Supreme Court allows Adani to operate Coastal Energen power plant without changes until NCLAT ruling

The Supreme Court allowed a consortium including Adani Power Ltd to operate a power plant of Coastal Energen Pvt, a bankrupt company that it successfully bid for, overruling an appellate tribunal’s interim order that directed the resolution professional to take charge of the plant.

A three-judge bench led by Chief Justice DY Chandrachud restored the status quo ante on Thursday. This means it reverts to the status prior to the National Company Law Appellate Tribunal’s order of 6 September, when Adani was in charge of the plant after its plan to take over the insolvent power company was approved.

The Adani-led consortium, which includes Dickey Alternative Investment Trust, approached the Supreme Court to challenge the NCLAT's order. While the consortium is allowed to operate the plant in Thoothukudi district of Tamil Nadu, the apex court instructed it not to alter the plant's infrastructure, finances or debt-equity structure until the NCLAT issues a final order on the matter.

Adani Power shares climbed 4.1% to ₹652.50 on the BSE at 3:16 pm on Thursday.

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The Supreme Court said the NCLAT order had an "internal inconsistency."

"... on the one hand, the NCLAT directed that for a period of one week, the resolution professional would continue to operate the plant as before, and on the other hand, it directed that the status quo as on the date will be maintained," the court said.

However, the court clarified that its observations would not affect the final proceedings before the NCLAT on an appeal by a former director of Coastal Energen challenging the resolution plan of the Adani-led consortium. The NCLAT will hear the case on 18 September.

Senior advocate Mukul Rohatgi, appearing for Adani Power, argued that the company had the right to run the plant as the committee of creditors - the panel of banks that had lent money to Coastal Energen - had approved the consortium’s resolution plan on 31 August. An amount of ₹3,335 crore was paid to the 16 creditors and possession of the plant was taken.

Due process

In response, Kapil Sibal, representing the former director of Coastal Energen, said there were procedural errors in accepting the resolution plan. He contended that Adani Power had sent an expression of interest email in its independent capacity, which was rejected by the committee of creditors. Adani's subsequent involvement as part of the consortium constituted a "backdoor entry," which Sibal argued should not be permitted.

CJI Chandrachud disagreed with Sibal’s arguments.

"They paid ₹3,300 crore to the committee of creditors. The committee of creditors have approved the plan with 97%. Their commercial wisdom ought to prevail," Chandrachud said, permitting Adani to operate the plant.

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The National Company Law Tribunal in Chennai had approved the resolution plan by the consortium last month. It provides for the secured lenders of Coastal Energen to receive about ₹3,330 crore, which is 28.5% of the admitted claims totaling about ₹11,677 crore.

Ahmed Buhari, the former director of Coastal Energen, appealed to the NCLAT, arguing that due process was not followed in picking the right bidder, specifically the Dickey-Adani consortium.

This led the NCLAT to issue an order on 6 September, directing that the status quo be maintained as of that date. The NCLAT also instructed resolution professional Radhakrishnan Dharmarajan to manage the Coastal Energen plant and maintain the resolution amount in a separate account until the case is decided on merit.

Coastal Energen was admitted for corporate insolvency resolution by the NCLT Chennai on 4 February 2022, following a case filed by the State Bank of India. Dharmarajan was appointed as the resolution professional.

Sherisha Technologies Pvt Ltd and Jindal Power Ltd also bid to acquire the company, which owned the 1,200 MW thermal power plant.

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Recently, the Adani Group, through its subsidiaries, has faced criticism for taking over financially stressed companies via the Insolvency and Bankruptcy Code.

The Congress party raised concerns on 4 September, citing data from the All-India Bank Employees Association, which showed public sector banks were unable to recover 74% of their outstanding dues during the resolution process of 10 financially stressed companies that were acquired by the Adani Group.

On 6 September, the Supreme Court declined to stay the resolution plan of Adani Goodhomes, a subsidiary of Adani Infrastructure and Developers, to acquire insolvent realty company Radius Estates, which offered lenders only 7% of their dues.