8 August 2022


Judgments

Supreme Court

TATA Consultancy Services Limited vs. Vishal Ghisulal Jain

MANU/SC/1118/2021

23.11.2021

Insolvency

NCLT does not have any residuary jurisdiction to entertain contractual dispute

Present appeal arises from a judgment of the National Company Law Appellate Tribunal. The NCLAT upheld the interim order of the National Company Law Tribunal which stayed the termination by the Appellant of its Facilities Agreement dated 1st December, 2016 with SK Wheels Private Limited.

The Appellant and the Corporate Debtor entered into a Build Phase Agreement on 24th August, 2015 followed by a Facilities Agreement on 1 December 2016. The Facilities Agreement obligated the Corporate Debtor to provide premises with certain specifications and facilities to the appellant for conducting examinations for educational institutions.

It is evident that, the Appellant had time and again informed the Corporate Debtor that its services were deficient, and it was falling foul of its contractual obligations. There is nothing to indicate that, the termination of the Facilities Agreement was motivated by the insolvency of the Corporate Debtor. The trajectory of events makes it clear that, the alleged breaches noted in the termination notice dated 10 June 2019 were not a smokescreen to terminate the agreement because of the insolvency of the Corporate Debtor. Thus, the NCLT does not have any residuary jurisdiction to entertain the present contractual dispute which has arisen dehors the insolvency of the Corporate Debtor. In the absence of jurisdiction over the dispute, the NCLT could not have imposed an ad-interim stay on the termination notice. The NCLAT has incorrectly upheld the interim order of the NCLT.

Even if the contractual dispute arises in relation to the insolvency, a party can be restrained from terminating the contract only if it is central to the success of the CIRP. Crucially, the termination of the contract should result in the corporate death of the Corporate Debtor. In Gujarat Urja, this Court held that, the jurisdiction of NCLT under Section 60(5)(c) of IBC cannot be invoked in matters where a termination may take place on grounds unrelated to the insolvency of the corporate debtor. It cannot even be invoked in the event of a legitimate termination of a contract based on an ipso facto clause like Article 9.2.1(e) herein, if such termination will not have the effect of making certain the death of the corporate debtor.

The narrow exception crafted by this Court in Gujarat Urja must be borne in mind by the NCLT and NCLAT even while examining prayers for interim relief. The order of the NCLT dated 18 December 2019 does not indicate that the NCLT has applied its mind to the centrality of the Facilities Agreement to the success of the CIRP and Corporate Debtor’s survival as a going concern. The NCLT has merely relied upon the procedural infirmity on part of the Appellant in the issuance of the termination notice, i.e., it did not give thirty days’ notice period to the Corporate Debtor to cure the deficiency in service. The NCLAT, in its impugned judgment, has averred that the decision of the NCLT preserves the ‘going concern’ status of the Corporate Debtor but there is no factual analysis on how the termination of the Facilities Agreement would put the survival of the Corporate Debtor in jeopardy.

The judgment of the NCLAT is set aside. The proceedings initiated against the appellant shall stand dismissed for absence of jurisdiction. The appeal is disposed of.

Tags : Contractual dispute Proceedings Jurisdiction

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