a power supply agreement with any consumer, licensee, or company "According to the appeal filed by Hemantika Wahi.
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