High Court upholds jurisdiction in Director's challenge against coal supplier's notice under IBC Section 14

The petition filed by a suspended Director challenging a show cause notice from a coal supplier regarding a Fuel Supply Agreement was deemed maintainable by the Delhi High Court. The court upheld its territorial jurisdiction despite the supplier's objections. The court affirmed the applicability of the moratorium under Section 14 of the IBC, preventing the forfeiture of the security deposit. Additionally, the court directed banks not to enforce the invocation of bank guarantees until a specified date, pending further NCLT proceedings.

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Issues:
- Maintainability of the petition
- Territorial jurisdiction of the court
- Applicability of moratorium under Section 14 of the IBC
- Invocation of bank guarantees

Analysis:

Maintainability of the petition:
The petitioner, a suspended Director of a company involved in insolvency resolution proceedings, filed a petition seeking relief against a coal supplier regarding a Fuel Supply Agreement (FSA). The petitioner challenged a show cause notice issued by the supplier for potential termination of the FSA and forfeiture of the security deposit. The respondent raised concerns about the maintainability of the petition, questioning the authorization for filing and the territorial jurisdiction of the court.

Territorial jurisdiction of the court:
The respondent argued that the court lacked territorial jurisdiction as the relief was sought against a party located in a different jurisdiction with a jurisdiction clause specifying disputes to be subject to courts in that jurisdiction. However, the petitioner contended that the NCLAT order restrained the resolution professional from taking steps, and the moratorium under the IBC should prevent invocation of bank guarantees.

Applicability of moratorium under Section 14 of the IBC:
The NCLT had declared a moratorium under Section 14 of the IBC, prohibiting certain actions against the corporate debtor. The NCLAT order directed the resolution professional not to take steps but did not stay the moratorium. Therefore, the moratorium continued to apply, including regarding the forfeiture of the security deposit.

Invocation of bank guarantees:
Post the petition filing, the coal supplier terminated the FSA and forfeited the security deposit. The court directed that the invocation of bank guarantees should not be enforced by banks until a specified date, subject to the petitioner filing an application before the NCLT. The protection against encashment of bank guarantees was to continue until the first listing before the NCLAT, with any encashed amounts not to be disbursed to the supplier pending NCLT's decision.

This detailed analysis covers the issues of maintainability of the petition, territorial jurisdiction, the applicability of the moratorium under the IBC, and the invocation of bank guarantees as addressed in the judgment delivered by the Delhi High Court.

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