IBC prevails over power purchase agreements: Supreme Court

By LE Desk

New Delhi, March 8: A power purchase agreement cannot be terminated during the moratorium period under the Insolvency and Bankruptcy Code, the Supreme Court has held.

A bench of Justices DY Chandrachud and MR Shah observed that a buyer cannot terminate a power purchase agreement even if it contains a clause allowing such an action if an insolvency application is admitted against a power supplier, BloombergQuint reported.

As such, the insolvency tribunals correctly stayed the termination because any action otherwise could have resulted in the corporate death of the company, the apex court observed.

The case emanates from a 25-year agreement for purchase of solar power between Gujarat Urja Vikas Nigam Ltd., a state undertaking, and Astonfield Solar Gujarat Pvt.—a power generator. Astonfield underwent financial issues on account of natural calamities which prompted lenders to declare it a non-performing asset in 2015.

The National Company Law Tribunal allowed the initiation of the insolvency resolution process of the company in February 2019, which prompted GVNL to issue a notice for terminating the PPA.

The move was challenged by the resolution professional. The notice was stayed by the NCLT and an appeal against this was dismissed by the appellate tribunal, which prompted the power purchaser to move the apex court.

Section 238 of the Insolvency Code states it will override the contrary provisions in any other existing law. In case of any inconsistency, the code will prevail over others. The law also states that a license, permit or permission granted to a corporate debtor cannot be terminated or suspended due to insolvency.

https://www.bloombergquint.com/law-and-policy/ibc-prevails-over-power-purchase-agreements-supreme-court-says