TaxTMI 
TaxTMI 
2021 (11) TMI 798
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....xaminations for educational institutions. 3. Clause 11(b) of the Facilities Agreement states that either party is entitled to terminate the agreement immediately by written notice to the other party provided that a material breach committed by the latter is not cured within thirty days of the receipt of the notice. Clause 11(b) reads as follows: "11. Termination .... (b) Termination for Material Breach. Either party may terminate this Agreement immediately by a written notice to the other Party in the event of a material breach which is not cured within thirty days of the receipt of the said notice period." 4. A termination notice was issued by the appellant to the Corporate Debtor on 10 June 2019 which came into effect immediately. The parties have contested the facts leading up to the issuance of the notice. 5. It has been submitted on behalf of the appellant that there were multiple lapses by the Corporate Debtor in fulfilling its contractual obligations, which it failed to remedy satisfactorily. The appellant notified the Corporate Debtor in its email dated 1 August 2018 that it intended to invoke the penalty clause of the Facilities Agreement for the alleged contractu....
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....espite of all our sincere attempts in settling the crucial business issues, we have always received unvaried response from your end and these occurrences of non-observation has now culminated into breach of following terms and conditions of the Agreement. 1. Not maintaining the minimum level of skillset of personal on exam and non-exam days which is non-compliance as per Annexure B, Table C, and also a process violation. 2. Furnishing and Designing guidelines (Annexure B, Table D) not being adhered a) Furniture broken condition b) Temperature and ventilation in labs, server room and UPS rooms not being maintained c) Deploying housing staff d) Cleanliness and up keeping of the center 3. Branding and Navigation not in synchronization with Annexure F of facility agreement In view of all the aforestated events, consider this as a notice of termination as per clause 11 (b) of the Agreement which entitles Tata Consultancy Services Ltd. ("TCS") to terminate the Agreement with immediate effect by issuance of a written notice in the event of a material breach not being cured within 30 days. Please take notice that the relationship between us as Client/Service Recipient and....
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.... is extracted below: "Further whether the termination is good or bad in law, is a matter of inquiry, which requires examination of the fact and circumstances. In this scenario, we are of the prima facie view that the termination of the contract even without serving a notice to the corporate debtor is not correct. In view of the same, we hereby stay the termination notice issued by the respondent. Until then the respondent shall adhere to the terms of contract without fail." 12. Aggrieved by the order, the appellant preferred an appeal Company Appeal (AT) (Insolvency) No. 237 of 2020 before the NCLAT. The NCLAT by its order dated 24 June 2020 upheld the order of the NCLT observing that it had correctly stayed the operation of the termination notice since the main objective of the IBC is to ensure that the Corporate Debtor remains a going concern. The NCLAT referred to Section 14 to highlight that a moratorium is imposed to ensure the smooth functioning of the Corporate Debtor to safeguard its status as a going concern. Further, it is the responsibility of the RP under Section 25 of the IBC to preserve the Corporate Debtor as a going concern. The relevant portions of the judgmen....
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....oncern. The Adjudicating Authority rightly stayed the termination of notice and there is no illegality in the Order passed by the Adjudicating Authority dated 18.12.2019." The judgment of the NCLAT has given rise to the present appeal. Submissions of Counsel 13. Ms Fereshte D Sethna, learned counsel appearing on behalf of the appellant, has made the following submissions: (i) NCLT has misread the provisions of Section 14 of the IBC which relate to the provision of goods and services to the Corporate Debtor once the moratorium is imposed. In the present case, the appellant is availing of the services of the Corporate Debtor, to which Section 14 has no application; (ii) As a result of the impugned order, the Facilities Agreement, which is a determinable contract has become a non-terminable contract, overlooking the mandate of Section 14 of the Specific Relief Act 1963; (iii) The termination notice was not issued to the Corporate Debtor because it was undergoing CIRP but was on account of the material breaches of the agreement. Multiple opportunities were given to the Corporate Debtor to remedy the breaches before the termination notice was issued; (iv) The Facilities Agree....
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....to adjudicate questions of law or fact arising from or in relation to the insolvency resolution proceedings. It was further held that Section 14 of the IBC is not exhaustive of the grounds of judicial intervention contemplated under the IBC otherwise Section 60(5)(c) would be rendered otiose. One such ground of intervention is when the status of the Corporate Debtor as a going concern is in jeopardy. Thus, the NCLT has the power to exercise its jurisdiction under Section 60(5)(c) of the IBC to ensure that the Corporate Debtor survives as a going concern; (iv) The Corporate Debtor was not given a thirty days' notice to cure the breach in terms of Clause 11(b) of the Facilities Agreement. The termination notice refers to a notice dated 3 October 2018, which has not been placed on record. While a letter dated 11 October 2018 was received by the Corporate Debtor alleging deficiencies, those were cured by the end of October 2018. This is evinced by the fact that after October 2018, no communication, except those dated 19 November 2018 and 3 February 2019, were received by the Corporate Debtor. The Corporate Debtor had rectified any minor deficiencies that were brought to its notice by....
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....e arbitrator. The arbitration panel as referred to above shall be appointed by the BCCI. The arbitration panel shall deliver the award in the arbitration proceedings within three (3) months from reference of any dispute to arbitration. The venue of arbitration shall be Mumbai, India. The Parties agree that the award passed by the arbitration panel shall be final and binding upon the Parties, and that the Parties shall not be entitled to commence or maintain any action in any court of law in respect of any matter in dispute arising from or in relation to the Agreement, except for the enforcement of an arbitral award passed by an arbitration panel pursuant to this clause." 18. Section 238 provides that the IBC overrides other laws, including any instrument having effect by virtue of law. The text of Section 238 stipulates thus: "Section 238 - Provisions of this Code to override other laws The provisions of this Code shall have effect, notwithstanding anything inconsistent therewith contained in any other law for the time being in force or any instrument having effect by virtue of any such law." 19. In Indus Biotech (P) Ltd. v. Kotak India Venture (Offshore) Fund, a three ju....
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....efault and the debt is payable, the bogey of arbitration to delay the process would not arise despite the position that the agreement between the parties indisputably contains an arbitration clause." (emphasis added) 20. In Gujarat Urja (supra), a two judge Bench of this Court, of which one of us was a part (Justice DY Chandrachud), held that a power purchase agreement, which is a bilateral commercial contract, is an 'instrument' under Section 238. Notably, the power purchase agreement provided that the disputes between the parties relating to the agreement would be entertained by Gujarat Electricity Regulatory Commission. But since Section 238 provides an overriding effect to the provisions of the IBC over any instrument having effect by law, it was held that the NCLT had jurisdiction over the dispute which arose in the context of insolvency proceedings. The relevant extract of the judgment is set out below: "82. It has been urged on behalf of the appellant that Section 238 does not apply to a bilateral commercial contract between a corporate debtor and a third party and only applies to statutory contracts or instruments entered into by operation of law. The basis of this submi....
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....submitted that the jurisdiction of the NCLT cannot be determined based on the duties of the RP. Reliance was placed on the judgment of this Court in Embassy Property Developments (Private) Limited v. State of Karnataka (2020) 13 SCC 308, where this Court held that the duties of the RP are entirely different from the jurisdiction and powers of the NCLT. While the duty of the RP and the jurisdiction of the NCLT cannot be conflated, in Gujarat Urja (supra), this Court has clarified that the RP can approach the NCLT for adjudication of disputes which relate to the insolvency resolution process. But when the dispute arises dehors the insolvency of the Corporate Debtor, the RP must approach the relevant competent authority (para 72). We have discussed whether there is a nexus between the termination notice and the insolvency resolution proceedings in the subsequent paragraphs. 23. It was also urged on behalf of the appellant that the NCLT and NCLAT have re-written the agreement changing its nature from a determinable contract to a non-terminable contract overlooking the mandate of Section 14 "Section 14 - Contracts not specifically enforceable The following contracts cannot be specific....
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.... is hereby clarified that notwithstanding anything contained in any other law for the time being in force, a license, permit, registration, quota, concession, clearances or a similar grant or right given by the Central Government, State Government, local authority, sectoral regulator or any other authority constituted under any other law for the time being in force, shall not be suspended or terminated on the grounds of insolvency, subject to the condition that there is no default in payment of current dues arising for the use or continuation of the license, permit, registration, quota, concession, clearances or a similar grant or right during the moratorium period; (2) The supply of essential goods or services to the corporate debtor as may be specified shall not be terminated or suspended or interrupted during moratorium period. (2A) Where the interim resolution professional or resolution professional, as the case may be, considers the supply of goods or services critical to protect and preserve the value of the corporate debtor and manage the operations of such corporate debtor as a going concern, then the supply of such goods or services shall not be terminated, suspended o....
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.... judicial intervention contemplated under IBC in matters of preserving the value of the corporate debtor and its status as a "going concern". We hasten to add that our finding on the validity of the exercise of residuary power by NCLT is premised on the facts of this case. We are not laying down a general principle on the contours of the exercise of residuary power by NCLT. However, it is pertinent to mention that NCLT cannot exercise its jurisdiction over matters dehors the insolvency proceedings since such matters would fall outside the realm of IBC. Any other interpretation of Section 60(5)(c) would be in contradiction of the holding of this Court in Satish Kumar Gupta [Essar Steel (India) Ltd. (CoC) v. Satish Kumar Gupta, (2020) 8 SCC 531 : (2021) 2 SCC (Civ) 443]." 25. Before the initiation of the CIRP, the appellant had on multiple instances communicated to the Corporate Debtor that there were deficiencies in its services. The Corporate Debtor was put on notice that the penalty and termination clauses of the Facilities Agreement may be invoked. This is evident from the appellant's communications dated 1 August 2018, 17 September 2018, 1 October 2018 and 11 October 2018. In i....
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....he 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, we are of the view that 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. 28. While in the present case, the second issue formulated by this Court has no bearing, we would like to issue a note of caution to the NCLT and NCLAT regarding interference with a party's contractual right to terminate a contract. 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 (supra), this Court held thus: "176. Given that ....