2020 (8) TMI 425 - AT - Insolvency and Bankruptcy

Tribunal upholds stay on termination notice, stresses compliance with Insolvency and Bankruptcy Code

The Tribunal upheld the stay on the termination notice issued by the Appellant, emphasizing compliance with the Facilities Agreement and the moratorium ... Stay of termination notice - Facilities agreement - conduct of examinations deploying National Technology Infrastructure for the Appellant’s clients - It is submitted that the ‘Corporate Debtor’ failed to remedy contractual breaches, thereby, a notice of termination dated 10th June, 2019 issued by the Appellant in terms of Clause 11(b) of the Facilities Agreement. Whether the order passed by the Adjudicating Authority staying the termination notice is legal or not? HELD THAT:- The Respondent herein was appointed as Interim Resolution Professional (in short IRP) to carry out the functions as per law. In view of Section 14 once a moratorium was imposed by the Adjudicating Authority and on appointment of Interim Resolution Professional the Interim Resolution Professional will be at the helm of affairs of the company in view of the suspension of the Board of Directors of the ‘Corporate Debtor’. As on the date of the imposition of moratorium the business and activities of the ‘Corporate Debtor’ will have to be carried out for smooth functioning of the company and the company shall remain as a going concern. Apart from that the Resolution Professional shall ensure for smooth running of the company as a going concern and the Resolution Professional shall perform the duties as per Section 25 of the I&B Code. Sub- Section (2)(a) of Section 25, the Resolution Professional take immediate custody and control of all the assets of the Corporate Debtor, including the business records of the Corporate Debtor - Further, the said provision sets out the duty of Resolution Professional to preserve and protect the assets of the ‘Corporate Debtor’ and lays down the functions he may perform the same. In view of the duties cast upon the Resolution Professional, the Resolution Professional to keep the Corporate Debtor as a going concern and filed an application being C.A. (M.B.)- 2954 of 2019 before the Adjudicating Authority seeking stay of termination of notice and sought direction to the Appellant to continue the Facilities Agreement dated 01.12.2016 - The Adjudicating Authority after hearing the parties stayed the termination of notice and directed the Appellant herein to adhere to the terms of contract without fail. Appeal dismissed. Issues Involved:1. Validity of the termination notice issued by the Appellant.2. Compliance with the Facilities Agreement's termination clause.3. Applicability of the moratorium under Section 14 of the Insolvency and Bankruptcy Code (IBC).4. Duties and responsibilities of the Resolution Professional during the Corporate Insolvency Resolution Process (CIRP).Issue-wise Detailed Analysis:1. Validity of the termination notice issued by the Appellant:The Appellant argued that the termination notice dated 10th June 2019 was issued in accordance with Clause 11(b) of the Facilities Agreement due to the 'Corporate Debtor's' failure to remedy contractual breaches. The Respondent, however, contended that no prior notice was received to cure the material breach, making the termination notice invalid. The Tribunal noted that the CIRP against the 'Corporate Debtor' was initiated on 29th March 2019, and the termination notice was issued subsequently. The Tribunal emphasized that the moratorium imposed under Section 14 of the IBC prohibits such termination actions.2. Compliance with the Facilities Agreement's termination clause:Clause 11(b) of the Facilities Agreement stipulates that either party may terminate the agreement with a written notice if the material breach is not cured within 30 days of receipt of the notice. The Appellant claimed to have issued multiple notices seeking remedies for breaches, which the 'Corporate Debtor' failed to address, leading to the termination notice. However, the Respondent argued that they did not receive any such notice and had cured all deficiencies. The Tribunal found that the termination notice was issued without adhering to the mandatory notice period required by Clause 11(b).3. Applicability of the moratorium under Section 14 of the Insolvency and Bankruptcy Code (IBC):The Tribunal highlighted that Section 14(1) of the IBC imposes a moratorium prohibiting actions like the institution of suits, transferring assets, and recovery of property by owners or lessors. The Adjudicating Authority's order dated 29th March 2019, which admitted the application under Section 7 of the IBC, imposed such a moratorium. The Tribunal emphasized that the moratorium aims to ensure the smooth functioning of the 'Corporate Debtor' as a going concern during the CIRP.4. Duties and responsibilities of the Resolution Professional during the Corporate Insolvency Resolution Process (CIRP):The Tribunal reiterated that the Resolution Professional, upon the imposition of the moratorium, takes control of the 'Corporate Debtor' and must ensure its operations continue smoothly. The Resolution Professional's duties include preserving and protecting the assets of the 'Corporate Debtor' and representing the 'Corporate Debtor' in judicial or quasi-judicial proceedings. In this case, the Resolution Professional sought to stay the termination of the Facilities Agreement to maintain the 'Corporate Debtor' as a going concern, which aligns with the objectives of the IBC.Conclusion:The Tribunal concluded that the Adjudicating Authority rightly stayed the termination notice and directed the Appellant to adhere to the terms of the Facilities Agreement. The Tribunal found no illegality in the Adjudicating Authority's order dated 18th December 2019, and accordingly, the appeal was dismissed with no orders as to costs.