Hiranmaye Energy Limited & Anr vs West Bengal Electricity ...
2021 Latest Caselaw 5527 Cal

                                    1

                     IN THE HIGH COURT AT CALCUTTA
                      CIVIL APPELLATE JURISDICTION
                             APPELLATE SIDE


      PRESENT:

      HON'BLE JUSTICE SUBRATA TALUKDAR
                      AND
      HON'BLE JUSTICE JAY SENGUPTA


                            MAT 626 of 2021
                                 With
                             CAN 1 of 2021

                    Hiranmaye Energy Limited & Anr.
                                   Versus
           West Bengal Electricity Regulatory Commission & Ors.



For the Appellants                : Mr. S.N. Mookherjee
                                    Mr. Ratnanko Banerjee
                                    Mr. Saunak Mitra
                                    Mr. Amitava Mitra
                                    Ms. Sayani Bhattacharyya

For the Respondents 3 & 4         : Mr. Sudipto Sarkar

Ms. Aishani Das Mr. D.K. Sarkar Mr. Saurav Panda Ms. Suhani Dwivedi Mr. Zeeshan Khan Mr. Deepanjan Dutta Roy Ms. Trisha Mukherjee

For the WBSEDCL : Ms. Debjani Mitra

For the State : Mr. Anirban Roy Mr. Raja Saha

Heard on : 17/08/2021

Judgment on : 07/10/2021

Subrata Talukdar, J.:

The narrow question which arises for consideration in this appeal is

simply this:

Whether the Corporate Creditors, i.e., the Respondents No. 3 and 4 to

this appeal (for short referred to only as R3 and R4), are required to wait any

further for the appellant No. 1/ the Company (for short hereinafter referred

to as the Appellant Company) to resolve the Review process initiated by the

Appellant Company seeking Review by the West Bengal Electricity

Regulatory Commission (for short hereinafter referred to only as the

Commission), of the Tariff Order of the Commission dated the 31st of May

2021?

If the answer to the aforesaid question is in the negative, both R3 and

R4 are within their rights to proceed with the application filed by R4 under

Section 7 of the Insolvency and Bankruptcy Code, 2016 (for short

hereinafter referred to only as the IBC) before the National Company Law

Tribunal, Kolkata (NCLT, Kolkata). If the answer to the question is in the

affirmative, then this Court, in exercise of its appellate jurisdiction under

Article 226 of the Constitution of India, can issue directions consistent with

an efficacious effort at resolution of the disputes, failing which the

proceedings under the IBC shall continue.

Before tackling the above referred question, it will be standard

protocol to refer to the essential aspects of the dispute.

First, the Appellant No.1/ the Company is a thermal power generating

enterprise which is in charge of operating two 150 MW. coal based thermal

power plants at Haldia in the State of West Bengal.

The proposed third power generating unit of the Appellant No.1/ the

Company is not the subject matter of this dispute.

In 2015, the Appellant No.1/ the Company obtained investments by

way of loans from R3 and R4 for all the three units. The first two units, i.e.

Unit I and Unit II, are already in commercial operation. The power is

supplied to the West Bengal State Electricity Distribution Limited

(WBSEDCL) on the basis of the tariff fixed by the Commission. Power

Purchase Agreement (PPA) was entered into by and between the Appellant

No.1/ the Company and the WBSEDCL, first on 28th of December, 2010 and

thereafter Supplementary Agreements were signed by the parties on 6th of

April, 2018 and 3rd of July, 2020. The provisional tariff arrangement by and

between the Appellant No.1/the Company and WBSEDCL has been in

operation pending a formal Tariff Order by the Commission. The provisional

Tariff Order has been approved by the Commission.

The Appellant No.1/ the Company, owing to financial stress,

approached R3 and R4 in April 2019 for restructuring their loans. The

restructuring proposal was sanctioned by R3 and R4 respectively in

September, 2020 and in January, 2021. The restructuring proposal was

sanctioned under the Prudential Framework for Resolution of Stressed

Assets as Notified by the Reserve Bank of India (for short referred to as the

said RBI Framework of 2019) in terms of Circular dated 7th of June 2019.

The restructuring plan having failed to take off, the same was visited

at a meeting of the Consortium of Lenders and the appellant Company (for

short hereinafter referred to as the said Consortium Meeting) on 17th of

February, 2021. It was, inter alia, agreed at the said Consortium Meeting

that the settlement of the tariff or, the Tariff Order of the Commission, is

crucial to the restructuring. The said Consortium Meeting, among its

decisions, required the Lenders to approach the Commission for an early

settlement of the tariff qua the Appellant No.1/ the Company.

By the Tariff Order dated the 31st of May, 2021, the Commission was

pleased to fix the tariff for the years 2018-2019 and 2019-2020. The

Appellant No. 1/ the Company having noticed arithmetical omissions which

amount to errors apparent on the face of the record, has applied for a Review

of the Tariff Order before the Commission under the Electricity Act, 2003

(the 2003 Act) read with Regulation 3.3 of the West Bengal Electricity

Regulatory Commission (Conduct of Business) Regulation, 2013 (the 2013

Regulations). The Review has been filed on 11th of June 2021 and is pending

adjudication by the Commission.

It is the grievance of the Appellant No. 1/ the Company that without

waiting for a final outcome in the Review, R3 and R4 have directly

proceeded, behind the back of the Appellant No.1/ the Company, before the

NCLT invoking the provisions of the IBC.

Mr. Mookherjee, Learned Senior Counsel appearing for the Appellant

No.1/ the Company, submits that such unilateral invocation of the IBC in

the teeth of the restructuring proposal being worked out with R3 and R4 is

amenable to be corrected in exercise of the Writ Jurisdiction of this Court. It

is pointed out that the nature of business of the Appellant No. 1/ the

Company pertaining to supply of electricity to common consumers through

an agency of State namely, the West Bengal State Electricity Distribution

Company Limited (WBSEDCL), carries with it a public law element read with

the nature of the restructuring exercise under the aegis of the said RBI

Framework of 2019. In such a scenario, the Court sitting in Writ

Jurisdiction is qualified to decide on the propriety of the unilateral action

under the IBC undertaken by R3 and R4.

Mr. Mookherjee argues that the action under the IBC has been taken

by R3 and R4 without putting the Appellant No.1/ the Company to

substantial notice of the cancellation of the restructuring proposal as

arrived at in the said Consortium Meeting of 17th of February, 2021. The

initiation of IBC proceedings has resulted in an abrupt closure of the right of

Review which the Appellant No.1/ the Company is entitled to claim before

the Commission under the 2003 Act. Such action on the part of R3 and R4

in the background of the consensus decision arrived at between the Lenders

and the Appellant No.1/the Company to the effect that an appropriate

settlement of the tariff is crucial to the restructuring of the stressed assets

of the latter, the whiplash invocation of IBC is unreasonable and

inequitable. Such action, which has the effect of denying the Company an

opportunity to come out of the red, is also at the highest, an affront to its

right to do business guaranteed by Article 19 of the Constitution of India.

It is submitted that the NCLT is limited by jurisdiction to examine the

arbitrariness in the action of R3 and R4 arising out of the suddenness of

such action, its defiance of the consensus arrived at the said Consortium

Meeting and, against the essence of the RBI Framework of 2019. The NCLT is

limited by jurisdiction to examine the inherent unfairness of such action,

affecting the constitutional protection of the right to do business with

reasonable certainty. It is thus argued that the Hon'ble Single Bench ought

to have examined the issues on merits and, having not done so, has

abdicated jurisdiction.

Per contra, Mr. Sarkar, Learned Senior Counsel appearing for R3 and

R4, submits that the restructuring arrangement worked out between R3 and

R4 and the Appellant No.1/ the Company carries with it a pure, undiluted

fiduciary colour within the realm of private contract. It is submitted that at

issue in the said Consortium Meeting was the question of restructuring of

the stressed assets of the Appellant No.1/ the Company.

The settlement of the tariff or, the Tariff Order, being a pre-condition

towards the restructuring arrangement arrived at in the meeting dated the

17th of February, 2021, with the pronunciation of the Tariff Order by the

Commission on the 31st day of May 2021, such pre-condition stood

answered. It is not within the domain of R3 and R4 acting as lenders to wait

any further beyond the Tariff Order pronounced by the Commission. It is

evident that the restructuring exercise arrived at the said Consortium

Meeting dated 17th of February, 2021 has not worked out. It is not the

domain of the Writ Court to explore whether, following the collapse of the

restructuring exercise, R3 and R4 could be prodded to extend further

concessions in favour of the Appellant No. 1/ the Company.

It is submitted that R3 and R4 have faithfully discharged their

obligations qua the restructuring exercise coterminous with the

pronunciation of the Tariff Order by the Commission on 31st of May, 2021.

The prejudice claimed by the Appellant No.1/ the Company qua the

Tariff Order, does not bind R3 and R4 who, as Corporate Creditors, are free

to proceed to realise their debts. With the non-acceptance of the Tariff Order

by the Appellant No.1/the Company, the restructuring exercise triggered by

the said Consortium Meeting collapsed freeing the parties of their reciprocal

obligations. R3 and R4 are within their rights to claim their debts by

invoking the IBC.

It is submitted on the strength of In Re: A. NaveenChandra Steels

Private Limited vs. Srei Equipment Finance Limited and Others reported in

(2021) 4 SCC 435 which, in turn relies upon In Re: Swiss Ribbons Pvt. Ltd.

Vs. Union of India reported in (2019) 4 SCC 17 that proceedings under the

IBC are adequately competent to save the restructuring of the stressed

assets of the Appellant No.1/ the Company. Therefore, it is incorrect on the

part of Appellant No.1/ the Company to take the position that with the

initiation of the IBC proceedings, the restructuring process has collapsed.

The issue between the parties is at a stage now when the non-viability

of the financial arrangement between the Corporate Creditors and the

Corporate Debtor subsumes, arguably if any, the public law element which

can be attributed to either the RBI Framework of 2019 or, to the nature of

the business of the Appellant No.1/ the Company, i.e. to generate an

essential service such as electricity. Admittedly, having regard to the

commercial arrangement arrived at between the parties at the said

Consortium Meeting dated 17th February, 2021, there is no legal flaw in R3

and R4 taking the next logical step under the IBC.

Having heard the parties and, anxiously considering the

materials placed, this Court arrives at the following findings:-

A) That admittedly one of the key pre-conditions of the settlement

arrived at in the said Consortium Meeting dated 17th February,

2021 was that the parties would work towards obtaining a Tariff

Order from the Commission.

B) The parties, meaning thereby the Appellant No.1/Company as well

as R3 and R4, fulfilled the mandate of the said Consortium Meeting

by taking respective steps towards obtaining a Tariff Order.

C) It was fairly settled inter se the parties that the Tariff Order is

crucial to the financial viability of the Appellant No.1/the

Company.

D) That from a pure commercial standpoint, the claimed non-viability

of the Tariff Order as returned by the Commission on 31st of May,

2021 by the Appellant No.1/the Company, does not fetter R3 and

R4 from instituting proceedings under the IBC, which is in the

nature of an independent remedy under a special statute.

E) The problem connected to the alleged non-viable Tariff Order

handed over by the Commission on 31st May, 2021 therefore stood

solely inherited by the Appellant No.1/the Company. Parties would

debate whether the consensus arrived at in the said Consortium

Meeting stops with the pronouncement of any Tariff Order or,

included within its ambit a viable Tariff Order.

F) Even a plain look at the Review Application filed by the Appellant

No.1/the Company before the Commission pointing out to the

arithmetical omissions in the Tariff Order dated 31st May, 2021,

prima facie do not carry the impression of a cosmetic exercise.

G) Although, it is completely upon the Commission to decide whether

the Grounds taken in the Review Application point to errors on the

face of the records, settling a Tariff is undoubtedly an arithmetical

exercise. It would be therefore entirely for experts to prove, disprove

and, ultimately decide, the correctness or otherwise of the

fundamentals connected thereto.

H) The question hardly begs an answer that a non-viable tariff is no

tariff at all. Equally, Corporate Creditors cannot wait ad infinitum

for the tariff adjudicatory process to be exhausted and their debts

dry up. Needless to emphasise, in all this, the Commission must

get its act together since shoddy arithmetic fetches zero numbers.

I) At the same time, the action of R3 and R4 in proceeding

straightaway invoking the IBC requires to be positioned in the

context of the action taken by the Appellant No.1/the Company in

terms of the said Consortium Meeting. Admittedly, except chasing

the tariff, the Appellant No.1/the Company has failed in key

commitments such as pumping in 0.83 billion rupees in Working

Capital infusion. Such a failure, on the face of the record, would

justify the conduct of R3 and R4 to make an unilateral dash to the

NCLT.

J) The question now arises whether the Writ Court can step into this

issue at all. Both R3 and R4 are not pure private players in the

commercial space. They are entities of State. Besides, the outcome

of the whole venture is generation of electricity, which serves public

purpose. Having noticed these facts, the Writ Court is not

precluded from exercising Jurisdiction which would enure to the

benefit of certainty in commercial transactions over and above that

of commercial expediency.

K) Delivering THE HAMLYN LECTURES, 1997 on „Commercial Law In

The Next Millenium‟, Professor Roy Goode spoke as follows:

"But perhaps the most remarkable partnership has been that between commercial law and equity. If contract lies at the heart of commercial law, it is equity that has provided the foundation for security interests in commercial assets and for the enhancement of the required standards of behavior in the conduct of business life. In particular, the concept of fiduciary obligation has been significantly developed and refined, and there has been a marked shift from abstract rules to general standards which are fact-specific. Restitution, the reversal of unjust enrichment, has become accepted as an identified branch of law and is increasingly invoked as a remedy where there is no available claim in contract or where the benefits improperly received by the defendant exceed the amount of the plaintiff‟s recoverable loss. The relationship between the common law of contract and the doctrines of equity mirrors the tensions between form and substance, and between predictability and justice in the individual case, and is a recurrent theme in modern commercial law."

L) Closer home, that Article 226 Courts are not denuded of

jurisdiction to do complete justice, stands explained In Re: B.C.

Chaturvedi vs Union Of India & Ors., reported in (1995) 6 SCC 749

at Paragraph 23 which reads as follows:

"23. It deserves to be pointed out that the mere fact that there is no provision parallel to Article 142 relating to the High Courts, can be no ground to think that they have not to do complete justice between the parties, the same cannot be ordered. Absence of provision like Article 142 is not material, according to me. This may be illustrated by pointing out that despite there being no provision in the Constitution parallel to Article 137 conferring power of review on the High Court, this Court held as early as 1961 in Shivdeo Singh's case, AIR 1963 SC 1909, that the High Courts too can exercise power of review, which inheres in every court of plenary jurisdiction. I would say that power to do complete justice also inheres in every court, not to speak of a court of plenary jurisdiction like a High Court. of course, this power is not as wide which this Court has under Article 142. That, however, is a different matter."

M) Therefore, the Tariff Order dated 31st May, 2021 being fundamental

to both the Corporate Debtor and the Corporate Creditor, its failure

necessitated that the parties re-visit their positions or, at least brief

each other of their respective positions, prior to embarking upon

exercising their respective legal options. It would be thus open to

the parties to keep the Tariff Order dated 31st May, 2021 one last

time on the table and, on failure to reach a commonality of

perceptions, either of the parties could then proceed with their

chosen legal remedies.

N) This Court is not at all unmindful of the primacy of the IBC

proceedings. This Court is also not at all unmindful of the fact that

the survival of the corporate entity, viz. the Appellant No.1/the

Company, as distinguished from its Promoter Group, shall be given

due and deep consideration under the IBC. At the same time this

Court must record the fact that a select Audit placed before the

said Consortium Meeting dated 17th February, 2021, did not

suspect the Appellant No.1/the Company of any mala fide financial

action.

In the backdrop of the above discussion, this Court directs as follows:-

I) The Commission to adjudicate the Review Petition of the

Appellant No.1/the Company on its own merits not later than a

period of six weeks from the date of communication of this

order.

II) R3 and R4 to address the Tariff Order dated 31st of May, 2021

along with the extent of fulfillment of pre-conditions outlined in

the said Consortium Meeting dated 17th of February, 2017 in a

second Consortium Meeting with the Appellant No.1/the

Company, without prejudice to their respective rights and legal

options.

III) This Court has not ventured into the merits of the claims

between the parties but, acted in exercise of prerogative,

extraordinary jurisdiction on the principle that it is the duty of

the Writ Courts to do complete justice between the parties.

With the above directions, the Judgement and Order impugned of the

Hon'ble Single Bench dated 2nd of July 2021 stands appropriately modified.

MAT 626 of 2021 with CAN 1 of 2021 stand thus disposed of.

There will be no order as to costs.

All parties shall act in terms of the copy of the order downloaded from

the official website of this Court.

Urgent Xerox certified photocopies of this judgment, if applied for, be

given to the parties upon compliance of the requisite formalities.

I agree.

   (Jay Sengupta, J.)                             (Subrata Talukdar, J.)