Section 60 (5) of the Insolvency and the Bankruptcy Code, 2016, talks about the jurisdiction of NCLT to dispose of the matters related to the insolvency concerning the corporate debtor. However, there are other provisions in the code that appears to contradict the provision given under section 60 (5). This issue again came into light because of the recent judgment passed by the Supreme Court on March 2021 in the case of, Gujarat Urja Vikas Nigam Limited vs. Amit Gupta & Ors.

The careful reading of section 60(5) provides that NCLT is a statutory body and its jurisdiction is limited to that provided under the Code. Before the IBC, came into existence, any proceedings in relation to the matters of IBC were dealt with by several forums. This resulted into confusion leading to the delay in arriving at the insolvency resolution. Therefore, it would be pertinent to discuss the territorial jurisdiction of the NCLT as given under the Code.

Section 60(5)(a) provides that the NCLT has the jurisdiction to entertain any application or proceedings by or against the corporate debtor or corporate person Further any claims pertaining to the corporate persons including its subsidiaries situated in India would also be filed before the Hon’ble NCLT as per clause (b)of section 60(5). In addition to this, clause (c) of section 60(5) provides the residuary jurisdiction to the Hon’ble NCLT. Infact the residuary jurisdiction vests NCLT with wide powers, however its jurisdiction should not be in contravention of the provision of the concerned statute. The Hon’ble Supreme Court held in the matter of Essar Steel Limited Vs. Satish Kumar Gupta, that the NCLT has been vested with the powers to decide the matters arising out of or in relation to the insolvency proceedings of the corporate under the Code if it is crucial to the success of the CIRP.

The Hon’ble Supreme Court held in the recent judgement passed in the matter of “Tata Consultancy Services Ltd Vs. Vishal Ghisulal Jain, RP of SK Wheels Pvt Ltd, that the NCLT in pursuant to the residuary powers as given under clause © of section 60(5) is empowered to adjudicate upon contractual disputes, which is central to the success of the CIRP.

Summary of the Facts

The appellant and the Corporate Debtor had entered into a Facilities Agreement under which the Corporate debtor was obligated to provide the premises with certain specifications and facilities to the appellant for the purpose of conducting examinations for educational institutions. The agreement contained a clause by virtue of which either party can terminate the agreement immediately by serving a written notice to that effect to the other party that the material breach was committed by any one of them which was not rectified with 30 days of the receipt of the notice to that effect. On investigating into the matter, the appellant contested that there were many lapses was observed by the corporate debtor in fulfilling its contractual obligations, which were not rectified within 30 days of the notice.  Further CIRP was initiated against the CD, which came to the notice of the appellant subsequent to the disconnection of the supply of electricity by the Electricity Board. The appellant claimed that the material breaches by the CD resulted in a huge liability to the appellant.

The CD on the other hand, submitted that certain routine operational requirements were pointed out by the appellant which were duly rectified within a reasonable time. Further the electricity connection was also restored eventually.

The corporate debtor contested the issuance of the termination notice on the ground that no material breaches had occurred, and in an event, a thirty-day period was to be given to a party to cure the defects before the agreement could be terminated under the terms as specified under the Facilities Agreement. The CD instituted a miscellaneous application before the National Company Law Tribunal (“NCLT”) under Section 60(5)(c) of the IBC for quashing the termination notice. The NCLT passed an order granting an ad-interim stay on the termination notice issued by the appellant and directed the appellant to comply with the terms of the Facilities Agreement. The NCLT observed that prima facie it appeared that the contract was terminated without serving the requisite notice of thirty days. Aggrieved by the order, the appellant preferred an appeal before the National Company Law Appellate Tribunal (“NCLAT”). The NCLAT 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 was 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, NCLAT held that it is the responsibility of the Resolution Professional (“RP”) under Section 25 of the IBC to preserve the corporate debtor as a going concern. The judgment of the NCLAT gave rise to the present appeal before the Hon’ble Supreme Court.

The moot questions culled out by the Hon’ble Supreme Court were as follows:

Case-I: Whether the NCLT could exercise its residuary jurisdiction under Section 60(5)(c) of the IBC to adjudicate upon the contractual dispute between the parties; and

Case-II: Whether in the exercise of such a residuary jurisdiction, it could impose an ad-interim stay on the termination of the Facilities Agreement.

 

The Apex Court, read out and interpreted the terms of the Facilities Agreement and then referred to Section 60(5)(c) which grants residuary jurisdiction to the NCLT to adjudicate any question of law or fact, arising out of or in relation to the insolvency of the corporate debtor. The Apex Court held that the NCLT and NCLAT were vested with the responsibility of preserving the corporate debtor’s survival and could intervene if an action by a third party could cut the legs out from under the CIRP. The NCLT had merely relied upon the procedural infirmity on part of the appellant in the issuance of the termination notice, i.e., the appellant did not give thirty days’ notice period to the corporate debtor to cure the deficiency in service. Similarly, the NCLAT, in its impugned judgment, had averred that the decision of the NCLT preserved the ‘going concern’ status of the corporate debtor but there is no factual analysis on how the termination of the Facilities Agreement would put the survival of the corporate debtor in jeopardy.

The instant judgment has very carefully carved out the circumstances where the termination of a contract would be prevented by NCLT or NCLAT through an ad-interim stay by virtue of the residual powers vested in them under Section 60(5)(c) of the IBC. The termination of a contract may be prevented only if it is central for the success of CIRP. If the agreement were to be terminated, then the corporate death of the corporate debtor must be certain. It is only in such limited circumstances would NCLT or NCLAT use its powers to prevent termination of a contract. The instant judgment plays a fine balance between private contractual rights and the public interest of saving the corporate debtor from getting liquidated.