Delhi High Court
Meenakshi Energy Limited vs Ptc India Ltd & Anr. on 22 December, 2021
$~8
* IN THE HIGH COURT OF DELHI AT NEW DELHI
Date of Decision: 22nd December, 2021
+ O.M.P.(I) (COMM.) 408/2021 & I.As. 16720-22/2021
MEENAKSHI ENERGY LIMITED ....Petitioner
Through: Mr. Rajshekhar Rao, Senior Advocate
with Mr. Govind Manoharan, Ms.
Samiksha Godiyal, Mr. Areeb
Amanullah, Ms. Sonal Sarda and Mr.
Tushar Nagar, Advocates.
versus
PTC INDIA LTD & ANR. ..... Respondents
Through: Mr. Sandeep Sethi, Senior Advocate
with Mr. Ravi Kishore and Mr. Niraj
Singh, Advocates.
CORAM:
HON'BLE MR. JUSTICE SANJEEV NARULA
JUDGMENT
[VIA HYBRID MODE]
SANJEEV NARULA, J. (Oral):
1. Meenakshi Energy Limited (through its Resolution Professional, Mr.
Ravi Sankar Devarakonda) - the Petitioner herein [hereinafter referred to as
'MEL'], has approached this Court under Section 9 of the Arbitration and
Conciliation Act, 1996, [hereinafter referred to as 'the Act'], seeking, inter
alia: (i) the stay of operation of a termination notice dated 25th November,
2021, issued by PTC India Limited - being the Respondent No. 1
[hereinafter referred to as 'PTC'] in terms of Clause 4.4(c) of the Power
Purchase Agreement dated 9th October, 2018 executed between PTC and
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Signed By:SAPNA SETHI
Signing Date:24.12.2021
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Bangladesh Power Development Board [hereinafter referred to as 'BPDB'],
and (ii) also stay of invoking of certain performance of bank guarantees.
2. FACTS
2.1. MEL is presently admitted to Corporate Insolvency Resolution
Process (CIRP) in terms of the Insolvency and Bankruptcy Code, 2016,
pursuant to an admission Order dated 07th November 2019 passed by
National Company Law Tribunal, Hyderabad Bench (NCLT).
2.2. MEL and PTC entered into an Exclusive Power Purchase Agreement
on 09th January 2018 to enable PTC to participate in a bid floated by BPDB
for procurement of power. PTC was successful in the aforesaid bid and
pursuant thereto, it executed the following agreements: (a) Power Purchase
Agreement dated 9th October 2018 with BPDB [hereinafter referred to as
'BPDB-PPA'], and (b) Long Term Power Purchase Agreement dated 29th
October 2018 between Petitioner and PTC [hereinafter referred to as 'PTC-
PPA'], for supply of 200 MW of electricity from MEL to PTC for onward
supply to BPDB.
2.3. The BPDB-PPA and the MEL-PPA have been executed on a
back-to-back basis. The said agreements identify MEL as the power
generation source, and Clause 2.1.2.1 of PTC-PPA notes that it is
co-terminus with the BPDB-PPA.
2.4. With the assistance of the Committee of Creditors of MEL and PTC,
the Resolution Professional was able to operationalise the PPAs by ensuring
power supply to BPDB from 07th February 2020. Initially the supply was
through an alternate generator, however, from 01st January 2021 the
generation and supply of electricity was from MEL's Project.
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Signed By:SAPNA SETHI
Signing Date:24.12.2021
22:00:16
2.5. On account of certain irregularities in power supply to BPDB,
predominantly due to unprecedented and unforeseen rise in price of
imported coal and freight charges, MEL's capital was wiped out. On 08th
April 2020, BPDB issued a Notice of Default which was shared by PTC on a
back-to-back basis along with its own Notice of Default, which relied upon
BPDB's Notice of Default. The allegation made therein was that MEL had
misrepresented facts. The same was refuted by MEL in its communications
dated 6th April 2021, 27th April 2021 and 4th May 2021.
2.6. On 18th August, 2021, PTC issued a Notice of Intent to Terminate on
a back-to-back basis also sharing a copy of the BPDB Notice of Intent to
Terminate dated 04th August 2021. This was followed by Notice of
Termination dated 25th November 2021, making no reference to any
Termination Notice issued by BPDB.
2.7. In the aforenoted circumstances, MEL has approached this Court.
3. CONTENTIONS OF THE PETITIONER
3.1. Mr. Rajshekhar Rao, senior counsel on behalf of MEL, acknowledges
that Courts are ordinarily reluctant to interfere in matters of termination of
contracts, however, he argues the instant case is such that Court's
intervention is warranted and necessary. He submits that the PPAs were
executed on a back-to-back basis and therefore PTC cannot issue a
standalone termination notice, as, pertinently, BPDB has not issued a
termination notice.
3.2. All throughout, PTC's notices were issued on the basis of similar
notices being issued by BPDB. Therefore, till such time the agreement
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between PTC and BPDB is not terminated by BTDB, PTC does not have
any independent right to terminate the PTC-PPA.
3.3. Mr. Rao further submits that the CIRP proceedings are at its final
stages. Two entities have shown interest for the revival of the Company. The
PTC-PPA is the sole revenue generator, and thus economically valuable to
MEL. Till such time the same is under consideration, PTC should maintain a
status quo in respect of the impugned termination notice. The two potential
resolution applicants, who have shown interest in acquiring MEL would be
dissuaded if the PTC-PPA were terminated.
3.4. He also submits that since the instant transactions involve
inter-country commerce, it would serve national interest as well, in the event
the Respondents are permitted to enforce their termination notice, it would
result in the corporate death of MEL.
3.5. Reliance is also placed on the Judgment of the Supreme Court in
Gujarat Urja Vikas Nigam Limited vs Amit Gupta, 2021 7 SCC 209,
relevant portion whereof is extracted below:
"176. Given that the terms used in Section 60(5)(c) are of wide import, as
recognised in a consistent line of authority, we hold that NCLT was empowered
to restrain the appellant from terminating PPA. However, our decision is
premised upon a recognition of the centrality of PPA in the present case to the
success of 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 NCLT would have been empowered to set aside the termination
of PPA in this case because the termination took place solely on the ground of
insolvency. The jurisdiction of NCLT under Section 60(5)(c) of 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
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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).
177. 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."
4. CONTENTIONS OF THE RESPONDENT
4.1. Per contra, Mr. Sandeep Sethi, Senior Counsel for the Respondent,
submits that the present petition is not maintainable in view of several
judgments of the Apex Court and of this Court, settling the law in relation to
the scope of judicial interference in matters of determinable contracts.
4.2. Additionally, Mr. Sethi submits that prior to executing the PTC-PPA,
the parties had entered into the Exclusive Power Purchase Agreement dated
9th January, 2018 wherein MEL had made a commitment to supply power,
and on that basis, PTC had proceeded to make a bid to supply power to
BPDB.
4.3. It is further contended that irrespective of whether the BPDB-PPA has
been terminated, PTC has an independent right to terminate PTC-PPA.
4.4. This right is specifically incorporated under the terms of the
aforementioned agreements. Further, it is submitted that MEL was afforded
several opportunities by issuing Notice(s) of Default, yet it has not been able
to cure the same. Now, admittedly, there has been no supply of power since
29th July, 2021 and therefore, PTC is well within its right to terminate
PTC-PPA.
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Signed By:SAPNA SETHI
Signing Date:24.12.2021
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4.5. In so far as public/national interest is concerned, Mr. Sethi submits
that under the BPDB-PPA, it is PTC's obligation to make supply to BPDB.
In the event of default, PTC runs the risk of levy of damages. In the current
scenario, when MEL has completely stopped generating power, PTC, has to
find an alternate source of power. It is thus imperative that the contract with
MEL is brought to an end.
4.6. In this regard, Mr. Sethi states that indeed another party has been
identified and the proposal to supply power is now pending approval with
the office of the Prime Minster of Bangladesh.
4.7. In any event, Mr. Sethi submits that since there is a default on the part
of MEL, and the right of PTC is clearly borne out of the terms of the
contract, the Court should not grant any injunction.
5. ANALYSIS
5.1. The Court has considered the submissions advanced by the senior
counsel. MEL inter alia seeks a stay of the operation of the Termination
Notice dated 25th November 2021 and further seeks to restrain them from
entering into party generators for the purpose of meeting the obligations
under the BPDB-PPA dated 09th October 2018. Such reliefs are ex-facie
misconceived and contrary to settled legal position.
5.2. There can be no manner of doubt that the present contract(s) are
inherently determinable. Owing to failure on the part of MEL to fulfil its
obligations, as noted above, PTC had no choice, but to terminate the
contract. The undisputed fact before the Court is that since 29th July, 2021,
MEL has completely stopped supplying power. This itself constitutes as a
material breach of the terms of the contract which enables PTC to take
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Signing Date:24.12.2021
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recourse to the terms, including the right of termination. Merely because the
CIRP proceedings are pending where some potential resolution applicants
have shown interest, does not mean that PTC should be obligated to
continue with the contract.
5.3. MEL, being the party in default, is certainly unable to fulfil its
obligations and cure the default despite opportunities given. It thus cannot
be permitted to seek an injunction against termination or restrain against
PTC to fulfil its contractual commitments. The three important elements
i.e. prima facie case, balance of convenience and irreparable hardship, are
clearly absent. Rather, the balance of convenience is clearly in favour of
PTC and it is likely to suffer irreparable harm and loss in case it is restrained
from fulfilling their obligations with the Bangladesh Party.
5.4. Much stress has been laid by Mr. Rao on the aspect of public interest,
but without any cogent foundation. The effort to resolve the corporate debtor
cannot be at the cost of PTC suffering damages at the hands of Bangladesh
party for contractual breaches and harm to its reputation. Moreover, the
Court finds merit in the contentions of Mr. Sethi that larger public interest,
would lie in the contractual commitments being honoured by PTC to the
Bangladesh party.
5.5. The reasons cited by Mr. Rao, that BPDB-PPA has not been
terminated, does not impress this Court to treat the instant case as an
exceptional one. The two contracts may be on a back-to-back basis and also
co-terminus, but certainly the obligations of PTC under the BPDB-PPA are
independent. Pertinently, since concededly MEL has stopped generating
power, it has discharged the contract by persistent breaches, PTC, being the
aggrieved party, has the right and option to severe its contractual ties and
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terminate the contract. The questions as to whether the termination is
wrongful, or whether the Respondent was justified in terminating the
agreement, cannot be decided in the present proceedings.
5.6. In view of the above, the Court does not find any merit in the present
petition. Accordingly, it is dismissed along with other pending applications.
SANJEEV NARULA, J
DECEMBER 22, 2021
d.negi
Signature Not Verified
Signed By:SAPNA SETHI
Signing Date:24.12.2021
22:00:16
