TaxTMI 
TaxTMI 
2021 (11) TMI 798
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....facilities to the appellant for conducting examinations 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 t....
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.... 2019 in terms of Clause 11(b) of the Facilities Agreement. The termination notice stated thus: "Despite 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 wri....
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....ities Agreement. The NCLT observed that prima facie it appeared that the contract was terminated without serving the requisite notice of thirty days. The conclusion of the NCLT 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 ....
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.... shall function and continue its business activities. It is the duty of the Resolution Professional to keep the Corporate Debtor as a going concern. It is the main objective of the Code to keep the Corporate Debtor as a going concern. 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 Corpor....
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....l law enacted at a later date prevails over the earlier special law. Thus, the provisions of the IBC would apply to the present dispute; (iii) In Gujarat Urja (supra), this Court has held that the residuary jurisdiction of the NCLT under Section 60(5)(c) of the IBC provides it a wide discretion 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 defici....
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....amicably between the Parties hereto, be referred to arbitration and such arbitration shall be conducted in accordance with the rules of arbitration of the Bombay Chamber of Commerce and Industry ("BCCI"), which rules as modified from time to time, are deemed to be incorporated by reference into this clause (the "Arbitration Rules") by an arbitration panel comprised of a sole 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 te....
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....de, examine the material placed before it by the financial creditor and record a satisfaction as to whether there is default or not. While doing so the contention put forth by the corporate debtor shall also be noted to determine as to whether there is substance in the defence and to arrive at the conclusion whether there is default. If the irresistible conclusion by the adjudicating authority is that there is default 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 ha....
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....oust the jurisdiction of the NCLT to exercise its residuary powers under Section 60(5)(c) to adjudicate disputes relating to the insolvency of the Corporate Debtor. 22. The appellant has contested the reliance of the NCLAT on Section 25 of the IBC to hold that the RP can invoke the jurisdiction of the NCLT to stay the termination of the Facilities Agreement in pursuance of its duty to preserve the Corporate Debtor as a going concern. The learned counsel has 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....
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....ght or beneficial interest therein; (c) any action to foreclose, recover or enforce any security interest created by the corporate debtor in respect of its property including any action under the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002 (54 of 2002); (d) the recovery of any property by an owner or lessor where such property is occupied by or in the possession of the corporate debtor. Explanation.--For the purposes of this sub-Section, it 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 perio....
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....nd fact that relate to or arise during an insolvency resolution process. This Court observed: "91. The residuary jurisdiction of NCLT under Section 60(5)(c) of IBC provides it a wide discretion to adjudicate questions of law or fact arising from or in relation to the insolvency resolution proceedings. If the jurisdiction of NCLT were to be confined to actions prohibited by Section 14 of IBC, there would have been no requirement for the legislature to enact Section 60(5)(c) of IBC. Section 60(5)(c) would be rendered otiose if Section 14 is held to be exhaustive of the grounds of 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) wou....
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....to adjudicate disputes, which arise solely from or which relate to the insolvency of the corporate debtor... The nexus with the insolvency of the corporate debtor must exist" (para 69). Thus, the residuary jurisdiction of the NCLT cannot be invoked if the termination of a contract is based on grounds unrelated to the insolvency of the Corporate Debtor. 27. 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. 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 notic....