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This article is written by Anoushka Mehta who is pursuing a Diploma in Advanced Contract Drafting, Negotiation and Dispute Resolution from LawSikho.

What are Power Purchase Agreements (PPA)?

A PPA, also sometimes known as Electricity Power Agreement, is a legal contract between two parties, one which generates electricity (the seller/developer) and the one who purchases this generated electricity (the buyer/borrower). The PPA becomes the foundation on which the pillar of a Power Project stands. 

Around the globe, PPAs are now seen more in the Renewable energy sector. This is attributed to the main reason that PPAs are usually long-term contracts spanning from around 10 to 25 years. Therefore, PPAs in the non-renewable sector are already in force for a long time. In the renewable sector, PPAs are commonly segregated into Solar and Non-Solar PPAs. For instance, in a solar PPA, the seller is responsible for the factors like designing, financing, permitting, and installing the solar plant on the property of the energy purchaser at very low or no cost. The developer sells this generated power to the buyer at a fixed rate. This rate is beneficial as it is usually lower than the local utility’s retail rate. 

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This article aims to analyse the interplay between the Indian insolvency regime and the Indian power sector, specifically the PPAs. The author explores the fate of long-term PPA when any of the companies in the contract face financial stress and insolvency procedures against the same commencement.

Background of PPAs in India and their relation with IBC 

India was the second-largest growth market for corporate renewable PPAs after the United States in 2018, with an addition of 1.6 GW of capacity. Examples of recent global PPAs include Google, Amazon, and Microsoft that have entered into PPAs to offset the emissions and usage of power for their cloud computing verticals. In 2017, Anheuser-Busch InBev purchased 220 MW of new wind farm energy, via a PPA, from the utility company Iberdrola in Mexico. 

In India, the tenure of a PPA is usually 25 years. Considering this long-time span, it is not surprising for any of the parties to face issues regarding limited finances, stressed assets, and bankruptcy. Moreover, in the Insolvency and Bankruptcy Code, 2016 (“IBC”), an application for insolvency can be filed if there is a default in payment of a debt. Before the COVID-19 pandemic, the default was Rs. 1,00,000 (One Lac) or more in accordance with IBC. However, the minimum pecuniary figure was increased to Rs. 10,000,000 (One Crore) in India due to COVID-19. 

In India, the role of power generation becomes important in a global context and thus PPAs are brought into the limelight. The nation is witness to a conflicting situation in the energy sector today as it is one of the largest global producers of electricity and a power exporter. In the first half of 2019, India was the second-largest market for corporate PPAs, with a global share of 7.4% (440 MW installed). However, the power sector is weighed down by several stressed assets. The payable debt of the sector amounts to USD 78 billion, and about 66 GW of conventional energy is under various stages of financial stress. 

The Indian government is also considering several new policy initiatives that may positively impact the corporate renewable PPA market, including Green Term Ahead Market, a new power tariff policy, and amendments to the Electricity Act, 2003. For instance, recently, a new form of PPA, a bi-lateral PPA, was proposed by the state with the aim of commercializing electric vehicle charging stations.

Nature of Lending and Debt in PPAs

Lending in the power sector is related to the conventional concept of ‘project finance’. The borrower is usually a special purpose vehicle aiming to acquire the rights required to set up and operate a power plant. In most cases, there exists a corporate guarantee, share pledge by the borrower, or a promoter undertaking. Additionally, the lenders also take security over some tangible assets of the borrower. Sometimes, the lenders also take third-party security to ensure their further security. However, despite these steps, lenders in the power sector have not fared well on recovery.

In the Indian context, power distribution companies (“discoms”) are the weakest link in the electricity value chain. The state-owned discoms have very poor revenue brought in which ultimately affects power generation companies and also adds stress in the banking sector, especially when such PPAs are considered to be long-term project finance deals.

This majorly happens in the country due to substantial gap between the cost of electricity bought (average cost of supply) and supplied (average revenue realized). Today, only one in five discoms is capable of realising its debt through its own cash flows and budgeted subsidies. Therefore, within this backdrop, it is not surprising for the lenders to want to terminate the PPA with the other party when insolvency proceedings against the latter has been initiated.

The overarching aim of IBC is not recovery but to bring a resolution to the company in distress. However, if the resolution is unsuccessful, the company is required to be liquidated to realise the debts. At this stage, a brief snapshot of the restructuring regime in India is necessary to be understood. 

Within this overview of the Power sector and IBC in the country, it is necessary to analyse the judicial pronouncements by the Adjudicating authorities i.e the National Company Law Tribunal (NCLT”) and National Company Law Appellate Tribunal (NCLAT”), and the Supreme Court of India.

Supreme Court: “IBC will override PPAs during moratorium”

What is Moratorium in IBC?

Under the code, the term ‘moratorium’ is not defined per se. However, it is a period when there is a prohibition on judicial proceedings for recovery, enforcement of interest on securities, sale or transfer of assets, or termination of essential contracts. Such acts cannot be initiated or continued against the Corporate Debtor (“CD”) i.e the entity claimed to be insolvent. The Code envisages the situations in the moratorium under Section 14. 

In case of a moratorium where no judicial proceedings can be initiated against the corporate debtor concerning termination of essential contracts, it raises a question as to what happens in cases of PPA and what are the rights and obligations of the parties from the disputes arising out of the same. 

A significant case to this effect was recently decided by the SC regarding PPAs in IBC.

Gujarat Vikas Nigam Limited v. Mr. Amit Gupta & Ors. (Decided in March 2021)

This Supreme Court decision dated 8th March 2021 analyses the role of adjudicating authorities like the NCLT and the NCLAT in deciding contractual disputes which arise due to the insolvent position of the corporate debtor. Moreover, the judgments deal with the role of such bodies when it comes to either parties’ right to terminate the PPAs arising from the start of insolvency proceedings under the IBC. The SC in the case upheld the order passed by the NCLAT and NCLT, New Delhi Bench.

The bench consisting of Justice DY Chandrachud and Justice MR Shah observed that:

In this case, the PPA has been terminated solely on the ground of insolvency, which gives the NCLT jurisdiction under Section 60(5)(c) to adjudicate this matter and invalidate the termination of the PPA as it is the forum vested with the responsibility of ensuring the continuation of the insolvency resolution process, which requires preservation of the Corporate Debtor as a going concern.”

Background of the case

  1. A PPA was entered between Gujarat Urja Vikas Nigam Ltd (“GUVNL”) and Astonfield Solar Gujarat Pvt, a solar power developer (“Corporate Debtor/CD”) In April 2010. The contract stated that GUVNL was supposed to purchase the power generated by the solar plant of the CD for the tenure of 25 years.
  2. Due to heavy rainfall in Gujurat in June-July 2017, the solar power plant of CD was damaged and the CD could only work on 10-15% of its original capability. This led to debt owed to the financial creditors and these creditors declared Aston a Non-Performing Asset (“NPA”) in May, 2018.
  3. Post this, a petition under Section 10 of IBC was admitted by the NCLT on 20th November 2018 and the tribunal appointed Mr. Amit Gupta was appointed Resolution Professional (“RP”) in February, 2019.
  4. On May 01, 2019, GUVNL issued two notices of default to the CD on two grounds: That the CD undergoing Corporate Insolvency Resolution Process (“CIRP”) under IBC amounts to an event of default under PPA and that there was a default in the operation and maintenance of the solar plant. Following this, GUVNL terminated the PPA with the CD due to the ongoing CIRP.
  5. Thereafter, the RP filed an application under Section 60 (5) of the IBC before the NCLT seeking an injunction restraining GUVNL from terminating the PPA. This was allowed by the NCLT resulting in GUVNL restrained from terminating the PPA. The ratio by the NCLT for this was that that PPA is an ‘instrument’ in the meaning of Section 238 of IBC. Therefore, clauses of the PPA, in this case concerning the termination of the PPA once CIRP begins, cannot be placed on a higher pedestal than provisions of the IBC. NCLT held that the clauses of PPA are inconsistent with the provisions of the IBC and stand overridden due to Section 238 of the IBC.
  6. GUVNL, filed an appeal in the NCLAT. However, the NCLAT dismissed the appeal on 15th October 2019 stating that according to the aim of the IBC, the CDr was to be maintained as a going concern and that the termination of the PPA would render the CD defunct. Thus, GUVNL could not terminate the PPA solely on the ground of the initiation of CIRP of the CD. 


  • Whether the NCLT/NCLAT can exercise jurisdiction under the IBC over disputes arising solely from contracts such as the PPA?
  • Whether GUVNL’s right to terminate PPA solely on the ground of the initiation of CIRP as stipulated in the PPA is regulated by the IBC?
  1. Jurisdiction of the NCLT/NCLAT over contractual disputes

The Supreme Court observed that the IBC envisioned a single, dedicated forum in the matters of insolvency. Therefore, SC observed NCLT alone has jurisdiction when it comes to applications and proceedings by or against a CD by the Code.

In this matter, the PPA was threatened to be terminated solely on the ground of insolvency. By that logic, if there is no insolvency of the CD, there is no other ground to terminate the PPA. Therefore, the dispute in this case solely comes to being due to the insolvency of the CD as is envisioned under Section 60 (5) (c) of the IBC. Thus, the NCLT has jurisdiction to adjudicate disputes, which arise ‘solely’ from or which relate to the insolvency of the CD.

2. Jurisdiction of NCLT and Gujarat Electricity Regulatory Commission (GERC)

The Court took note of Section 86(1)(f) of the Electricity Act which empowers the GERC to adjudicate disputes between the generating company and the distribution licensee. However, the court held that only NCLT has the power to adjudicate such a dispute under Section 60(5)(c) of the IBC because the sole default attributed by GUVNL to the CD was that it was undergoing an insolvency resolution process.

SC reiterated that by virtue of Section 238 of the IBC any other law, including an instrument, will be overridden.

C. Residuary jurisdiction of the NCLT under Section 60(5)(c) of IBC

The Court also delved into the residuary power vested in NCLT by Section 60 (5) (c) of IBC and held the section gives NCLT a wide discretion to adjudicate questions of law or fact arising due to insolvency resolution proceedings.

D. GUVNL’s right to terminate the PPA

SC observed that in the present case if the PPA is to be terminated, the CD would not remain as a going concern. Hence, the continuation of the PPA is necessary for the effective completion of the CIRP and the termination will result in the CIRP being inconsequential. 

Another significant case regarding Moratorium and termination of PPAs is important to analyse when it comes to the overlap between PPAs and IBC.

Gujarat Urja Vikas Nigam Ltd. v. Yes Bank Ltd. & Anr. (Decided in October 2020)

This case was decided by the NCLAT where it upheld the order passed by the Hyderabad bench of the (NCLT). In this case, a PPA was entered into between Lanco Infratech Limited (“Corporate Debtor/CD”) and Gujarat Urja Vikas Nigam Ltd. (“GUVNL”), the power supplier to Lanco. However, Lanco was claimed to be insolvent due to its default in payment to Yes Bank (a financial creditor) to the tune of 63 crores. While the Corporate Insolvency Resolution Plan (“CIRP”) process was going on, GUVNL moved to terminate the said PPA. However, this move was contended by Yes Bank on the basis that this action will further diminish the value of Lanco project even under liquidation.


The main issues the NCLAT delved into were:

  1. Whether the moratorium under section 14 of IBC is applicable to the PPA? 
  2. Whether the contractual stipulations of the PPA allow either of the parties to terminate the PPA by reason of initiation of the liquidation process of the CD?

It was held by the NCLAT that the overarching objective of the IBC is the maximization of value of assets and balancing the interest of all stakeholders. Based on this backdrop and the facts of the case, the Tribunal held that no breach of contract could be said to have arisen in the present matter since there was no default in the power supply at any point. Since GUVNL never intended or actually suspended its services, it is cogent to state that the solar power plant (in force via the PPA) should be allowed to function as a going concern to enforce its revival as suggested under section 230 of the Companies Act.

The court, after reading the clauses of the PPA, reiterates that the solar power plant remains functioning and adds value. It held that the PPA should not be isolated and disjointed from the physical entity of the solar power plant. The physical entity comes into being an economic project only when combined with financial aid from financial creditors, who derive comfort and assurance from the positive cash flow by sale of solar power. If termination of the PPA is allowed, then the Financial Creditor would not be able to realise the value that it is owed, which defeats the foundational purpose of the liquidation process.

The tribunal analysed also concluded that a PPA is an “instrument” for the purpose of section 238 of IBC and therefore, any terms contained in the PPA which contravenes with the IBC cannot be enforced.

Section 14(1)(b) of the IBC forbids transferring, encumbering, alienating, or disposing of by the CD of any of its assets or any legal right and beneficial interest arises out of it. In this case, the PPA is in nature of the beneficial interest of CD in solar project and termination of the same would have a direct relation on the assets of the CD and their value.


Therefore, it is concluded that the moratorium rules under IBC would apply to power projects which include the PPA contracts signed with beneficiaries. Moreover, it was decided that power distribution companies or distribution cannot terminate their PPAs with insolvent power generation companies during the entire CIRP. 

The recent Supreme Court and the NCLAT order come to the rescue of various power projects under different stages of insolvency. Around 15 coal-fired projects with approx. 12,000 MW capacity are facing insolvency. Most of these projects have PPA with beneficiaries, while others have limited capacity PPAs. With the Indian government allowing 100% Foreign Direct Investment (FDI) in the power sector, foreign participation in this sector is likely to increase and hence there is room to be created for ease in the functioning of ongoing and upcoming power projects.

Furthermore, as of January 2020, the power sector has total NPAs amount to Rs 2 lakh crore. These judgments surely provide for a better economic scope in the power sector and provide a breather for the power companies.


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