1. Introduction

The power sector is highly capital-intensive and depends upon long-term financing, power purchase agreements (PPAs), fuel-supply arrangements, transmission connectivity, regulatory approvals, and predictable tariff structures. Consequently, insolvency in the power sector is considerably more complex than ordinary corporate insolvency.

In India, power-sector insolvency is primarily governed by the Insolvency and Bankruptcy Code, 2016 (IBC), together with the Electricity Act, 2003, regulations of the Central Electricity Regulatory Commission (CERC) and State Electricity Regulatory Commissions (SERCs), contractual PPAs, and judicial decisions.

Power-sector insolvency commonly arises when a generating company or infrastructure company cannot service loans because of:

• inadequate tariffs;
• delays in tariff determination;
• fuel shortages;
• cancellation or disruption of coal supply;
• imported-coal price increases;
• delayed payments by distribution companies (DISCOMs);
• stranded generating capacity;
• regulatory changes;
• disputes concerning PPAs;
• transmission constraints; and
• large amounts of stressed project debt.

The central legal difficulty is that electricity is an essential public service, while insolvency law is designed primarily to maximise creditor recovery and preserve viable businesses.

2. Meaning of Power-Sector Insolvency

Power-sector insolvency occurs when a company engaged in generation, transmission, distribution, or related energy infrastructure becomes unable to meet its financial obligations and enters insolvency proceedings.

Under the IBC, the important distinction is between:

1. financial creditors, such as banks and financial institutions;
2. operational creditors, such as suppliers and contractors;
3. government authorities, including tax and regulatory authorities; and
4. other stakeholders, including employees, consumers, PPAs counterparties and shareholders.

The insolvency process attempts to determine whether the enterprise can be rescued through a resolution plan or whether its assets should ultimately be liquidated.

3. Why Power-Sector Insolvency Is Different

A. Extremely high capital requirements

Power plants require substantial investment in land, machinery, boilers, turbines, transmission infrastructure and environmental compliance.

Debt therefore constitutes a significant portion of project financing.

B. Long gestation periods

A thermal, hydroelectric, nuclear or large renewable project may require several years before commercial operation.

During this period, interest accumulates while revenue may remain absent.

C. Regulatory dependence

Electricity generation and supply are heavily regulated.

Tariffs, grid connectivity, environmental approvals, fuel arrangements and transmission access can materially affect the financial viability of a project.

D. Long-term PPAs

Power projects often depend upon long-term PPAs.

An insolvency proceeding therefore cannot simply treat the generating company's assets as ordinary industrial assets. The continuation, termination or transfer of PPAs can determine whether the business remains viable.

E. Public-interest dimension

Electricity is an essential service. A power company's insolvency may affect:

• electricity supply;
• grid stability;
• consumers;
• employment;
• DISCOM finances; and
• energy security.

Consequently, courts and insolvency professionals must balance creditor recovery with continuity of electricity supply.

4. Relationship Between the IBC and Electricity Law

One of the most important legal questions is whether insolvency proceedings can override rights created under electricity legislation.

The Electricity Act, 2003 regulates the electricity industry, while the IBC provides a general insolvency framework.

Section 238 of the IBC contains a non-obstante provision, meaning that where the IBC conflicts with another law, the IBC generally prevails.

However, electricity-sector regulation does not disappear merely because insolvency proceedings commence.

For example, an insolvency professional may need to deal with:

• electricity licences;
• grid connectivity;
• tariff orders;
• PPA obligations;
• transmission agreements;
• environmental permissions;
• fuel-supply contracts; and
• regulatory approvals.

Therefore, power-sector insolvency is characterised by interaction between insolvency law and sectoral regulation.

5. Financial Stress in Power Companies

A major source of insolvency in India has historically been the accumulation of stressed assets in the thermal-power sector.

A typical structure is:

Promoter → Power Project → Bank Debt → Fuel Supply → Generation → PPA → DISCOM → Consumer

A failure at any point can affect the entire chain.

For example:

Coal supply is disrupted → plant operates below capacity → electricity generation falls → PPA revenue declines → DISCOM payments become insufficient → project cannot service debt → banks classify the account as stressed → insolvency proceedings commence.

Thus, power-sector insolvency often involves systemic contractual and regulatory problems, rather than simply poor corporate management.

6. PPAs and Insolvency

Power Purchase Agreements are central to power-sector insolvency.

A PPA gives the generating company a contractual mechanism for selling electricity to a purchaser, often a DISCOM.

When the generator enters insolvency, several questions arise:

• Can the PPA be terminated?
• Can the resolution applicant transfer the PPA?
• Is the PPA an asset of the corporate debtor?
• Can the counterparty terminate merely because insolvency has commenced?
• What happens to unpaid invoices?
• Can the resolution applicant renegotiate the PPA?

These questions can significantly affect the value of a power project.

7. Case Law: Gujarat Urja Vikas Nigam Ltd. v. Amit Gupta

One of the most important Supreme Court decisions concerning power-sector insolvency is:

Gujarat Urja Vikas Nigam Ltd. v. Amit Gupta, (2021) 7 SCC 209.

The dispute concerned termination of a PPA after insolvency proceedings were initiated.

The Supreme Court examined the relationship between contractual rights, insolvency jurisdiction and the regulatory framework governing electricity.

Importance of the judgment

The Court recognised that certain contractual disputes are so closely connected with insolvency proceedings that they may fall within the jurisdiction of the NCLT.

The decision is particularly significant because termination of a PPA can destroy the commercial viability of a power-generating company.

The Court effectively recognised that:

The insolvency forum must consider whether termination of a critical PPA would frustrate the insolvency-resolution process.

Significance

The case demonstrates that a PPA cannot always be treated as an ordinary commercial contract during insolvency.

If termination of the agreement effectively destroys the corporate debtor's business, the insolvency framework may become directly relevant to the dispute.

8. Case Law: Essar Steel India Ltd. v. Satish Kumar Gupta

Another landmark case is:

Committee of Creditors of Essar Steel India Ltd. v. Satish Kumar Gupta, (2020) 8 SCC 531.

Although Essar Steel was not exclusively a power-sector case, its principles are highly relevant to infrastructure and energy insolvencies.

The Supreme Court emphasised the importance of the commercial wisdom of the Committee of Creditors (CoC).

The Court held that the CoC has considerable discretion in deciding how the liabilities of a distressed enterprise should be dealt with under a resolution plan.

Relevance to power projects

Power projects typically have numerous stakeholders:

• secured lenders;
• operational creditors;
• government authorities;
• employees;
• fuel suppliers;
• DISCOMs;
• PPA counterparties.

The Essar Steel principle supports the idea that the CoC can structure a resolution plan according to the commercial realities of the project, subject to the statutory requirements of the IBC.

9. Case Law: Swiss Ribbons Pvt. Ltd. v. Union of India

In:

Swiss Ribbons Pvt. Ltd. v. Union of India, (2019) 4 SCC 17,

the Supreme Court upheld the constitutional validity of major provisions of the IBC.

The Court explained that the principal objective of the IBC is resolution rather than mere recovery.

This principle is especially important for power projects.

A viable power plant may possess significant economic value even when its corporate owner is financially distressed.

Therefore:

liquidation of the company is not necessarily the optimal solution if the power project can be successfully restructured or transferred to a new owner.

10. Case Law: Innoventive Industries Ltd. v. ICICI Bank

In:

Innoventive Industries Ltd. v. ICICI Bank, (2018) 1 SCC 407,

the Supreme Court examined the operation of the IBC and its overriding effect.

The Court recognised the IBC as a comprehensive framework for insolvency resolution.

The judgment is important for power-sector insolvency because it reinforces the principle that the IBC has overriding force where there is an inconsistency with another law.

This becomes relevant where state-level legislation, contractual arrangements or regulatory claims conflict with the insolvency framework.

11. Case Law: Committee of Creditors of Amtek Auto Ltd. v. Dinkar T. Venkatasubramanian

The Supreme Court has repeatedly emphasised the importance of completing the insolvency-resolution process efficiently.

This principle is especially relevant to power plants because delay can cause:

• deterioration of machinery;
• loss of skilled employees;
• termination of PPAs;
• loss of customers;
• deterioration of creditworthiness;
• additional interest liabilities; and
• reduction in enterprise value.

Therefore, time is a particularly important element in power-sector insolvency.

12. Treatment of Government Dues

Another major issue concerns statutory dues.

Power companies may owe:

• electricity duty;
• GST;
• customs duties;
• income tax;
• environmental charges;
• mining royalties;
• regulatory fees.

Under the IBC, treatment of government dues depends upon the statutory classification of the claim and the waterfall/resolution-plan framework.

Government authorities cannot automatically assume priority merely because the debt is owed to the State.

The Supreme Court's jurisprudence on the IBC has generally reinforced the statutory distribution mechanism rather than allowing individual creditors to bypass the Code.

13. Electricity Regulatory Commissions During Insolvency

CERC and SERCs continue to perform sectoral regulatory functions.

This creates an important distinction:

NCLT

Deals primarily with:

• insolvency;
• resolution;
• claims;
• resolution plans;
• liquidation;
• insolvency-related contractual issues.

Electricity Regulatory Commission

Deals primarily with:

• tariff;
• licensing;
• electricity regulation;
• grid-related matters;
• regulatory approvals;
• sector-specific disputes.

The challenge arises where a dispute has both an insolvency component and an electricity-regulatory component.

The Gujarat Urja judgment is particularly important in understanding this jurisdictional overlap.

14. Insolvency of DISCOMs

Insolvency is not limited to generating companies.

Distribution companies may also face severe financial stress.

DISCOM insolvency can arise because of:

• inadequate tariff recovery;
• technical and commercial losses;
• delayed subsidy payments;
• high power procurement costs;
• agricultural/free-power subsidies;
• accumulated regulatory assets;
• delayed consumer payments.

DISCOM financial distress creates a chain reaction:

Consumer defaults → DISCOM cash-flow shortage → delayed payments to generators → generator financial stress → lender losses.

Thus, power-sector insolvency must often be understood as a network problem rather than an isolated corporate failure.

15. Insolvency and Renewable Energy Projects

Renewable-energy projects have their own insolvency problems.

Solar and wind projects generally have:

• high initial capital expenditure;
• relatively low operating costs;
• long-term PPAs;
• dependence on tariff assumptions;
• financing based on expected future cash flows.

Their insolvency can therefore significantly depend upon the continued validity of the PPA.

A reduction in the expected tariff or termination of a PPA can substantially reduce project value.

16. Change in Law and Insolvency

Power projects frequently contain Change in Law provisions.

Changes in:

• taxation;
• coal pricing;
• environmental regulation;
• import duties;
• government policy;
• renewable-energy requirements

may alter project economics.

If a project becomes financially distressed because of a regulatory change, courts and regulators may need to determine whether compensation or tariff adjustment is available.

The insolvency process must then consider the resulting claims when valuing the project.

17. Fuel-Supply Problems

Thermal power projects depend heavily upon coal or gas.

A generating company can become insolvent where:

• coal is unavailable;
• coal prices increase;
• railway transportation is inadequate;
• fuel-supply agreements are terminated;
• imported coal becomes prohibitively expensive.

Fuel problems can therefore create insolvency even where the underlying generating plant is technically viable.

This is one reason why resolution applicants must carefully evaluate the entire project ecosystem rather than merely acquiring physical assets.

18. Stressed Power Assets and Resolution Plans

A successful resolution plan for a power project may involve:

• debt restructuring;
• conversion of debt into equity;
• sale to another energy company;
• change of management;
• refinancing;
• renegotiation of commercial arrangements;
• fresh working capital;
• restructuring of PPAs where legally permissible;
• settlement with creditors.

The objective should generally be to preserve the going-concern value of a viable power asset.

19. Liquidation of Power Companies

If resolution fails, liquidation may follow.

However, liquidation of a power project can be economically destructive.

A functioning power plant may be worth substantially more as an operating business than as dismantled equipment.

Therefore, insolvency law attempts to encourage resolution before liquidation.

This is particularly important because a power plant involves integrated assets:

• land;
• boilers;
• turbines;
• generators;
• transmission facilities;
• water systems;
• coal-handling facilities;
• environmental equipment.

Separating these assets may dramatically reduce their value.

20. Security Interests of Banks

Banks financing power projects generally rely upon security over:

• land;
• plant and machinery;
• receivables;
• shares;
• bank accounts;
• contractual rights.

In insolvency, enforcement of these security interests is subject to the IBC framework.

The moratorium under Section 14 of the IBC restricts certain recovery and enforcement actions during the insolvency process.

This allows the insolvency process to preserve the value of the business while a resolution plan is considered.

21. Moratorium and Essential Services

The IBC provides special treatment concerning essential supplies.

Electricity is particularly significant because interruption of electricity can immediately destroy the value of an industrial enterprise.

The insolvency framework therefore seeks to prevent termination of essential supplies merely because of the commencement of insolvency proceedings, subject to the statutory conditions governing payment for supplies during the moratorium.

This reflects a fundamental insolvency principle:

Preserve the operating business first; determine ultimate creditor distribution later.

22. Cross-Border Power-Sector Insolvency

Large energy projects may involve:

• foreign lenders;
• foreign investors;
• imported equipment;
• international arbitration;
• overseas guarantees.

Cross-border insolvency can therefore create additional complications concerning:

• jurisdiction;
• recognition of foreign proceedings;
• enforcement of awards;
• security interests;
• foreign creditors.

India's cross-border insolvency framework remains an evolving area of law, making complex energy projects particularly challenging.

23. Major Legal Issues in Power-Sector Insolvency

The principal legal issues can be summarised as follows:

24. Key Judicial Principles

Indian courts have developed several important principles relevant to power-sector insolvency.

Principle 1: Resolution is preferred to liquidation

The IBC is primarily a resolution mechanism.

Principle 2: Commercial wisdom of CoC is important

Courts generally avoid substituting their commercial assessment for that of the CoC, subject to statutory compliance.

Principle 3: Critical contracts require special attention

Termination of a contract essential to the survival of the business can directly affect insolvency resolution.

Principle 4: IBC has overriding effect

Where there is an inconsistency between the IBC and another law, Section 238 can give the IBC overriding effect.

Principle 5: Sectoral regulation continues to matter

Insolvency does not eliminate electricity-sector regulatory requirements.

Principle 6: Going-concern value should be protected

A functioning power project may be worth significantly more than its individual assets.

25. Important Case Laws at a Glance

26. Critical Analysis

Power-sector insolvency exposes a structural tension between private creditor rights and public-interest energy governance.

A bank may want maximum recovery. A purchaser may want to terminate an uneconomic PPA. A government may want uninterrupted electricity supply. Consumers may require affordable electricity. Employees want employment security.

These interests do not always coincide.

The most difficult question therefore becomes:

Should insolvency law treat a power project simply as the property of an insolvent company, or as critical infrastructure with broader public significance?

Indian insolvency jurisprudence increasingly recognises the latter dimension, although creditor protection and the commercial wisdom of the CoC remain central.

27. Recommendations for Reform

Several reforms could improve power-sector insolvency resolution.

1. Specialised insolvency framework for critical energy infrastructure

Large electricity projects could receive specialised procedural treatment.

2. Clear rules for PPA termination

Legislation or regulations could provide greater certainty concerning termination during insolvency.

3. Faster regulatory approvals

Resolution applicants should be able to obtain necessary electricity-sector approvals quickly.

4. Better coordination between NCLT and electricity regulators

Jurisdictional conflicts should be minimised.

5. Protection of essential contracts

Critical PPAs, fuel agreements and transmission arrangements should be protected where their continuation is necessary for successful resolution.

6. Better DISCOM financial discipline

Since DISCOM payment defaults can trigger generator insolvency, improving DISCOM finances is essential.

7. Special treatment for critical infrastructure

Energy assets essential to grid reliability should be treated differently from ordinary corporate assets where justified by public interest.

28. Conclusion

Power-sector insolvency is a complex intersection of insolvency law, electricity regulation, infrastructure finance, contract law and public interest. The IBC provides the principal framework for resolving financially distressed power companies, but successful resolution requires consideration of the project's PPAs, tariffs, fuel arrangements, grid connectivity, regulatory approvals and public-service obligations.

The Supreme Court's decision in Gujarat Urja Vikas Nigam Ltd. v. Amit Gupta is particularly important because it demonstrates how termination of a critical PPA can directly affect insolvency resolution. Swiss Ribbons, Innoventive Industries, Essar Steel, ArcelorMittal and K. Sashidhar further establish the broader principles governing resolution, creditor rights and commercial wisdom.

Ultimately, the preferred approach is generally to preserve viable power assets as going concerns, maximise their economic value, maintain continuity of electricity supply, and distribute value according to the statutory insolvency framework. The long-term success of India's power-sector insolvency regime will depend on achieving a workable balance between creditor recovery, contractual certainty, regulatory governance, financial stability and energy security.