Case Analysis on Adani Power Limited vs. Shapoorji Pallonji and Company
Aneesh Singh
LL.M.(Corporate and Finance Law & Policy), O.P. Jindal Global University, Sonipat, Haryana
Introduction
The case of Adani Power Limited v. Shapoorji Pallonji and Co. serves as a major illustration of challenges in the corporate insolvency resolution process under the Insolvency & Bankruptcy Code (IBC), 2016 and its legal complexities. The main factual matrix is KWPCL, a subsidiary of Avantha Power & Infrastructure Limited with its operating base in Chhattisgarh, which hit a financial crisis status for which CIRP was initiated. With the involvement of Adani Power Limited as its primary creditor, the resolution plan evolved and was ultimately endorsed during the Corporate Insolvency Resolution Process (CIRP) process, which then, signified a big milestone.
This apparent conflict originated from Shapoorji Pallonji and Company, an operational creditor, whose claims were rejected by the Resolution Professional (RP) in the course of the CIRP. The dispute dealt with the question of the legality and appropriateness of the conduct of Ashok Kumar Lahiri, especially in the light of the ongoing arbitration proceedings between Shapoorji Pallonji and KWPCL. The creditor caught in the operational stress has objected to the resolution plan’s approval first in the National Company Law Tribunal (NCLT), then up to the Supreme Court. This subjected the viability and the interpretation of certain provisions of the IBC, especially those touching on the type of pending claims during the insolvency resolution process.
The recent squabble partially centres around the fact that outstanding claims particularly those in arbitration are submitted in NCLT and their possible role in the bankruptcy proceeding. The Supreme Court’s judgment not only confirmed the effectiveness of the resolution program adopted by the NCLT but also provided much needed clarification on the fact that undetermined claims could be treated in the liquidation process. The implication of this ruling is that it adds weight on the finality and stability in the resolution process by affirming that the business restructuring can proceed and that the unresolved dispute in the form of arbitration will not undermine the finality of the complaint approved.
Background
Facts
Korba West Power Firm Limited (KWPCL), positioned in the state of Chhattisgarh and functioning under the larger corporate umbrella of Avantha Power & Infrastructure Limited, found itself navigating financial challenges severe enough to prompt an initiation of CIRP. This move, made under Section 10 of IBC of 2016, represented proactive step by the company’s management, acknowledging their inability to fulfil financial commitments. The initiation of CIRP marks a critical juncture in the life of any corporate entity as it seeks to restructure its debts and emerge viable.
During this tumultuous period, KWPCL was already embroiled in arbitration with Shapoorji Pallonji and Co. Pvt. Ltd. The dispute involved claims made by Shapoorji Pallonji amounting to Rs. 45.22 crore.[1] Shapoorji Pallonji, positioning themselves as an operational creditor, aimed to have these claims acknowledged within the framework of the CIRP proceedings. The timing and nature of these claims added layers of complexity to the ongoing insolvency proceedings.
As the CIRP progressed, various stakeholders submitted their claims, among which Adani Power Limited featured prominently, being owed a substantial sum of ₹1878.52 crore. In the unfolding scenario, Adani Power submitted a resolution plan, which was eventually approved by 59% of the vote by the committee of creditors. While this indicated a majority, it fell short of unanimity, highlighting divergent interests within the creditors’ committee.[2]
Legal Challenges and Procedural Dynamics
The matter concerning Adani Power’s resolution plan didn’t fade away either. Shapoorji Pallonji opposed the proposal in the National Company Law Tribunal (NCLT), Ahmedabad Bench, citing multiple peculiar circumstances which called for impartial treatment, besides the arbitration claims at hand being wrongfully excluded.[3] The course of legal process went along the analysis and the interpretation of certain sections of the IBC Act and in particular those related to the issues of continuing litigations and moratorium on their settlement during CIRP.[4]
Sections 13 and 14 of IBC that make a credit suspension period for all legal steps against the debtor once the ARIP has begun were crucial. The moratorium is being implemented to give the corporate a grant from has critical breathing space over which the debtor will be able to settle his liabilities without concurrent legal issues. Shapoorji Pallonji’s arbitration claims, made before, were overseen by these criteria and stalled by it processes, thus clash of their right for including in the ongoing settlement process.
In the hugging of the precedent set through the Essar Steel Case where undecided claims, those not solved at the resolution plan’s approval were clarified. These lineaments show the requirement for the fair evaluation of such claims in order that no creditor is impecunious than the others and the applicant is knowingly of the extent the obligations posed.
Court’s Ruling
Both at the first level of tribunals, and in the second stage of appeal, thorough examinations of procedural congruence and substantive fairness in the approval of the plan are carried out. The courts have upheld this fact in light of Section 10 of the IBC and indeed all other subsequent actions including the moratorium to all creditors and the eventual approval of the resolution plan have been in accordance with the IBC stipulations.
The courts recognized the weight of the arbitration claims of Shapoorji Pallonji, but stated that if these claims were permitted to affect the post-approval phase of the resolution plan, such a move could be viewed as a negative blow at the resolution applicant’s objective to completely write off the company’s debts, thus a fresh slate. The SC favoured this position with a ruling that once resolution plan is approved, it is deemed to be binding on all parties including operational creditors such as Shapoorji Pallonji.
However, the courts made it clear Shapoorji Pallonji could continue with the arbitration they started prior to the commencement of a resolution in plan outside the jurisdiction of the resolution plan. Thus, procedures for resolutions can be made with the aim to expedite the situation by contemporary methods, but creditors must still get a possibility to protect their rights through the legal means according to the interests’ conflicts in the proceedings.
Analysis
Undecided Claims
In liquidation, claims that are settled but subject to a possibility of further claims by the parties, or the amounts of the claimed amounts have not been fully ascertained and considered before the plan is approved, are referred to as undisputed or contingent claims. The pending unresolved claims, which might be the subject of litigation or arbitration proceedings, pose a significant difficulty in the resolution of voluntary bankruptcy. The Resolution plan mentioned in the analysed case has been given clearance by the court without addressing the claims of the appellant which was pending for the arbitration hearing. The Supreme Court has in its earlier judgments in the Essar Steel case settled that the objective of resolution is to make the corporate debtor capable of a fresh start which means that it should be free from past able to rise again on a clean slate under a short-term loan. Yet these are the concerns that need to be addressed at settlement stage eliciting questions about what will happen to them after the settlement.
“Fresh Slate” Principle
This principle was in particular clarified during the Supreme Court’s decision in the Essar Steel case, where it was asserted that when a plan of resolution is approved, it takes effect as irrevocable act as far as the corporate, obliged by the same to execute the plan for smooth finalization, as well as all the other creditors, who are also not allowed to override the process by retaining any unsettled issues. Yet, the law has to maintain the aforementioned balance of the equity principle in its favour towards the creditors who have ongoing claims. The Supreme Court, in subsequent ruling, including GhanshyamMishra case illustrates a fact that no undisclosed liabilities are transferred along with the corporate debtor to the prospective resolution applicants, and thus this information brought general assurance among the bidders about the extent of financial responsibility they are undertaking.
Precedents
Consequently, some landmark decisions of the law determine how open issues are considered in resolving disputes. The discourse of the case of the Effort of the bank Standard Chartered v. Satish Kumar Gupta in the Supreme Court has upset the verdict that the NCLT gave.[5] In this case the court has held that the resolution process has to be fair to the operational creditors because they should not be discriminated against. In the Ghanshyam Mishra case,[6] this idea was further framed and supported, underscoring the fact that all prior claims of the creditors who chose not to follow the thereby approved resolution plan will be considered as having been satisfied. Although Fourth Dimensions Solutions Ltd. v. Ricoh India Ltd. & Ors. provided guide to continually correcting arbitration, yet it demands more work from the concerned authorities to provide a lasting solution.[7] Letting the legal proceedings or arbitration disputes to continue thereby preventing the plan to be considered as successor plan to existing plan as the litigation cases for disputed claims will still be viewed in existence.
Implications
As the ramifications of this attitude emerge, it becomes evident that unresolved claims are handled in a way that has a deep impact. Decisive directions on potential liabilities of resolution applicants that may influence plans’ goal setting, & overall in profitability of enterprise they try to bring back to life, need to be provided. While it is true that creditors could be allocated to the yield of a claim or loss of the claim during the resolution process all in all they will be affected. Treating these claims may tamper with investor’s interest in such proceeding and may put in the way of recovery of the distressed assets market background.
Conclusion
The Supreme Court’s decision that makes a remarkable change for contingent claims and RP passed in CIRP, the scene of insolvency and bankruptcy law in India, is a leading start point.
With the ruling of Supreme Court, principle is validated that once resolution plan is approved by CoC committee and sanctioned by NCLT bench, company becomes bound to honour all the parties like, operational creditors, financial creditors, and the corporate debtor. This resolution makes it a compulsion for all the parties to bind themselves in accordance with the terms and conditions of the Resolution plan that helps in the smooth functioning and orderly process of corporate insolvency resolution. In this respect, the legal finality of DIP under Section 230 is designed to prevent creditors, liquidators and companies that are distressed seeking judicial review of the DIP plan from commencing or continuing any other separate process that may be adverse to the plan in effect.
This is particularly crucial issue that is the manner in which, the claims that were pending at courts or arbitration tribunals was resolved during the approval of the resolution plan. The court pointed out that these claims could not be disposed off or wound up into the extent approved by the plan at the sanction stage. This implies the solution to the problem that such the major amendments of the proposal can occur after its approval impacting the financial model what may lead to a drastic revision of the plan. Through such claims the Supreme Court guarantees that creditors have the opportunity to enforce their rights, despite their lack of opportunity to seek recourse themselves, nonetheless, the integrity of the resolution process remains intact.
References:
[1]“NCLAT Upholds Adani Bid; Asks Shapoorji Pallonji to Pursue Arbitration” (Business Standard, February 27, 2023) < https://www.business-standard.com/article/companies/nclat-upheld-adani-power-bid-for-korba-west-power-asks-shapoorji-pallonji-co-to-pursue-arbitration-for-claims-123022700683_1.html > accessed May 9, 2024.
[2]“Casebook Issue 13: Resolution Process of Korba West Power Company Limited”< https://www.ipaicmai.in/IPANEW/Uploadfiles/Casebook/CB_17042020053301.pdf > accessed May 10, 2024.
[3]I.A No. 236/2019 in C.P. (IB) No.- 190/NCLT/AHM/ 2018.
[4] Company Appeal (AT)(Insolvency) No. 816 of 2019 (2023) ibclaw.in 146 NCLAT.
[7]Civil Appeal No.5908/2021 (2022) ibclaw.in 06 SC.
