The Supreme Court has permitted the DAIT-Adani Power consortium to temporarily operate Coastal Energen’s power plant until the NCLAT issues its final order. This provides interim relief amid the ongoing insolvency dispute.
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NEW DELHI: The Supreme Court of India has allowed a consortium led by Dickey Alternative Investment Trust (DAIT) and Adani Power to temporarily operate the power plant of the bankrupt Coastal Energen until a final order is passed by the National Company Law Appellate Tribunal (NCLAT). The decision marks a critical juncture in the ongoing insolvency dispute, as the NCLAT had earlier placed an interim halt on the acquisition process. The Supreme Court’s intervention provides temporary relief to the consortium, enabling continued operations of the plant.
The Supreme Court’s Bench, led by Chief Justice of India DY Chandrachud and Justices JB Pardiwala and Manoj Misra, revised the previous interim order issued by the NCLAT’s Chennai Bench.
On September 6, the NCLAT passed an order that temporarily paused the consortium’s acquisition of Coastal Energen. The NCLAT’s order raised concerns over whether proper procedures had been followed in the approval process, stating that there were questions about the legitimacy of the takeover. The appellate tribunal directed that a resolution professional should take over operations of the plant, effectively stalling the Rs. 3,335 crore resolution plan proposed by the consortium of DAIT and Adani Power.
The order issued by a coram of judicial member Justice Sharad Kumar Sharma and technical member Jatindranath Swain called for a status quo to be maintained, citing prima facie concerns over procedural integrity.
According to the NCLAT,-
“the status quo would remain in effect particularly for all financial transactions”
pending further scrutiny of the acquisition process.
However, on Thursday, the Supreme Court’s Bench remarked that the NCLAT’s interim order contained an “internal inconsistency.”
In its order, the NCLAT had mentioned:
“For one week or until the next hearing, the Resolution Professional will continue operating the plant as previously, with the ‘status quo’ regarding their role being upheld, especially in relation to all financial transactions.”
In response, the Supreme Court noted:
“At first glance, we believe the September 6 order contains internal inconsistencies. The initial section suggests that the previous status quo should be restored, while the latter part calls for maintaining the current status quo. As the NCLAT is set to hear the case on September 18, until the appeal is addressed, the directive means the previous status quo will not be reinstated, and the current operational status quo will remain. However, the Successful Resolution Applicant (SRA) must not dismantle the plant or create any third-party rights during this period.”
Effectively, the Court allowed the DAIT-Adani consortium to continue operating the Coastal Energen plant, provided they did not dismantle the plant or create third-party rights before the NCLAT passes a final order.
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During the course of the Supreme Court hearing, Chief Justice Chandrachud expressed concerns about the haste with which the NCLAT had disturbed the existing status quo, asking:
“What was the urgent need for the NCLAT to disrupt the status quo? The Committee of Creditors has approved the resolution plan with 97 percent support, and if they’ve made this decision based on their commercial judgment, then what is the problem?”
This observation emphasized the Supreme Court’s concern that the NCLAT may have acted prematurely, given that the Committee of Creditors (CoC) had overwhelmingly approved the resolution plan put forward by the consortium.
In the proceedings before the Supreme Court, Senior Advocates Mukul Rohatgi and Kapil Sibal appeared on behalf of the consortium led by DAIT and Adani Power, while Senior Advocates Aryama Sundaram and Dama Seshadri Naidu represented the respondents who were challenging the takeover.
The consortium, which includes DAIT and Adani Power, had offered a comprehensive Rs. 3,335.52 crore resolution plan to take over Coastal Energen, a power company undergoing insolvency. The resolution plan was approved by the National Company Law Tribunal (NCLT) on August 30, 2023.
The insolvency proceedings against Coastal Energen were initiated following a petition filed by the State of Tamil Nadu, which sought to recover dues from the struggling power company. The NCLT appointed an interim resolution professional to oversee the insolvency process, setting the stage for the consortium’s bid to acquire Coastal Energen.
Despite the NCLT’s approval, the resolution plan faced opposition from Coastal Energen’s suspended directors, who filed an appeal with the NCLAT. The suspended directors raised several allegations against the consortium, claiming that the acquisition was not in line with proper procedures and accusing DAIT of being a front for Adani Power.
The directors further contended that Adani Power had initially attempted to acquire Coastal Energen in its “individual capacity” but had failed. They alleged that Adani Power later re-entered the bidding process “ex-facto, as a consortium, along with DAIT.”
A key argument presented by the directors was that DAIT, founded in 2019, did not meet the eligibility criteria to submit a bid, as it lacked the requisite “minimum track record of financial performance.” The directors’ appeal essentially questioned the legitimacy of DAIT’s role in the consortium and the overall fairness of the acquisition process.
