Gujarat Urja Vikas Nigam Limited Vs. Mr. Amit Gupta & Ors - The residuary jurisdiction of the NCLT under Section 60(5)(c) of the IBC provides it a wide discretion to adjudicate questions of law or fact arising from or in relation to the insolvency resolution proceedings.

Supreme Court (08.03.2021) in Gujarat Urja Vikas Nigam Limited Vs. Mr. Amit Gupta & Ors [Civil Appeal No. 9241 of 2019] held that;- 

• NCLT has jurisdiction to adjudicate disputes, which arise solely from or which relate to the insolvency of the Corporate Debtor. However, in doing do, we issue a note of caution to the NCLT and NCLAT to ensure that they do not usurp the legitimate jurisdiction of other courts, tribunals and fora when the dispute is one which does not arise solely from or relate to the insolvency of the Corporate Debtor. The nexus with the insolvency of the Corporate Debtor must exist.

• Therefore, we hold that the RP can approach the NCLT for adjudication of disputes that are related to the insolvency resolution process. However, for adjudication of disputes that arise dehors the insolvency of the Corporate Debtor, the RP must approach the relevant competent authority.

• The residuary jurisdiction of the NCLT under Section 60(5)(c) of the IBC provides it a wide discretion to adjudicate questions of law or fact arising from or in relation to the insolvency resolution proceedings. If the jurisdiction of the NCLT were to be confined to actions prohibited by Section 14 of the IBC, there would have been no requirement for the legislature to enact Section 60(5)(c) of the IBC. Section 60(5)(c) would be rendered otiose if Section 14 is held to be the exhaustive of the grounds of judicial intervention contemplated under the IBC in matters of preserving the value of the corporate debtor and its status as a ‘going concern‘.

• 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.

• 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.

Excerpts of the Order; 

# 1. By its judgment dated 29 August 2019, the National Company Law Tribunal stayed the termination by the appellant of its Power Purchase Agreement with Astonfield Solar (Gujarat) Private Limited. The order of the NCLT was passed in applications moved by the Resolution Professional of the Corporate Debtor and Exim Bank under Section 60(5) of the Insolvency and Bankruptcy Code, 2016. On 15 October 2019, the NCLAT dismissed the appeal by the appellant8 under Section 61 of the IBC. The decision by the NCLAT is called into question.

# 2. The appellant assails the order dated 15 October 2019 of the NCLAT on, inter alia, two broad grounds: first, that the NCLT and NCLAT do not possess jurisdiction under the IBC to adjudicate on a contractual dispute between the appellant and the Corporate Debtor; and second, in any event, the termination of the PPA was validly made under Article 9.2.1(e) and Article 9.3.1 of the PPA.

# 41. The following two issues arise for determination:

• (i) Whether the NCLT/NCLAT can exercise jurisdiction under the IBC over disputes arising from contracts such as the PPA; and

• (ii) Whether the appellant‘s right to terminate the PPA in terms of Article 9.2.1(e) read with 9.3.1 is regulated by the IBC.

# 44. NCLT owes its existence to statute. The powers and functions which it exercises are those which are conferred upon it by law, in this case, the IBC.

# 46. In appeal, the NCLAT by its order dated 15 October 2019, upheld the exercise of jurisdiction by the NCLT. The NCLAT held:

• “Taking into consideration the nature of the case, we are of the view that to keep the ‘Corporate Debtor’ a going concern, which is generating electricity and supplying only to ‘Gujarat Urja Vikas Nigam Ltd.’, the Adjudicating Authority rightly asked ‘Gujarat Urja Vikas Nigam Ltd.’ not to terminate the ‘Power Purchase Agreement’ dated 30th April, 2010.

• We may make it clear that the ‘Gujarat Urja Vikas Nigam Limited’, being purchaser of the electricity cannot terminate the ‘Power Purchase Agreement’ solely on the ground that the ‘Corporate Insolvency Resolution Process’ has been initiated against ‘Astonfield Solar (Gujrat) Pvt. Ltd.’ (Corporate Debtor) which is generating electricity and supplying it and there is no default in supplying electricity and during the ‘Corporate Insolvency Resolution Process’…”

However, like the NCLT, the NCLAT did not give any specific finding on whether it or the NCLT can exercise its jurisdiction under section 60(5)(c) over a dispute arising out of the termination of the PPA. In this regard, the task falls on this Court to enumerate the contours of the jurisdiction that can be exercised under Section 60(5)(c) of the IBC.

# 56. The BLRC noted that speed is of the essence for the working of a bankruptcy code. From the point of the view of creditors, a good realization can be obtained when a firm is sold as a going concern. The decisions of this Court in Madras Petrochem49, Innoventive Industries 50 and Arcelor Mittal (India) (Private) Limited51 emphatically advert to the failure of the statutory resolution machinery in the regime prior to the IBC. It was in this backdrop that the IBC was enacted to provide for a timely resolution of the CIRP. The primary focus of the IBC is to ensure the revival and continuation of the corporate debtor. The interests of the corporate debtor have been bifurcated and separated from the interests of persons in management. The timelines which are prescribed in the IBC are intended to ensure the resuscitation of the corporate debtor.

# 57. The enactment of the IBC is in significant senses a break from the past. While interpreting the provisions of the IBC, care must be taken to ensure that the regime which Parliament found deficient and which was the basic reason for the enactment of the new legislation is not brought in through the backdoor by a process of disingenuous legal interpretation. However, this is not to say that the interpretation given to the statutory provisions that existed prior to the enactment IBC is to be rejected in toto. The interpretation given to such statutory provisions that are textually similar to Section 60(5)(c) may be relevant, provided that such interpretation is in tandem with the objective of enacting the IBC, that is, inter alia, avoidance of multiplicity of fora and a timely resolution of the insolvency process.

# 67.  . . . .Therefore, considering the text of Section 60(5)(c) and the interpretation of similar provisions in other insolvency related statutes, NCLT has jurisdiction to adjudicate disputes, which arise solely from or which relate to the insolvency of the Corporate Debtor. However, in doing do, we issue a note of caution to the NCLT and NCLAT to ensure that they do not usurp the legitimate jurisdiction of other courts, tribunals and fora when the dispute is one which does not arise solely from or relate to the insolvency of the Corporate Debtor. The nexus with the insolvency of the Corporate Debtor must exist.

# 68.  . . . . .As such, it is important to remember that the NCLT‘s jurisdiction shall always be circumscribed by the supervisory role envisaged for it under the IBC, which sought to make the process driven by trained resolution professionals.

# 72. Therefore, we hold that the RP can approach the NCLT for adjudication of disputes that are related to the insolvency resolution process. However, for adjudication of disputes that arise dehors the insolvency of the Corporate Debtor, the RP must approach the relevant competent authority. For instance, if the dispute in the present matter related to the non-supply of electricity, the RP would not have been entitled to invoke the jurisdiction of the NCLT under the IBC. However, since the dispute in the present case has arisen solely on the ground of the insolvency of the Corporate Debtor, NCLT is empowered to adjudicate this dispute under Section 60(5)(c) of the IBC.

# 87. The residuary jurisdiction of the NCLT under Section 60(5)(c) of the IBC provides it a wide discretion to adjudicate questions of law or fact arising from or in relation to the insolvency resolution proceedings. If the jurisdiction of the NCLT were to be confined to actions prohibited by Section 14 of the IBC, there would have been no requirement for the legislature to enact Section 60(5)(c) of the IBC. Section 60(5)(c) would be rendered otiose if Section 14 is held to be the exhaustive of the grounds of judicial intervention contemplated under the IBC in matters of preserving the value of the corporate debtor and its status as a ‘going concern‘. We hasten to add that our finding on the validity of the exercise of residuary power by the NCLT is premised on the facts of this case. We are not laying down a general principle on the contours of the exercise of residuary power by the NCLT. However, it is pertinent to mention that the NCLT cannot exercise its jurisdiction over matters dehors the insolvency proceedings since such matters would fall outside the realm of IBC. Any other interpretation of Section 60(5)(c) would be in contradiction of the holding of this Court in Satish Kumar Gupta (supra). 

# 143. Consequently, we hold that question of the validity/invalidity of ipso facto clauses is one which the court ought not to resolve exhaustively in the present case. Rather, what we can do is appeal in earnest to the legislature to provide concrete guidance on this issue, since the lack of a legislative voice on the issue will lead to confusion and reduced commercial clarity. 

# 151. At this juncture, it is important, at the risk of repetition, to note the concurrent findings of fact returned by the NCLT and the NCLAT as to the PPA being the sole basis for the Corporate Debtor‘s existence. In its judgment dated 29 August 2019, the NCLT held as follows:

• “6. That the Corporate Debtor is reportedly a Special Purpose Vehicle (SPV) set up only for generation of solar power in the State of Gujarat. The Respondent is the only purchaser of power generated by the Corporate Debtor’s Plant, therefore, the PPA is very critical to the “going concern” status of the Corporate Debtor. 

• 30… That termination of PPA at this stage may have adverse consequences on the status of the Corporate Debtor as “going concern” and eventually, may jeopardise the entire CIR Process.”

In the impugned judgment, the NCLAT held as follows:

• “’Gujarat Urja Vikas Nigam Ltd.’ is the only purchaser of electricity generated by ‘Astonfield Solar (Gujrat) Pvt. Ltd.’ (Corporate Debtor). [T]he electricity line have been given only to the ‘Gujarat Urja Vikas Nigam Ltd.’ and in terms of an agreement, they are supposed to supply electricity to ‘Gujarat Urja Vikas Nigam Ltd.’”

# 152. As the above excerpts indicate, but for the subsistence of the PPA, the Corporate Debtor would no longer remain as a ‘going concern‘. Differently stated, by virtue of the PPA with the appellant being the sheet-anchor of the Corporate Debtor‘s business and consequently of the CIRP, its continuation assumes enormous significance for the successful completion of the CIRP. The termination of the PPA will have the consequence of cutting the legs out from under the CIRP.

# 155.  . . . .However, this Court in the present case is not required to resolve the broad question of whether the invalidation/stay of ipso facto clauses in India, generally, is legally permissible. This is a matter which raises complex issues of legal policy and a balancing between distinct and conflicting values. Reform will have to take place through the legislative process. The stages through which legislative reform must take place -absolute or incremental – is a matter for legislative change. Our task is limited to the issue of deciding whether the NCLT correctly exercised the jurisdiction vested in it, in the facts of this case, to stay the termination of the PPA. In the absence of an explicit stand taken by the legislature, this Court‘s intervention in this matter would be guided by ascertaining the legislative intention from the provisions of the IBC.

# 159. In contrast, this Court‘s judgment in Embassy Property (supra), concluded that the non-renewal of a mining lease was not within the ambit of Section 14. The Explanation to Section 14(1) was added by Parliament to make the position clear, on whether the moratorium under Section 14 included government licenses, grants, permits, quotas and concessions.

# 161. The inclusion of the Explanation to Section 14(1) and Section 14(2A) indicates that Parliament has been amending the IBC to ensure that the status of a corporate debtor as a’‗going concern‘ is not hampered on account of varied situations, which may not have been in contemplation at the time of enacting the IBC. It will be relevant to note that in a recent three judge Bench decision of this Court in P Mohanraj vs Shah Brothers Ispat Pvt. Ltd. Justice Rohinton Fali Nariman, speaking for the Court, expounded upon the object of Section 14 in the following terms:

• “…the object of a moratorium provision such as Section 14 is to see that there is no depletion of a corporate debtor’s assets during the insolvency resolution process so that it can be kept running as a going concern during this time, thus maximising value for all stakeholders. The idea is that it facilitates the continued operation of the business of the corporate debtor to allow it breathing space to organise its affairs so that a new management may ultimately take over and bring the corporate debtor out of financial sickness, thus benefitting all stakeholders, which would include workmen of the corporate debtor.”

# 163. Although various provisions of the IBC indicate that the objective of the statute is to ensure that the corporate debtor remains a ‘going concern‘, there must be a specific textual hook for the NCLT to exercise its jurisdiction. The NCLT cannot derive its powers from the ‘spirit‘ or ‘object‘ of the IBC. Section 60(5)(c) of the IBC vests the NCLT with wide powers since it can entertain and dispose of any question of fact or law arising out or in relation to the insolvency resolution process. We hasten to add, however, that the NCLT‘s residuary jurisdiction, though wide, is nonetheless defined by the text of the IBC. Specifically, the NCLT cannot do what the IBC consciously did not provide it the power to do.

# 164. In this case, the PPA has been terminated solely on the ground of insolvency, which gives the NCLT jurisdiction under Section 60(5)(c) to adjudicate this matter and invalidate the termination of the PPA as it is the forum vested with the responsibility of ensuring the continuation of the insolvency resolution process, which requires preservation of the Corporate Debtor as a going concern. In view of the centrality of the PPA to the CIRP in the unique factual matrix of this case, this Court must adopt an interpretation of the NCLT‘s residuary jurisdiction which comports with the broader goals of the IBC.

# 165. Given that the terms used in Section 60(5)(c) are of wide import, as recognized in a consistent line of authority, we hold that the NCLT was empowered to restrain the appellant from terminating the PPA. However, 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 matter‘s unique factual matrix). 

#166. The terms of our intervention in the present case are limited. Judicial intervention should not create a fertile ground for the revival of the regime under Section 22 of SICA which provided for suspension of wide-ranging contracts. Section 22 of the SICA cannot be brought in through the back door. The basis of our intervention in this case arises from the fact that if we allow the termination of PPA which is the sole contract of the corporate debtor, governing the supply of electricity which it generates, it will pull the rug out from under CIRP, making the corporate death of the corporate debtor a foregone conclusion.”   (emphasis supplied)

# 173. In conclusion, we hold that:

• (i) The NCLT/NCLAT could have exercised jurisdiction under section 60(5)(c) of the IBC to stay the termination of the PPA by the appellant, since the appellant sought to terminate the PPA under Article 9.2.1(e) only on account of the CIRP being initiated against the Corporate Debtor;

• (ii) The NCLT/NCLAT correctly stayed the termination of the PPA by the appellant, since allowing it to terminate the PPA would certainly result in the corporate death of the Corporate Debtor due to the PPA being its sole contract; and

• (iii) We leave open the broader question of the validity/invalidity of ipso facto clauses in contracts for legislative intervention.

Consequently, for the above reasons we find no merit in this appeal and it is accordingly dismissed.

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