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IN THE HIGH COURT OF DELHI
Sanjeev Narula, J.
Meenakshi Energy Limited - Appellant
Versus
PTC India Ltd. - Respondent
O.M.P.(I) (COMM.) 408 of 2021 & I.As. 16720-22 of 2021
Decided On : 22-12-2021
Contractual obligations prevail over ongoing insolvency proceedings when a party is in material breach, allowing for termination without prior action from associated parties.
Headnote:(A) Arbitration and Conciliation Act, 1996 - Section 9 - Power Purchase Agreements - Appellant sought to stay termination notice by Respondent citing that contracts are interdependent. Court found MEL in material breach, having ceased power supply, justifying Respondent's termination - Court clarified that public interest does not outweigh contractual obligations. (Paras 1, 5.1, 5.3, 5.4)
(B) Determinable Contracts - Non-performance evident as MEL failed to supply power since July 2021. Court stated that existing circumstances negated any justifications for injunction against contract termination. (Paras 5.2, 5.5)
Facts of the case:
Petitioner, under CIRP, sought judicial intervention against termination of contracts based on alleged misrepresentation, but was found in material breach of obligations.
Findings of Court:
Termination by Respondent not wrongful due to persistent contractual breaches by Petitioner.
Issues: Whether PTC could terminate contract without BPDB's termination; appropriateness of court's intervention in contractual matters amidst ongoing CIRP.
Ratio Decidendi: Material breach by Petitioner permitted Respondent to terminate agreement; public interest does not override contractual commitments.
Result: Petition dismissed.
| Table of Content |
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| 1. factual background of the case. (Para 2) |
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 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 `PTCPPA'], 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.
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 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 it
