The NCLT had also rejected BEL objections that the rights under a contract were valuable property rights and no person could be deprived of its property save by authority of law under Article 300A of the Constitution.
The Supreme Court on Tuesday admitted an appeal by Bhushan Energy (BEL), which is under insolvency resolution process, seeking setting aside of a part of Tata Steel’s resolution plan for its subsidiary Bhushan Steel (BSL) that terminated the power purchase agreements between the two companies.
A bench led by Justice Ranjan Gogoi sought response from Tata Steel, SBI, Bhushan Steel, BEL Resolution Professional Navneet Kumar Gupta and others after BEL alleged that Tata Steel’s Resolution Plan envisages termination of the PPAs and certain related third party contracts as these being “onerous” transactions.
It said that the termination of “onerous” transactions is not a ground for annulment of a transaction under the IBC.
The Resolution Plan “envisages termination of the PPAs, certain related third party contracts, despite the fact that there is no adjudication or finding that the PPAs qualify as either ‘preferential transactions’ (Section 43) or ‘undervalued transactions’ (Section 45) or ‘transactions defrauding creditors’ (Section 49) or ‘extortionate credit transactions’ (Section 50), the only provisions in the IBC which permit avoidance and annulment of transactions,” BEL stated in its appeal.
BEL, which owns a 485 MW captive coal-based thermal power project set up within the premises of its subsidiary Bhushan Steel’s integrated steel plant at Meramandali, Dhenkanal district of Odisha, solely supplies electricity to the latter. The two sister concerns had entered into two power purchase agreements for supply of power till 2024.
“The PPAs form the substratum of BEL; apart from the PPAs, the BEL does not have any other credible business or source of revenue. The two PPAs are valid until September and December 2024, respectively. Their termination will result in loss of substratum and therefore, in erosion of substantial valuation of BEL. If the termination as sought in the Resolution Plan is permitted, Tata Steel will be able to acquire BEL at an extremely low valuation to the grave prejudice and detriment of the creditors of the BEL,” BEL stated in its appeal before the SC.
Challenging the August 10 order of the National Company Law Appellate Tribunal (NCLAT) that dismissed its appeal and approved Tata Steel’s resolution plan for BSL, BEL stated that its appeal was dismissed “without assigning any reason and without dealing with any of the substantial questions of law raised by it.”
While the CIR Process of BSL started in July 2017, BEL had sought recovery of its dues to the tune of Rs 114.59 crore. After the CIRP was also initiated against BEL in January 2018, its RP had filed a revised claim of `438.32 crore as being an operational creditor of BSL.
While endorsing the committee of creditors’ decision to approve Tata’s resolution plan for BSL, the NCLT had also rejected BEL objections that the rights under a contract were valuable property rights and no person can be deprived of its property save by authority of law under Article 300A of the Constitution.
There is no provision under the Code or the Insolvency and Bankruptcy Board of India (Insolvency Resolution Process for Corporate Persons) Regulations, 2016 that authorise unilateral termination of a commercial contract executed between a corporate debtor and a third party, who is neither a member (nor a partner, in case of an LLP) of the corporate debtor, BEL said.
Even NCLAT had upheld the Tata’s Resolution Plan holding that Regulation 39(6) of the CIRP Regulations enables it to terminate the PPAs by way of the Resolution Plan without obtaining the BEL’s consent (or its resolution professional). The time for completion of the CIR Process of BEL ends on October 5, 2018.