2021 (11) TMI 798 - SC - Insolvency and Bankruptcy

NCLT lacks jurisdiction over non-insolvency disputes. Supreme Court sets aside NCLAT judgment.

The Supreme Court held that the NCLT lacked jurisdiction under Section 60(5)(c) of the IBC to adjudicate a contractual dispute unrelated to the insolvency ... Initiation of the CIRP - deficiencies in its services - Stay on termination by the appellant of its Facilities Agreement - facilities to the appellant for conducting examinations for educational institutions - residuary jurisdiction of NCLT under Section 60(5)(c) of the IBC to adjudicate upon the contractual dispute between the parties - Imposition of an ad-interim stay on the termination of the Facilities Agreement, by residuary jurisdiction - HELD THAT:- In INDUS BIOTECH PRIVATE LIMITED VERSUS KOTAK INDIA VENTURE (OFFSHORE) FUND (EARLIER KNOWN AS KOTAK INDIA VENTURE LIMITED) & OTHERS [2021 (3) TMI 1178 - SUPREME COURT], a three judge Bench of this Court, of which one of us was a part (Justice AS Bopanna), held that Section 238 of the IBC overrides all other laws. This Court was considering whether a reference to arbitration made under Section 8 of the Arbitration and Conciliation Act 1996 in terms of the agreement between the parties would affect the jurisdiction of the NCLT to examine an application filed under Section 7 of the IBC. Admittedly, the appellant is neither supplying any goods or services to the Corporate Debtor in terms of Section 14 (2) nor is it recovering any property that is in possession or occupation of the Corporate Debtor as the owner or lessor of such property as envisioned under Section 14 (1) (d). It is availing of the services of the Corporate Debtor and is using the property that has been leased to it by the Corporate Debtor. Thus, Section 14 is indeed not applicable to the present case - 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. 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 proceedings initiated against the appellant shall stand dismissed for absence of jurisdiction. Issues Involved:1. Jurisdiction of the NCLT under Section 60(5)(c) of the IBC.2. Validity of the ad-interim stay on the termination of the Facilities Agreement.Issue-Wise Detailed Analysis:1. Jurisdiction of the NCLT under Section 60(5)(c) of the IBC:The primary issue was whether the NCLT could exercise its residuary jurisdiction under Section 60(5)(c) of the IBC to adjudicate the contractual dispute between the parties. The court noted that Section 238 of the IBC overrides other laws, including arbitration agreements. It emphasized that the NCLT's jurisdiction extends to questions of law or fact arising out of or in relation to the insolvency resolution of the Corporate Debtor. The Facilities Agreement, being an 'instrument' under Section 238, can be overridden by the provisions of the IBC. The court referenced its earlier decisions in Indus Biotech (P) Ltd. v. Kotak India Venture (Offshore) Fund and Gujarat Urja Vikas v. Amit Gupta & Ors., which affirmed the NCLT's wide discretion under Section 60(5)(c). However, the court clarified that the residuary jurisdiction could not be invoked if the termination of a contract is based on grounds unrelated to the insolvency of the Corporate Debtor.2. Validity of the Ad-Interim Stay on the Termination of the Facilities Agreement:The court analyzed whether the NCLT and NCLAT correctly imposed an ad-interim stay on the termination of the Facilities Agreement. The appellant had issued a termination notice citing multiple breaches by the Corporate Debtor. The court found that the termination was not motivated by the insolvency of the Corporate Debtor but was based on consistent deficiencies in services. It was emphasized that the NCLT and NCLAT had incorrectly upheld the interim stay without establishing a nexus between the termination notice and the insolvency resolution proceedings. The court referred to Gujarat Urja to highlight that judicial intervention should be limited and should not interfere with valid contractual terminations unless the termination would lead to the corporate death of the Corporate Debtor. The court concluded that the NCLT lacked jurisdiction over the dispute and that the ad-interim stay was improperly imposed.Conclusion:The Supreme Court set aside the judgment of the NCLAT dated 24 June 2020 and dismissed the proceedings initiated against the appellant for lack of jurisdiction. The court reiterated that the NCLT's residuary jurisdiction should be exercised cautiously and in line with the principles laid down in Gujarat Urja. The appeal was disposed of with no order as to costs.