# GUJARAT URJA VIKAS NIGAM LIMITED v. MR. AMIT GUPTA & ORS

- **Citation:** [2021] 13 S.C.R. 611
- **Court:** Supreme Court of India
- **Decided:** 2021-03-08
- **Case number:** Civil Appeal No. 9241 of 2019
- **Bench:** Dr. Dhananjaya Y Chandrachud, M. R. Shah
- **Source:** https://unisonlegal.in/judgment/supreme-court-of-india/gujarat-urja-vikas-nigam-limited-v-mr-amit-gupta-ors-35286
- **Pages:** 126

## Headnote

Insolvency and Bankruptcy Code, 2016 - ss. 10, 31, 60(5),
61, 238 - Power Purchase Agreement - Corporate Insolvency
Resolution Process - Jurisdiction of NCLT over contractual dispute
- The appellant allocated a 25-megawatt capacity to the Corporate
Debtor for developing and setting up a solar photovoltaic based
power project - The appellant and the corporate debtor entered
into a PPA on 30.04.2010, according to which the appellant was to
purchase all the power generated by the corporate debtor - Due to
floods and heavy rainfall in 2015 then again in 2017, Plant was
severely damaged - Resultantly, it was only able to operate at 1015% of its original capacity - Corporate debtor intimated the
appellant regarding cause for failure in its performance under the
PPA, and to confirm that this event may be treated as a Force Majeure
Event - The second respondent (Bank) declared the Corporate
Debtor to be an NPA - Corporate Debtor filed a petition in the
NCLT u/s 10 of IBC, pursuant to which NCLT commence the CIRP
and issued an order of moratorium - First respondent was appointed
as the Interim Resolution Professional - Appeal was filed against
the said order in the NCLAT, same was dismissed - The appellant
issued two notices of default to the corporate debtor expressing
their intention to terminate the PPA - Thereafter, the first and second
respondents approached NCLT by filing applications u/s. 60(5) of
the IBC in regard to the notices issued by the appellant to the
corporate debtor, and sought an injunction restraining the appellant
from terminating the PPA - NCLT restrained the appellant from
terminating the PPA and sets aside the First Notice - NCLAT dismissed
the appeal filed against the order of NCLT - Issue arose for
determination before the Supreme Court - Whether the NCLT/NCLAT
can exercise jurisdiction under IBC over disputes arising from
contracts such as the PPA - Held: Neither NCLT nor NCLAT in its
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decision specifically examine the issue of its jurisdiction u/s. 60(5)(c)
of the IBC - The institutional framework under the IBC contemplates
the establishment of a single forum to deal with matters of insolvency,
which were distributed earlier across multiple fora - The corporate
debtor would have to file and/or defend multiple proceedings in
different fora and these proceedings may cause undue delay in the
insolvency resolution process - Therefore, considering s. 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 - The nexus with the insolvency of the corporate debtor
must exist - In the present case, the PPA was terminated solely on
the ground of insolvency, therefore, in the absence of the insolvency
of the corporate debtor, there would be no ground to terminate the
PPA - 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 - Since, the dispute in the instant case has arisen solely
on the ground of the insolvency of the corporate debtor, NCLT is
empowered to adjudicate this dispute u/s. 60(5)(c) of the IBC.
Insolvency and Bankruptcy Code, 2016 - Right of Appellant
to terminate Power Purchase Agreement - 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 - Held: In accordance with Article 9.3.1 of
PPA, the appellant, on the occurrence of an Event of Default
u/Article 9.2.1, can issue a default notice which shall specify in
reasonable detail the Event of Default giving rise to the default
notice, and call upon the Corporate Debtor to remedy it - At the
expiry of 30 days from such notice, unless otherwise agreed, if the
default

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[2021] 13 S.C.R. 611
611
GUJARAT URJA VIKAS NIGAM LIMITED
v.
MR. AMIT GUPTA & ORS.
(Civil Appeal No. 9241 of 2019)
MARCH 08, 2021
[DR. DHANANJAYA Y CHANDRACHUD AND
M. R. SHAH, JJ.]
Insolvency and Bankruptcy Code, 2016 - ss. 10, 31, 60(5),
61, 238 - Power Purchase Agreement - Corporate Insolvency
Resolution Process - Jurisdiction of NCLT over contractual dispute
- The appellant allocated a 25-megawatt capacity to the Corporate
Debtor for developing and setting up a solar photovoltaic based
power project - The appellant and the corporate debtor entered
into a PPA on 30.04.2010, according to which the appellant was to
purchase all the power generated by the corporate debtor - Due to
floods and heavy rainfall in 2015 then again in 2017, Plant was
severely damaged - Resultantly, it was only able to operate at 1015% of its original capacity - Corporate debtor intimated the
appellant regarding cause for failure in its performance under the
PPA, and to confirm that this event may be treated as a Force Majeure
Event - The second respondent (Bank) declared the Corporate
Debtor to be an NPA - Corporate Debtor filed a petition in the
NCLT u/s 10 of IBC, pursuant to which NCLT commence the CIRP
and issued an order of moratorium - First respondent was appointed
as the Interim Resolution Professional - Appeal was filed against
the said order in the NCLAT, same was dismissed - The appellant
issued two notices of default to the corporate debtor expressing
their intention to terminate the PPA - Thereafter, the first and second
respondents approached NCLT by filing applications u/s. 60(5) of
the IBC in regard to the notices issued by the appellant to the
corporate debtor, and sought an injunction restraining the appellant
from terminating the PPA - NCLT restrained the appellant from
terminating the PPA and sets aside the First Notice - NCLAT dismissed
the appeal filed against the order of NCLT - Issue arose for
determination before the Supreme Court - Whether the NCLT/NCLAT
can exercise jurisdiction under IBC over disputes arising from
contracts such as the PPA - Held: Neither NCLT nor NCLAT in its
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decision specifically examine the issue of its jurisdiction u/s. 60(5)(c)
of the IBC - The institutional framework under the IBC contemplates
the establishment of a single forum to deal with matters of insolvency,
which were distributed earlier across multiple fora - The corporate
debtor would have to file and/or defend multiple proceedings in
different fora and these proceedings may cause undue delay in the
insolvency resolution process - Therefore, considering s. 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 - The nexus with the insolvency of the corporate debtor
must exist - In the present case, the PPA was terminated solely on
the ground of insolvency, therefore, in the absence of the insolvency
of the corporate debtor, there would be no ground to terminate the
PPA - 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 - Since, the dispute in the instant case has arisen solely
on the ground of the insolvency of the corporate debtor, NCLT is
empowered to adjudicate this dispute u/s. 60(5)(c) of the IBC.
Insolvency and Bankruptcy Code, 2016 - Right of Appellant
to terminate Power Purchase Agreement - 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 - Held: In accordance with Article 9.3.1 of
PPA, the appellant, on the occurrence of an Event of Default
u/Article 9.2.1, can issue a default notice which shall specify in
reasonable detail the Event of Default giving rise to the default
notice, and call upon the Corporate Debtor to remedy it - At the
expiry of 30 days from such notice, unless otherwise agreed, if the
default has not been remedied, the appellant can terminate the PPA
- In the instant case, it is the sole contract for the sale of electricity
which was entered into by the corporate debtor - The PPA was
terminated solely on the ground of insolvency, which gives the NCLT
jurisdiction u/s. 60(5)(c) to adjudicate this matter and invalidate
the termination of the PPA - NCLT 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 - The NCLT/NCLAT correctly stayed the
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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.
Interpretation of Statutes - Textually similar language in
different enactments has to be construed in the context and scheme
of the statute in which the words appear - The meaning and content
attributed to statutory language in one enactment cannot in all
circumstances be transplanted into a distinct, if not, alien soil - It is
trite law that the words of a statute have to be construed in a manner
which would give them a sensible meaning which accords with the
overall scheme of the statute, the context in which the words are
used and the purpose of the underlying provision - Insolvency and
Bankruptcy Code - sec. 60(5) - Companies Act, 1956 - 446(2).
Ipso Facto Clause - Validity of - Discussed
Dismissing the appeal, this Court
HELD: Jurisdiction of the NCLT/NCLAT over contractual
disputes
1. 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. The IBC was a reform
which was distilled through many committee reports, most
importantly the Report of the BLRC, which recommended that
the earlier institutional framework relating to the winding up and
liquidation of the companies should continue under the IBC. The
institutional framework under the IBC contemplated the
establishment of a single forum to deal with matters of insolvency,
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which were distributed earlier across multiple fora. In the absence
of a court exercising exclusive jurisdiction over matters relating
to insolvency, the corporate debtor would have to file and/or
defend multiple proceedings in different fora. These proceedings
may cause undue delay in the insolvency resolution process due
to multiple proceedings in trial courts and courts of appeal. A
delay in completion of the insolvency proceedings would diminish
the value of the debtor's assets and hamper the prospects of a
successful reorganization or liquidation. For the success of an
insolvency regime, it is necessary that insolvency proceedings
are dealt with in a timely, effective and efficient manner. Pursuing
this theme in Innoventive this court observed that one of the
important objectives of the Code is to bring the insolvency law in
India under a single unified umbrella with the object of speeding
up of the insolvency process. The principle was reiterated in
Arcelor Mittal where this court held that the non-obstante Clause
in Section 60(5) is designed for a different purpose: to ensure
that the NCLT alone has jurisdiction when it comes to applications
and proceedings by or against a corporate debtor covered by the
Code, making it clear that no other forum has jurisdiction to
entertain or dispose of such applications or proceedings .
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. [Para 57, 66 & 67][666-D-F;
671-B-C; 672-B-H]
2. In the present case, the PPA was terminated solely on
the ground of insolvency, since the event of default contemplated
under Article 9.2.1(e) was the commencement of insolvency
proceedings against the Corporate Debtor. In the absence of the
insolvency of the Corporate Debtor, there would be no ground to
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terminate the PPA. The termination is not on a ground
independent of the insolvency. The present dispute solely arises
out of and relates to the insolvency of the Corporate Debtor. 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. [Para 69 & 72][673-E-F; 675-A-C]
Jurisdiction of NCLT and GERC
3. Section 238 of the IBC stipulates that IBC would
override other laws, including an instrument having effect by virtue
of any such law. The NCLT in its decision dated 29 August 2019
gave detailed findings on the issue of whether the PPA is an
instrument within the meaning of section 238 of the IBC. It has
been urged on behalf of the appellant that Section 238 does not
apply to a bilateral commercial contract between a Corporate
Debtor and a third party and only applies to statutory contracts
or instruments entered into by operation of law. The basis of this
submission is that the word instrument should be given a meaning
ejusdem generis to the provision contained in any other law. We
do not find force in this argument. Section 238 does not state
that the instrument must be entered into by operation of law;
rather it states that the instrument has effect by virtue of any
such law. In other words, the instrument need not be a creation
of a statute; it becomes enforceable by virtue of a law. Therefore,
we are inclined to agree with the view taken by the NCLT. Section
238 is prefaced by a non-obstante clause. NCLT's jurisdiction
could be invoked in the present case because the termination of
the PPA was sought solely on the ground that the Corporate
Debtor had become subject to an insolvency resolution process
under the IBC. [Para 77 & 78][677-A-B; 678-F-H; 679-A-B]
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4. 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. This Court 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. [Para 87][686-C-F]
Validity of ipso facto clauses
5. Before analyzing the validity of the termination of the
PPA by the appellant under Articles 9.2.1(e) and 9.3.1 in the
present case, it is important to contextualize it within the larger
debate on this issue. Globally, ipso facto clauses arise in a variety
of contracts. Ipso facto clauses are contractual provisions which
allow a party ("terminating party") to terminate the contract with
its counterparty ("debtor") due to the occurrence of an 'event of
default'. In the context of insolvency law, in some of these ipso
facto clauses, the 'event of default' includes applying for
insolvency, commencement of insolvency proceedings,
appointment of insolvency representative, et al. The United
Nations Commission on International Trade Law released its
Legislative Guide on Insolvency Law in 2004. The validity of
such ipso facto clauses has been considered in a global
perspective by international organizations and in the domestic
jurisdictions of nation-states in their national insolvency laws. As
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India develops into a responsive member of the international
community, our laws cannot afford to be inward-looking. In 2005,
the Report of the Expert Committee on Company Law headed
by J.J. Irani noted the requirement of reforms in the Indian
insolvency regime, specifically citing the lessons from the recently
published UNCITRAL Guide. The Committee noted the need to
invalidate ipso facto clauses so as to prevent the value of a
Corporate Debtor's assets from becoming diluted during the
insolvency process. However, this invalidation was to be subject
to exceptions, keeping in mind the compelling, commercial, public
or social interest in upholding the contractual rights of the counter
party to the contract. [Paras 88, 130 & 131][686-F-H; A, C-E;
714-E-F; 715-D-E]
6. However, as is evident, this recommendation was never
directly embodied legislatively since the current IBC contains
no clear-cut provision which invalidates ipso facto clauses. In fact,
the issue of the invalidation of ipso facto clauses was noted in a
December 2018 report titled 'Insolvency and Bankruptcy Code:
The journey so far and the road ahead' issued by Vidhi Centre
for Legal Policy. The report notes that the IBC "does not per se
prohibit the operation of ipso facto clauses during insolvency
proceedings. However, Section 14 provides for a limited
exception prohibiting the termination, suspension or interruption
of specified "essential goods or services" (i.e. water, electricity,
telecommunication services and information technology services
to the extent they are not direct inputs to the output produced or
supplied by the corporate debtor), and also provides relief to the
corporate debtor from the recovery of any property by an owner
or lessor during the moratorium". As a solution, the report
recommends a conditional stay on the operation of ipso facto
clauses, beginning from the insolvency commencement date, since
"a complete stay on the operation of ipso facto clauses would
constitute a serious restraint on the freedom of contract and would
effectively compel suppliers to perform contracts even when such
an action is against their commercial interests". In relation to
the implementation of this solution, the report suggests the
insertion of a new provision to the IBC. More recently, however,
the IBC was amended by the Insolvency and Bankruptcy Code
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(Amendment) Act, 2020 which, inter alia, introduced an
Explanation to Section 14(1). [Para 132 & 133][715-E-H;
716-A-C]
7. The position of law in India today invalidates ipso facto
clauses in:
(i) Government licenses, permits, registrations, quotas,
concessions, clearances or a similar grant or right given by the
Central Government, State Government, local authority, sectoral
regulator or any other authority constituted under any other law
for the time being in force, in accordance with the Explanation to
Section 14(1);
(ii) and Contracts where the counter-party supplies
essential/critical goods and services to the Corporate Debtor,
within the meaning of Sections 14(2) and 14(2A).
However, no clear position emerges in relation to the
validity of ipso facto clauses in other contracts, from the bare
text of the IBC. Hence, this task is now left to this Court in the
present case. [Para 135][718-E-H]
8. In performing duties as members of the judicial branch
in this case, this Court must tread a fine line between providing
a just decision while not entering into the domain of the legislature.
It has been already noted above that the invalidation of ipso facto
clauses seems to have occurred through legislative intervention.
Although, in certain jurisdictions, there have been a few judicial
decisions which have given an expansive interpretation to the
legislative text, in order to invalidate ipso facto clauses (and their
variations) which have not been explicitly barred by the
legislature, these decisions have often been issued in order to
give effect to legislative policy, intent and purpose of the
insolvency regime. In countries like the Republic of Korea, where
it is yet to happen legislatively, it is recommended. In others like
the UK, Lord Mance in his concurring opinion in Belmont Park
(supra) has noted that it should happen only legislatively, and not
through the intervention of the court. Consequently, this Court
holds that question of the validity/invalidity of ipso facto clauses
is one which the court ought not to resolve exhaustively in the
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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. [Paras 138, 139 & 143][720-A-D;
721-F]
Appellant's right to terminate the PPA in the present case
9. Article 9.1 of the PPA clarifies that the PPA shall become
effective upon the execution and delivery thereof by the parties
and shall remain in operation for a period of 25 years. Article
9.2.1 enumerates the Events of Default by the Corporate Debtor,
within which Article 9.2.1(e) states that the Corporate Debtor
becoming voluntarily or involuntarily, the subject of a proceeding
in any bankruptcy or insolvency laws, constitutes an Event of
Default. The exception to this clause is triggered where
dissolution of the Corporate Debtor is for the purpose of a merger,
consolidation or reorganization and where the resulting entity
has the financial standing to perform its obligations under PPA
and creditworthiness. In accordance with Article 9.3.1, the
appellant, on the occurrence of an Event of Default under Article
9.2.1, can issue a Default Notice which shall specify in reasonable
detail the Event of Default giving rise to the default notice, and
call upon the Corporate Debtor to remedy it. At the expiry of 30
days from such notice, unless otherwise agreed, if the default
has not been remedied, the appellant can terminate the PPA.
Further, the Corporate Debtor shall have the liability to make
payments towards compensation to the appellant which is
equivalent to three years' billing based on the first-year tariff
considered on normative PLF while determining the tariff by
GERC, within 30 days from the termination notice. In accordance
with Article 10.4, when differences or disputes between the parties
are not settled through mutual negotiation within 60 days of the
dispute arising, it shall be adjudicated by the State Commission,
in accordance with Law. [Para 148 & 149][722-F-H; 723-D-F]
Validity of the termination of PPA
10. As discussed above, the broader question of the validity
of ipso facto clauses has been the subject matter of sustained
legislative intervention in many jurisdictions. This is an intricate
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policy determination, for it raises a series of questions about
striking the appropriate balance between contractual freedom
on the one hand and corporate rescue on the other. We are
cognizant that any rule that we might craft, howsoever narrow,
could have a series of unintended second order effects, in terms
of opening the floodgates for intervention from the NCLT that
might impinge upon contractual freedom of the terminating party.
Further, the comparative experience also teaches us that, given
that the invalidation of ipso facto clauses can unsettle the interests
that contractual relationships are founded upon, some jurisdictions
that have invalidated such clauses have done so in a cautious,
prospective fashion. This ensures that while the policy of the
insolvency law is brought into tandem with the global regimes, it
does not affect the contractual rights of those parties who could
not have reasonably accounted for this change in position while
negotiating their contractual terms. Such an approach is an
evidence and recognition of the harmful effects on commercial
stability that such encroachment into contractual freedom can
generate, even when done legislatively after careful deliberation.
The question of the validity/invalidity of ipso facto clauses has
been discussed in a variety of documents over the years, such
as: (a) UNCITRAL Guide of 2004; (b) J.J. Irani Committee
Report of 2005; (c) Vidhi's Report of 2018 critiquing the IBC;
and (d) IBBI's Report of 2020, which acknowledges the issue of
ipso facto clauses in relation to government grants. All these
materials were available to the members of the various
committees which discussed the IBC. Further, suspension of
contracts during insolvency was specifically allowed under Section
22(3) of SICA, which was the erstwhile statutory regime.
Parliament would have been conscious of the provision which
was adopted in the SICA. Yet, no concrete position has been
adopted in relation to the termination of ipso facto clauses by the
legislature under the IBC. In the absence of an express
prohibition by the legislature, it can be argued that there is no
general embargo on the operation of such clauses if they are part
of a valid contract under the Contract Act. [Paras 153 & 154]
[724-G-H; 725-A-E; 726-B-C]
11. At the same time, this Court cannot lose sight of the
fact that this Court is apprised with a novel situation where the
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'going concern' status of a corporate debtor will be negated by a
termination of its sole contract, on the basis of an ipso facto clause.
It is pertinent to note that the IBC has been in effect from 5
August 2016, and has also been amended multiple times. Hence,
if the 'going concern' status of corporate debtors was being
affected on a regular basis due to ipso facto clauses (which are in
vogue even in the present contracts similar to the current PPA),
then the legislature may, if it considered necessary, have
proceeded to legislate on an explicit position with regard to the
operation of ipso facto clauses. 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. 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.
[Paras 155 & 163][726-C-G; 731-B-C]
12. 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
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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. Sir P.B.
Maxwell in his commentary, On Interpretation of Statutes 129,
has emphasized that a provision should be given an harmonious
interpretation which comports with the intention of the
Legislature. Given that the terms used in Section 60(5)(c) are of
wide import, as recognized in a consistent line of authority, this
Court holds 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). [Paras 164 &
165][731-D-F; 732-C-F]
13. The terms of 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
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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 the 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 the CIRP, making
the corporate death of the Corporate Debtor a foregone
conclusion. The Court is at its heart, an institution which responds
to concrete cases brought before it. It is not within its province
to engraft into law its views as to what constitutes good policy.
This is a matter falling within the legislature's remit. Equally,
when presented with a novel question on which the legislature
has not yet made up its mind, we do not think this Court can sit
with folded hands and simply pass the buck onto the Legislature.
In such an event, the Court can adopt an interpretation - a
workable formula - that furthers the broad goals of the concerned
legislation, while leaving it up to the legislature to formulate a
comprehensive and well-considered solution to the underlying
problem. To aid the legislature in this exercise, this Court can
put forth its best thinking as to the relevant considerations at
play, the position of law obtaining in other relevant jurisdictions
and the possible pitfalls that may have to be avoided. It is through
the instrumentality of an inter-institutional dialogue that the
doctrine of separation of powers can be operationalized in a
nuanced fashion. It is in this way that the Court can tread the
middle path between abdication and usurpation. [Paras 166 &
170][732-G-H; 734-C-F]
NCLAT's decision on the issue of liquidation
14. NCLT in paragraph 35 of its order dated 29 August
2019 upheld the right of the appellant to terminate the PPA, in
case a liquidation process is initiated against the Corporate
Debtor. The appellant had neither challenged this issue in its
appeal before NCLAT nor was it raised by any other party.
However, the NCLAT deleted the observations made by the
NCLT in paragraph 35, thereby holding that the appellant cannot
terminate the PPA even if the Corporate Debtor goes into
liquidation. Since no pleadings or prayers were made in relation
to paragraph 35 of NCLT's order, NCLAT could not have
considered this issue as a subject matter of the appeal. This Court
GUJARAT URJA VIKAS NIGAM LTD. v. MR. AMIT GUPTA & ORS.
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holds that the NCLAT exceeded its jurisdiction by considering
the issue of liquidation. In the absence of any liquidation
proceedings initiated against the Corporate Debtor, this Court
is not required to consider the issue of whether the appellant
would be entitled to terminate the contract in such a context.
Such a discussion would be academic in nature, and beyond the
scope of this appeal. [Para 171][734-F-G; 735-A-C]
Union of India vs R. Gandhi, President, Madras Bar
Association (2010) 11 SCC 1 : [2010] (6) SCR 857;
Rai Sahib Ram Jawaya Kapur vs State of Punjab (1955)
2 SCR 225; Kesavananda Bharati vs State of Kerala
(1973) 4 SCC 225 : [1973] (0) Suppl. SCR 1 - followed.
Sudharshan Chits (I) Ltd. vs O Sukumaran Pillar (1984)
4 SCC 657 : [1985] (1) SCR 511; Thampanoor Ravi vs
Charupara Ravi (1999) 8 SCC 74 : [1999] (2) Suppl.
SCR 419; Dhirendra Chandra Pal vs Associated Bank
of Tripura Ltd. AIR 1955 SC 213 : [1955] SCR 1098;
D.R. Kohli vs Atul Products Ltd. (1985) 2 SCC 77 :
[1985] (2) SCR 832; P Mohanraj vs Shah Brothers Ispat
Pvt. Ltd. Civil Appeal No. 10355 of 2018 decided on 1
March 2021 - relied on.
Municipal Corporation vs Abhilash Lal (2020) 13 SCC
234 : [2019] (14) SCR 659; Embassy Property
Developments (Private) Limited vs State of Karnataka
(2020) 13 SCC 308 : [2019] (17) SCR 559 -
distinguished.
Johri Lal Soni vs Bhanwari Bai (1977) 4 SCC 59 :
[1978] (1) SCR 231; Swiss Ribbons Private Limited vs
Union of India (2019) 4 SCC 17 : [2019] (3) SCR 535;
Ashoka Marketing vs PNB 1990 (4) SCC 406 : [1990]
(3) SCR 649; Renusagar Power Co. Ltd. vs General
Electric Company (1984) 4 SCC 679 : [1985] (1) SCR
432; Mansukhlal Dhanraj Jain vs Eknath Vithal Ogale
(1995) 2 SCC 665 : [1995] (1) SCR 996; Doypack
System (P) Ltd. vs Union of India (1988) 2 SCC 299 :
[1988] (2) SCR 62; Madras Petrochem Limitted. vs BIFR
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(2016) 4 SCC 1 : [2016] (11) SCR 419; Innoventive
Industries vs ICICI Bank (2018) 1 SCC 407 : [2017]
(8) SCR 33; Arcelor Mittal (India) (Private) Limited. vs
Satish Kumar Gupta (2019) 2 SCC 1 : [2018] (12) SCR
362; Committee of Creditors of Essar Steel India Limited
vs Satish Kumar Gupta (2020) 8 SCC 531 : [2019] (16)
SCR 275; Remdeo Chauhan vs Bani Kant Das (2010)
14 SCC 209 : [2010] (15) SCR 957; A. Deivendran vs
State of T.N. (1997) 11 SCC 720 : [1997] (4) Suppl. SCR
591; Chandos Construction Ltd. vs Deloitte
Restructuring Inc. 2020 SCC 25; Northern Securities
Company vs United States 1904 SCC OnLine US SC
63 : 24 S.Ct. 436; S. Sukumar vs The Secretary, Institute
of Chartered Accountants of India (2018) 14 SCC 360
: [2018] (2) SCR 442 - referred to.
Riggs National Bank of Washington, D.C. v. John Gillis
Perry, Jr., in Re John Gillis Perry, Jr., Debtor, 729
F.2d 982 (4th Cir. 1984)n(Court of Appeals for the
Fourth Circuit); Belmont Park Investments Pty Ltd and
others vs BNY Corporate Trustee Services Ltd and
another (Revenue and Customs Comrs and another
intervening) [2011] 3 W.L.R. 521; Fibria Celulose S/A
v Pan Ocean Co Ltd vs Fibria Celulose S/A Chancery
Division [2014] Bus. L.R. 1041 - referred to.
Case Law Reference
[2019] (17) SCR 559
distinguished
Para 33
[2019] (3) SCR 535
referred to
Para 34
[2019] (14) SCR 659
distinghuished
Para 36
[1990] (3) SCR 649
referred to
Para 40
[1985] (1) SCR 432
referred to
Para 48
[1995] (1) SCR 996
referred to
Para 49
[1988] (2) SCR 62
referred to
Para 50
[2016] (11) SCR 419
relied on
Para 56
[2017] (8) SCR 33
referred to
Para 56
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[2018] (12) SCR 362
referred to
Para 56
[1985] (1) SCR 511
relied on
Para 58
[1999] (2) Suppl. SCR 419
referred to
Para 60
[1955] SCR 1098
relied on
Para 62
[2010] (6) SCR 857
followed
Para 65
[2019] (16) SCR 275
referred to
Para 80
[2010] (15) SCR 957
referred to
Para 81
[1985] (2) SCR 832
relied on
Para 82
[1997] (4) Suppl. SCR 591
referred to
Para 83
[1978] (1) SCR 231
referred to
Para 84
2020 SCC 25
referred to
Para 119
(1955) 2 SCR 225
followed
Para 136
[1973] (0) Suppl. SCR 1
followed
Para 137
[2018] (2) SCR 442
referred to
Para 168
CIVIL APPELLATE JURISDICTION: Civil Appeal No. 9241
of 2019.
From the Judgment and Order dated 15.10.2019 of the National
Law Appellate Tribunal at New Delhi in Company Law Appeal (AT)
(Insolvency) No. 1045 of 2019.
Shyam Divan, Ramji Srinivasan, C.U. Singh, Nakul Dewan, V.
Giri, Sr. Adv., Ms. Hemantika Wahi, Ms. Ranjitha Ramachandran, Ms.
Jesal Wahi, Vinayak Bhandari, Shubham Arya, Ms. Srishti Khanderia,
Ravi Nair, Prithu Garg, Shailendera Singh, Siddharth Mehta, Ms.
Harimohana N., Ms. Athira Sankar, Raghav Tankha, Rajat Sehgal, Ms.
Pooja Mahajan, Ms. Mahima Singh, S. Mahajan, Ms. Neelu Mohan,
Ms. Ila Sheel, Ritesh Kumar, Ashish Rana, Avinash B. Amarnath, Ashok
Kumar Singh, Ms. Pragya Singh, Shantwanu Singh, Vikram Jain,
Abhishek Paruthi, S. S. Shroff, Atul Sharma, Abhishek Sharma, Ms.
Ashly Cherian, Ms. Anisha Mahajan, Ms. Harshita Agarwal, Gautam
Talukdar, Advs. for the appearing parties.
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The Judgment of the Court was delivered by
DR. DHANANJAYA Y CHANDRACHUD, J.
This judgment has been divided into sections to facilitate analysis.
They are:
A
The appeal
B
The genesis of the PPA
C
Initiation of CIRP
D
Termination of the PPA
E
Proceedings before NCLT and NCLAT
F
Proceedings by the Successful Resolution Applicant
G
Submissions of counsel
G.1
Submissions on behalf of the appellant
G.2
Submissions on behalf of the respondents
H
Issues arising from the dispute
I
Jurisdiction of the NCLT/NCLAT over contractual disputes
I.1
Section 60(5)(c): "arising out of" and "in relation to"
I.2
Jurisdiction of NCLT and GERC
I.3
Residuary jurisdiction of the NCLT under Section
60(5)(c)
J
Validity of ipso facto clauses
J.1
Position of international and multilateral organisations
J.2
National jurisdictions
J.3
Position in India
K
Appellant's right to terminate the PPA in the present case
K.1
Analysis of the PPA
K.2
Validity of the termination of PPA
K.3
Dialogical Remedies
L
NCLAT's decision on the issue of liquidation
M
Appellant's liability to pay for the electricity interjected by
the Corporate Debtor
N
Conclusion
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A The appeal
1. By its judgment dated 29 August 2019, the National Company
Law Tribunal1 stayed the termination by the appellant of its Power
Purchase Agreement2 with Astonfield Solar (Gujarat) Private Limited3.
The order of the NCLT was passed in applications4 moved by the
Resolution Professional of the Corporate Debtor5 and Exim Bank6 under
Section 60(5) of the Insolvency and Bankruptcy Code, 20167. 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.
B The genesis of the PPA
3. The narrative of this case begins with the Government of Gujarat
notifying the Solar Power Policy, 20099 on 6 January 2009, for development
of Solar Power projects in the state. The appellant, a Government of
Gujarat undertaking, is a successor to the Gujarat Electricity Board, and
is also the holding company of all the State Power Utilities in Gujarat.
4. On 1 August 2009, the Government of Gujarat allocated a 25megawatt capacity to the Corporate Debtor for developing and setting
up a solar photovoltaic based power project in the State of Gujarat. The
Corporate Debtor expressed its desire to setup a 'Solar Photovoltaic
Grid Interactive Power Plant'10 of 10-megawatt capacity and exercised
its option for sale of the entire electrical energy produced from the plant
to the appellant for commercial purposes.
1 "NCLT" or "Adjudicating Authority"
2 "PPA"
3 "third respondent" or "Corporate Debtor"
4 CA No. 701/2019 (first respondent); CA No. 700/2019 (second respondent)
5 "first respondent" or "RP"
6 "second respondent"
7 "IBC"
8 "appellant" or "GUVNL"
9 "Policy"
10 "Plant"
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5. In exercise of its powers under Sections 61(h), 62 and 86 of the
Electricity Act, 200311, the Gujarat Electricity Regulatory Commission12
published a draft tariff order for purchase of solar energy, inviting
comments and suggestions from members of the public and stakeholders.
Public hearings were held by the State Commission on the price at which
power could be procured.
6. After the process of public hearings and consultations, a Tariff
Order dated 29 January 201013 was issued by the State Commission for
procurement of power by the appellant from power producers, under
Section 86(1)(a) of Electricity Act. The tariff was determined on the
basis of the then prevailing capital and financing costs, and debt equity
ratio.