TaxTMI 
TaxTMI 
2021 (12) TMI 289
X X X X Extracts X X X X
X X X X Extracts X X X X
....th the Applications with the direction that the terminationofWork Order Nos. 1 and 2 by Rajasthan State Road Development & Construction Corporation Ltd. (the Corporation) are inconsistent with Section 20 of Insolvency and Bankruptcy Code, 2016 (IBC) and are invalid and prohibited under Section 238 of IBC. Moreover, the termination proceeding could not be initiated or continued under bar of moratorium of Section 14 of IBC. Consequently, invocation of performance bank guarantees is untenable. 2(a). Brief facts of this case are that the Work Order No. 1was awarded to the Aesthetic Stone Arts India Pvt. Ltd. (Corporate Debtor) vide Work Order No. PD/JP-11/2016-17/31dated 28.03.2017 by the Corporation (Appellant herein) for construction of building for State of Art Capacity Building and Training Centre and Help Desk Commercial Tax Department, Jaipur for amount of Rs. 2,99,50,904.12 Paisa. The date of commencement of work was 10.04.2017 and the date of completion was 09.07.2018. There were several extensions granted to the Corporate Debtor for completion of work even in the extended period of almost two years the Corporate Debtor was not able to complete the work. Lastly vide letter dat....
X X X X Extracts X X X X
X X X X Extracts X X X X
....foregoing, we hold and order as follows:- a. Provisions for termination included in or connected with instruments of Work Order No. 1 and 2, are inconsistent inter-alia with Section 20 of IBC, 2016 and are invalid and prohibited under Section 238 of the Code. Moreover, termination proceedings could not be initiated or continued by Respondent No. 1 under bar of moratorium of Section 14 of the Code. b. Termination of Work Orders 1 and 2 all communication, including notices, in this regard is /are held tobe inoperative and null. c. Consequent invocation of bank guarantees by Respondent No. 1, in the factual situation is untenable. Respondent No. 3 is hereby directed to place a lien on one or more bank account(s) of Respondent No. 1, at any of the branches of Respondent No. 3, for a cumulative sum equivalent to the total amount of bank guarantees invoked by Respondent No. 1. This sum shall be blocked and held as custodia legis, by Respondent No. 3 under escrow till any further directions of the Adjudicating Authority. In the event of any shortfall in the sum placed under lien, Respondent No. 1 shall open a fixed deposit with Respondent No. 3 for the amount of shortfall, which amo....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ajasthan Government Order dated 08.06.2020 clearly states that the extension shall be applicable for those awardees who are not in default for their obligations prior to 19.02.2020. Ld. Adjudicating Authority has wrongly placed reliance on this Government Order. 9. Ld. Counsel for the Appellant submitted that the performance bank guarantee does not fall within the definition of Security Interest under sub-Section (31) of Section 3 of IBC and as such the provisions of moratorium cannot be applied. For this proposition of law, he placed reliance on the Judgment of this Appellate Tribunal in the case of GAIL (India) Limited VS Rajeev Manaadiar & Ors. (CA (AT) (Ins) No. 319 of 2018 order dated 24.07.2018). Thus, the direction of Ld. Adjudicating Authority in respect of performance bank guarantee is erroneous. 10. Lastly, Ld. Counsel for the Appellant submitted that against the termination orders the Respondent No. 1 first approach Civil Court and High Court for seeking stay on the termination of the work orders when the Courts denied for granting any relief then the Respondent No. 1 has preferred the Application before the Adjudicating Authority with unclean hands and concealing mate....
X X X X Extracts X X X X
X X X X Extracts X X X X
....e of illegal termination of work orders, is per se illegal and invalid. It is settled law that if the basic act is itself unlawful, all resultant steps in pursuance of the action are illicit, unacceptable and prohibited as held by the Hon'ble Supreme court in the case of State of Punjab Vs. Davinder Pal Singh Bhullar &Ors AIR 2012 SC 364. The Respondent No. 1 has never concealed any fact in respect of earlier litigation before Civil Court. Ld. Adjudicating Authority has rightly held that the termination of work orders are a nullity and ab-initio void. Consequently, invocation of bank guarantee was illegal and liable to be set aside. 14. After hearing Ld. Counsels for the parties, we have gone through the record. 15. Following issues arose for our consideration: (i) Whether termination of Work Order No. 1 is inviolation of provisional extension letter dated 30.03.2020 and/or Government's order dated 08.06.2020? (ii) Whether the termination of Work Order No. 2 is inviolation of Government Order dated 08.06.2020? (iii) Whether termination of work orders are in violation of provisions of Sections 14 & 238 of IBC? (iv) Whether the invocation of bank guarantee was illegal? Iss....
X X X X Extracts X X X X
X X X X Extracts X X X X
....work. The Corporation vide letter dated 30.03.2020 provisionally extended the period upto 30.06.2020. The Corporate Debtor has to complete the work within 15 months whereas after lapse of 38 months could not complete the work. There is nothing on record to presume that the clauses 59, 60 & 61 of the agreement were deleted, modified or varied. Thus, we are of the view that the termination of Work Order No. 1 is not inviolation of extension order dated 30.03.2020. 20. Now, we have considered whether the termination of work order No. 1 is inviolation of Government order dated 08.06.2020. The Government order is reproduced in Para 8 of the impugned order. In the order, it is mentioned that six months extensions is granted to discharge obligation under contract to those awardees of contracts/tenders who are not in default for their obligations prior to 19.02.2020. In the present contract, the Corporate Debtor has failed to discharge the obligations within 15 months i.e. till 09.07.2018. Thus, the Corporate Debtor is defaulter prior to 19.02.2020. Therefore, the Corporate Debtoris not entitled to get the advantage of thesaid Government order. Issue No. (ii) Whether the termination of ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....rms of work orders in contravention of the provisions of IBC could not be enforced as the provisions of IBC shall have overriding effect.For this interpretation, the Adjudicating Authority has placed reliance on the Judgment of Astonfield Solar (Gujarat) Pvt. Ltd. Vs. Gujarat Urja Vikas Nigam Ltd. CA-700/ND/2019 decided by NCLT. The decision upheld by this Appellate Tribunal in Appeal namely Gujarat Urja Vikas Nigam Ltd. Vs. Amit Gupta CA (AT) (Ins) No. 1045 of 2019. 25. The finding of the Ld. Adjudicating Authority is solely depend on the Judgment of this Appellate Tribunal in Gujarat Urja Nigam Ltd.(Supra). This Judgment was assailed before the Hon'ble Supreme Court in Civil Appeal No. 9241 of 2019 Gujarat Urja Vikas Ltd. Vs. Amit Gupta & Ors. The Judgment is reported in (2021) 7 SCC 209. In this Judgment, Hon'ble Supreme Court held that the Adjudicating Authority's jurisdiction is not limited by Section 14 in terms of the grounds of judicial intervention envisaged under the IBC. It can exercise its residuary jurisdiction under Section 60(5) (c) of IBC to adjudicate on question of law and fact that relate to or arise during an insolvency resolution process. Subsequently, Hon'ble....
X X X X Extracts X X X X
X X X X Extracts X X X X
....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 or interrupted during the period of moratorium, except where such corporate debtor has not paid dues arising from such supply during the moratorium period or in such circumstances as may be specified. (3) The provisions of sub-section (1) shall not apply to- (a) such transactions, agreeme....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... 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]." 28. Admittedly, the Appellant (Corporation) 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). This is not a case in which IRP/RP considers that the supply of goods or services critical to protect and preserve the value of the Corporate Debt or and managed the operations of such Corporate Debtor as a going concern, then supply of such goods or services shall not be terminated. In the present case, the Appellant (Corporation) was availing the services of the Corporate Debtor for construction of bu....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... contrary contained in any other law for the time being in force, the National Company Law Tribunal shall have jurisdiction to entertain or dispose of- .... (c) any question of priorities or any question of law or facts, arising out of or in relation to the insolvency resolution or liquidation proceedings of the corporate debtor or corporate person under this Code." Clause 12 (d) of the Facilities Agreement provides that any dispute between the parties relating to the agreement could be the subject matter of arbitration. However, the Facilities Agreement being an 'instrument' under Section 238 of the IBC can be overridden by the provisions of the IBC. In terms of Section 238 and the law laid down by this Court, the existence of a clause for referring the dispute between parties to arbitration does not 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....
X X X X Extracts X X X X
X X X X Extracts X X X X
..... The nexus with the insolvency of the corporate debtor mustexist" (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 notice. The NCLAT has incorrectly upheld the interim order of the NCLT." 30. Hon'ble Supreme court in Gujarat Urj....