School of Law, NarseeMonjee Institute of

Management Studies, Bengaluru

Case Name- Gujarat Urja Vikas Nigam Limited vs. Amit Gupta: case
analysis

Submitted by:
Parichaya Reddy (81021219018)
Course:BBA, LL. B (Hons.)
Year & Semester: V Year, IX Semester

Submitted to:
Prof. Kush Kalra
(Professor for Insolvency and Bankruptcy Code)
Facts Of the Case-

On April 30, 2010, Gujarat Urja Vikas Nigam Ltd. (GUVNL) and Astonfield Solar Pvt Ltd. (the
corporate debtor) entered into a power purchase agreement (PPA) wherein the corporate debtor
shall supply power to GUVNL. However, there were various disruptions in the production of
power by the corporate debtor. Most notably, in 2015, due to heavy floods, the corporate debtor
was operating at 70% of full capacity, and in 2017, due to heavy floods, the corporate debtor was
operating at 15% of full capacity, leading to defaults and non-fulfilment of contractual
obligations. On May 4, 2018, the corporate debtor was declared a non-performing asset (NPA)
by the lenders. Subsequently, the corporate debtor filed for the initiation of the Corporate
Insolvency Resolution Process (CIRP), which was admitted by the NCLT on November 20,
2018. On May 1, 2019, GUVNL, in pursuance of Clause 9.2 of the PPA, issued a default notice
that, under Article 9.2.1(e) of the PPA, the CD was undergoing CIRP under the IBC, which
amounts to an event of default. GUVNL called upon the CD to remedy this default within 30
days from the date of receipt of the said notice. Further, the default notice specifically stated that
the PPA will be terminated if the corporate debtor does not cure the defaults mentioned in the
default notice. The resolution professional filed an application to the NCLT Ahmedabad bench
for restraining GUVNL from terminating the PPA.

Issues Raised
 Whether the NCLT/NCLAT can exercise jurisdiction under the IBC over disputes arising
from contracts such as the PPA?

 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?

Arguments by the Appellant

1. The Power Purchase Agreement (PPA) established a process for resolving issues related
to it, primarily through the State Commission. Therefore, the National Company Law
Tribunal (NCLT) lacks jurisdiction over matters concerning the PPA, and the corporate
debtor isn't authorized to approach the NCLT for such matters.
2. It's crucial to uphold the integrity of the contract. Even if NCLT has jurisdiction under
Section 60(5), it should align with the terms outlined in the PPA.
3. Beyond Section 14, there isn't any other provision in the Insolvency and Bankruptcy
Code (IBC) that allows interference with contracts.
 4. While the previous legislation, SICA, did permit such contract interference, the deliberate
exclusion of a similar provision in the IBC by Parliament should not be overridden
through interpretation by the court.
5. The primary objective of the IBC should not be misinterpreted to mean that it can
infringe upon the established rights of involved parties.
6. The corporate debtor chose to designate the appellant as the exclusive purchaser.
According to the Electricity Act, the corporate debtor can still provide electricity to
another consumer even after terminating the PPA.
7. Commercial bilateral agreements, like the PPA, do not fall within the scope of Section
238.
8. Section 86(1)(f) of the Electricity Act empowers the State Commission to resolve
disputes between licensees.

Arguments by the Respondents

1. The NCLT's jurisdiction cannot be challenged, as Section 60(5)(c) explicitly grants the
NCLT authority over any matters related to question of law or fact.
2. Section 60(5) should be interpreted in the broadest possible manner.
3. The termination of the PPA was solely due to the initiation of the Corporate Insolvency
Resolution Process (CIRP), making insolvency the underlying cause. In other words, the
termination was not justified by any other reasons, such as a breach of contract.
4. The provisions of the PPA can be superseded by Section 238 of the IBC.
5. Since the term "instrument" was never specifically defined in the IBC, it cannot be
argued that the PPA should be excluded from its scope.
6. Jurisdiction is conferred upon the NCLT once an application is accepted under Sections
7, 9, or 10.
7. The "non-obstante" clause of the Electricity Act would be overridden by Section 238, as
the IBC is subsequent legislation.
8. The rights granted to the corporate debtor should not be revoked due to the initiation of
the CIRP.
9. CIRP should not be considered a default and should be viewed as a reorganization
process.

Supreme Court’s Observation

 Jurisdiction of the NCLT/NCLAT Regarding Contractual Disputes

The Supreme Court pointed out that Section 60(5) of the IBC gives the NCLT the authority to
handle "any question of priorities or any question of law or facts arising out of or in relation to
the insolvency resolution or liquidation proceedings of the corporate debtor or corporate person
under the Code."
The IBC aimed to establish a single place to handle insolvency matters, which were previously
spread across various forums. It was established in the Arcelor Mittal vs. Satish Kumar Gupta
case that the NCLT is the exclusive authority for dealing with applications against the corporate
debtor in the IBC.

In this case, the Supreme Court emphasized that the NCLT's "residuary jurisdiction" should be
considered in conjunction with the entire IBC. Reading both together makes it clear that the
NCLT has the power under the IBC to decide legal or factual issues arising from or related to
insolvency resolution proceedings.

In clarifying the applicability of these provisions, the Supreme Court ruled that because
contractual disputes are connected to issues stemming from or related to insolvency resolution or
liquidation proceedings, the NCLT has the authority to settle such disputes. However, it's
important to note that the NCLT is still bound by the limitations outlined in the IBC.

 The NCLT's Residuary Jurisdiction as per Section 60(5)

The Supreme Court determined that the NCLT has significant authority to decide legal or factual
issues that arise from or are related to insolvency resolution proceedings. However, it was made
clear that this residual jurisdiction is always subject to the limitations outlined in the IBC and the
Companies Act, 2013. The NCLT cannot exercise authority in areas that are not covered by
either of these statutes, namely the Companies Act, 2013, or the IBC.

 Jurisdiction of NCLT and Gujarat State Electricity Regulatory Commission (GERC)

Section 86(1)(f) of the Electricity Act grants the GERC the authority to resolve disputes between
the generating company and the distributing licensee. However, in this specific case, the
corporate debtor was undergoing the Corporate Insolvency Resolution Process (CIRP), and the
dispute was related to the CIRP proceedings. The Supreme Court noted that the NCLT would
have jurisdiction to handle this matter. Additionally, Section 238 of the IBC specifies that the
IBC takes precedence over other laws to the extent of any inconsistencies.

 GUVNL’s Authority to Terminate the PPA

The Supreme Court noted that the corporate debtor's primary purpose was to provide electricity
to GUVNL as per the Power Purchase Agreement (PPA). While the PPA did grant GUVNL the
right to terminate it in the event of the Corporate Insolvency Resolution Process (CIRP), the
Supreme Court found that exercising such a right would have dire consequences. Terminating
the PPA would disrupt the corporate debtor's operations, making it no longer viable, which
would defeat the entire purpose of the IBC.
Regarding the NCLT's authority to prevent GUVNL from terminating the PPA, the Supreme
Court supported the NCLT's action. This decision was based on the understanding that the PPA
was crucial for the CIRP process and for keeping the corporate debtor operational as a viable
business. Moreover, the provisions of the IBC took precedence over the PPA, and the NCLT was
acting in line with enforcing the IBC's provisions.

Analysis:

This case sets an important precedent for future disputes, particularly for other tribunals apart
from NCLT/NCLAT that may encounter matters with insolvency aspects. In this instance, the
NCLT restrained GUVNL from exercising its rights as per the PPA. The court highlighted that
the IBC, as a specialized law enacted after the Electricity Act, takes precedence over the
Electricity Act when it comes to issues of fact and law related to the insolvency process. The
court correctly recognized the significance of the PPA for the corporate debtor since it was the
core reason for the company's existence and survival. This judgement carries a positive message
for the power sector, as similar clauses regarding events of default exist in many PPAs.
Developers, lenders, and investors have long been concerned that such clauses could pose
challenges if a company enters insolvency proceedings. If this dispute had been resolved by
Electricity Regulatory Commissions ("ERCs"), they would have been compelled to acknowledge
the rights granted under the PPA, potentially leading to adverse consequences, and undermining
the goals of the IBC.

However, the court has also issued a crucial caution to the NCLT and NCLAT, emphasizing that
they must avoid encroaching upon the legitimate jurisdiction of other courts, tribunals, and
forums when the dispute doesn't solely arise from or relate to the insolvency of the corporate
debtor. It’s essential to note that this analysis is meant to provide a general overview and should
not substitute for specialized advice tailored to specific circumstances.