NCLAT dismisses the Appeal of Gujarat Urja Vikas Nigam Against Yes Bank & Lanco Infratech
The National Company Law Appellate Tribunal has dismissed the Appeal against the order passed by the Adjudicating Authority (NCLT, Hyderabad Bench) and observed that the termination of Power Purchase Agreement (PPA) does not appear to be justified.
Lanco Infratech Ltd (corporate debtor/Lanco) availed a loan from Yes Bank. The Adjudicating Authority had admitted the application u/s 9 of the IBC, filed by IDBI Bank Limited against Lanco Infratech Ltd., and consequently, the liquidation process of Lanco commenced.
Pursuant to the liquidation order, Yes Bank Limited apprised the Liquidator for realisation of its secured asset under Section 52(1)(b) and Section 52(2) of the IBC. Yes Bank Ltd. initiated the proceedings and took possession of the secured asset under SARFAESI Act.
It was stated that the solar power plant, which is an asset in the liquidation proceedings, is functioning and supplying power to Gujarat Urja Vikas Nigam Ltd. (appellant/GUVNL) in accordance with the PPA entered into between the corporate debtor and the appellant.GUVNL had issued default notice in accordance with Clause 9.3 of the PPA which constituted default under clause 9.2.1(e) of the PPAdue to initiation of liquidation proceedings against the corporate debtor.
In reply Yes Bank Limited sent a letter to GUVNL not to terminate the PPA on the grounds enumerated in clause 9.2.1(e) of the PPA. However, GUVNL sent a notice for termination of the PPA and thereafter terminated the PPA.
In the present matter, it is claimed by Yes Bank Ltd. that GUVNL is posing a hindrance in the sale of the secured asset by the act of termination of the PPA with malafide intention as Lanco has not defaulted on the supply of solar power as required under PPA despite initiation of Corporate Insolvency Resolution Process (CIRP). It is generating power and will be a viable asset, if the existence of PPA is ensured, which will help in maximizing the value of the asset which is a basic requirement in insolvency proceedings.
The first issue regarding whether the moratorium declared under Section 14 of IBC applies to the PPA along with other immovable and moveable properties of the corporate debtor has been answered by the Appellate Tribunal by stating that Section 14.1(b) of the IBC prohibits transferring, encumbering, alienating or disposing off by the corporate debtor any of its assets or any legal right and beneficial interest therein.
In this case, the second contracting party to the PPA i.e. GUVNL is admitting to terminate the PPA, which is in the nature of beneficial interest of the corporate debtor in the Solar Power Project. Such an action will have a direct bearing on the assets and their value of the corporate debtor Lanco Infratech Ltd
The proposition that the solar power plant and the PPA related to the plant form one integrated economic asset appears to be a rational one. Therefore, this asset needs to be kept intact and preserved during the process of corporate resolution and liquidation so that the liabilities of creditors and other stakeholders can be taken care of.
The Solar Power Plant i.e. physical assets realizes its full economic value only if it functions in conjunction with the PPA. The steady and assured revenue stream resulting from the existence of the PPA is the sine qua non for the long-term economic and financial viability of the solar power project since it provides comfort and security to the financial creditors who feel encouraged to provide credit for the project.
The process of liquidation in the present case is going on and therefore, the liquidator should have full access to all assets of the corporate debtor to take meaningful steps for revival of the corporate debtor as going concern. In the present case, since the power producer has not suspended the supply of solar power and is willing to do the same, it stands to reason that the solar power project should be allowed to function as a going concern, so that revival of the power project as suggested under Section 230 of the Companies Act becomes possible.
Thus, it has been asserted that the physical entity of the Solar Power Project working in conjunction with the PPA becomes necessary for maximization of the value of assets. This is especially true since the power producer is willing to generate and supply power and also in a position to do so to the GUVNL. Hence, it is decided that the termination of PPA does not appear to be justified.