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Power PPAs cannot be terminated during insolvency process
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SME Times News Bureau | 24 Oct, 2020
In a breather for bankrupt power generation companies, an insolvency
tribunal has ruled that going concern status of such companies have to
be maintained during the entire resolution process.
The National
Company Law Appellate Tribunal (NCLAT) has ruled that power distribution
companies or discoms cannot terminate their power purchase agreement
(PPA) with insolvent gencos during the entire corporate insolvency
resolution process(CIRP).
Upholding an order passed by the
Hyderabad bench of the National Company Law Tribunal (NCLT), the NCLAT
said that asset classification of a power project includes the
generation plant and its PPA and it should be looked together and not in
isolation.
So, the moratorium rules under Insolvency and
Bankruptcy Code (IBC), where all debt resolution action is suspended
during CIRP, would apply to power project as well including the PPA
contracts it signed with beneficiaries.
"This asset (PPA) needs
to be kept intact and preserved during the process of corporate
resolution and liquidation so that the liabilities of creditors and
other stakeholders can be taken care of," a two member bench of the
NCLAT led by Justice Jarat Kumar Jain said in their judgment on October
20.
The ruling came in the CIRP process of Lanco Infratech that
is facing liquidation having failed to clear clear dues to creditors
including Rs 63 crore provided by Yes Bank.
The insolvent entity
had signed a PPA with Gujarat Urja Vikas Nigam Limited (GUVNL) in
April, 2010 for selling power generated from its 5 mega-watt solar plant
located in the state. But the company was taken insolvency due to
default in payment to Yes Bank. While the CIRP process of as on, GUVNL
moved to terminate the PPA which was objected by Yes Bank as it would
have eroded the value of Lanco project even under liquidation.
The
NCLAT order will come to rescue of several power projects that are
under different stages of insolvency. Close to 15 coal fired projects
with about 12,000 MW capacity are facing insolvency. Several of these
projects have PPA with beneficiaries while other have limited capacity
PPAs.
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