Contract termination for pre-existing default cannot be restrained under insolvency law when the dispute lacks a real CIRP nexus.

Termination of two work orders was examined against a provisional extension letter, a government order extending contractual time for non-defaulting contractors, and the Insolvency and Bankruptcy Code. The tribunal noted that the contractor had already defaulted before the relevant cut-off date and had shown persistent non-performance, so the terminations were not contrary to the extension regime. It also held that the disputes arose from breach of commercial contracts and had no real nexus with the insolvency resolution process, so insolvency protections could not be used to restrain termination. Once the terminations were treated as lawful, the challenge to invocation of the bank guarantees also failed.

---

---

Issues: (i) whether termination of Work Order No. 1 violated the extension letter dated 30.03.2020 or the Government Order dated 08.06.2020; (ii) whether termination of Work Order No. 2 violated the Government Order dated 08.06.2020; (iii) whether the terminations were hit by Sections 14 and 238 of the Insolvency and Bankruptcy Code, 2016; and (iv) whether invocation of the bank guarantees was illegal.

Issue (i): whether termination of Work Order No. 1 violated the extension letter dated 30.03.2020 or the Government Order dated 08.06.2020.

Analysis: The provisional extension granted time up to 30.06.2020 without altering the contractual right to terminate for persistent default. The corporate debtor had already remained in default well beyond the original completion period and had achieved only partial progress when the work was terminated. The Government Order dated 08.06.2020 applied only to contractors who were not in default before 19.02.2020, which did not fit the factual position here.

Conclusion: Termination of Work Order No. 1 was not in violation of either the extension letter or the Government Order.

Issue (ii): whether termination of Work Order No. 2 violated the Government Order dated 08.06.2020.

Analysis: The second work order had also remained unperformed despite repeated extensions and substantial delay. The Government Order extended contractual time only for non-defaulting awardees, whereas the corporate debtor had already defaulted before the relevant cut-off date. The termination therefore rested on contractual default and not on the pandemic-related extension regime.

Conclusion: Termination of Work Order No. 2 was not in violation of the Government Order.

Issue (iii): whether the terminations were hit by Sections 14 and 238 of the Insolvency and Bankruptcy Code, 2016.

Analysis: The dispute arose from breach of construction contracts and not from any action motivated by the insolvency process. The appellant was availing the corporate debtor's services and was neither supplying essential goods or services to it nor recovering property in its possession. The contract terminations were founded on repeated non-performance and lacked the necessary nexus with the insolvency resolution process. In the absence of such nexus, the Adjudicating Authority could not invoke residuary jurisdiction under Section 60(5)(c) to restrain termination. Section 238 also did not assist the corporate debtor because the dispute was dehors the insolvency proceedings.

Conclusion: The terminations were not in violation of Sections 14 and 238 of the Insolvency and Bankruptcy Code, 2016, and the Adjudicating Authority lacked jurisdiction to interfere.

Issue (iv): whether invocation of the bank guarantees was illegal.

Analysis: The challenge to invocation of the guarantees rested on the premise that the terminations were invalid. Once the terminations were held to be lawful and outside the interdiction of the insolvency provisions, the foundation for treating the guarantee invocation as illegal disappeared.

Conclusion: Invocation of the bank guarantees was not illegal.

Final Conclusion: The contractual dispute could not be brought within the insolvency jurisdiction in the absence of a real nexus with the CIRP, and the impugned order was unsustainable.

Ratio Decidendi: Residuary jurisdiction under Section 60(5)(c) of the Insolvency and Bankruptcy Code, 2016 cannot be used to restrain termination of a commercial contract that is founded on pre-existing contractual default and has no genuine nexus with the insolvency resolution process.

---