Summary
The Supreme Court upheld restraint against termination of a power purchase agreement solely because the generator entered corporate insolvency resolution. The agreement was its sole contract and termination would make its corporate death certain, defeating the resolution process. Section 60(5)(c) supplied jurisdiction because the dispute arose solely from insolvency. The ruling did not authorise general interference with contracts or decide the broader validity of insolvency-triggered termination clauses. Liquidation-stage rights remained open, while payment for electricity procured remained due.
Issues
- Whether the NCLT could adjudicate this contractual termination dispute under its insolvency jurisdiction.
- Whether termination of the debtor’s sole power purchase agreement solely for commencement of CIRP could be restrained.
- Whether liquidation-stage termination rights and payment obligations could be decided in this appeal.
Provisions considered
- Section 60(5)(c), Insolvency and Bankruptcy Code, 2016The insolvency nexus and centrality of the sole contract supported jurisdiction and restraint against termination on these particular facts. (¶¶ 42, 67-87, 163-166, 173)
- Section 238, Insolvency and Bankruptcy Code, 2016The PPA was an instrument having effect by virtue of law; the Court rejected limiting the provision to instruments created by statute. (¶ 77-79)
- Section 14, Insolvency and Bankruptcy Code, 2016The moratorium framework informed the statutory purpose, but did not exhaust the tribunal’s residuary jurisdiction or establish a universal prohibition on insolvency-triggered contractual termination. (¶¶ 87, 133-143, 156-166)
Held
- Section 60(5)(c) covers disputes arising from or relating to insolvency, but does not absorb independent contractual disputes or public law matters assigned to other authorities. Here insolvency was the sole asserted termination ground; unrelated operational defaults were not pursued. (¶ 67-76)
- Residuary jurisdiction requires a textual basis and cannot override statutory limits merely by invoking the Code’s purpose. It nevertheless is not confined to the specific moratorium prohibitions in Section 14. (¶¶ 80-87, 163)
- The PPA was the sole contract supporting the debtor’s business. Its termination solely for CIRP commencement would destroy the going concern and defeat resolution. Restraint was justified on that unique basis, rather than merely because termination might diminish asset value. (¶ 151-166)
- The general validity of insolvency-triggered termination clauses involved complex policy choices and remained open for legislative intervention. The Court did not establish a blanket invalidation of such clauses or power to set aside terminations unrelated to insolvency. (¶¶ 128-143, 153-170, 173)
- NCLAT exceeded the appeal’s scope by removing the unchallenged observation about liquidation. No liquidation was underway, and the Supreme Court left the parties’ termination rights in that eventuality undecided. (¶ 171)
- With termination restrained, the purchaser remained liable for electricity procured after 7 June 2019; its claim to contractual termination compensation did not arise. (¶ 172)
Result
Appeal dismissed; restraint against termination sustained on the specified facts, with liquidation-stage rights and the broader validity of ipso facto clauses left open.