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2021 (3) TMI 249 - Tri - Insolvency and BankruptcyExtenstion of tenure of contract for transportation by the RP during CIRP - Seeking to declare that the steps taken by the Resolution Professional for inviting fresh tenders with dubious nature without following due process of law is arbitrary, illegal and the same is not in accordance of law - seeking to declare that all the steps taken by the Resolution Professional in inviting fresh tenders is vitiated by law and the same is liable to be set aside in the interest of justice - HELD THAT - It is a fact on record that the Applicant herein was awarded a contract/work order for transportation of coal to the Corporate Debtor vide work orders for unit-I II linkage coal vide order No. 4100124570, 4100124571 dated 18.02.2019 and e-auction coal work order for Unit-I and II vide order No. 4100124663, 4100124666 dated 07.03.2019 respectively. Now that the Applicant herein has filed the instant Application seeking relief against the action of Resolution Professional for calling of bids and seeking quotation for award of contract of supply for the year 2020-21. From a bare reading of the above clause relating to contract validity, it is clear that the contract is not automatically determinable by passing of time of one year. A plain reading given to the clause i.e., extendable to another year i.e., from 01.04.2020 to 31.03.2021 based on your performance, unless terminated earlier in accordance with clause 6 of general terms and conditions indicates that the contract is extended by default for one more year i.e., from 01.04.2020 to 31.03.2021 subject to fulfillment of two essential conditions (1) Performance of the Applicant (2) earlier termination in accordance with clause 6 of general terms and conditions. Thus the contract shall be extended, if it is not terminated earlier and if the performance of the contractee is satisfactory. Thus satisfactory performance and non-termination leads to automatic extension of the contract - In the instant case, the Resolution Professional has extended the tenure of the Applicant by a period of 3 months, in my opinion, obviously the Resolution Professional would not have done so, if the performance of the Applicant was not satisfactory. Therefore, it is clearly indicates that the performance of the Applicant is satisfactory. Thus both the ingredients i.e., satisfactory performance and non-termination which are essential pre-conditions for an automatic extension of the contract for a period of another one year are present here. The steps proposed to be taken by the Resolution Professional such as inviting fresh tenders etc., are not warranted - Application disposed off.
Issues Involved:
1. Validity and enforceability of the contract extension. 2. Actions of the Resolution Professional regarding inviting fresh tenders. 3. Compliance with the Indian Contract Act, 1872. 4. Application of judicial precedents on contract termination and specific performance. 5. Impact of COVID-19 on contract execution and tender process. Detailed Analysis: 1. Validity and Enforceability of the Contract Extension: The contract validity clause stated that the contract would remain valid for one year from April 1, 2019, to March 31, 2020, and was extendable for another year based on the contractor's performance unless terminated earlier. The Tribunal interpreted this clause to mean that the contract would automatically extend for another year if the contractor's performance was satisfactory and the contract was not terminated earlier. The Tribunal noted that the Resolution Professional had extended the contract by three months, indicating satisfactory performance. Thus, the contract was deemed automatically extended for another year. 2. Actions of the Resolution Professional Regarding Inviting Fresh Tenders: The Applicant challenged the Resolution Professional's decision to invite fresh tenders for the transportation of coal, arguing it was arbitrary and illegal. The Tribunal found that the Resolution Professional's actions were not warranted given the automatic extension of the contract due to satisfactory performance and non-termination. Therefore, the steps proposed by the Resolution Professional, such as inviting fresh tenders, were deemed unnecessary and not in accordance with the contract terms. 3. Compliance with the Indian Contract Act, 1872: The Applicant argued that the Resolution Professional did not follow the due process of law as required by the Indian Contract Act, 1872, specifically regarding the termination notice and reasons for termination. The Tribunal agreed, stating that the Resolution Professional must honor the terms and conditions of the contract and follow the due process of law, including providing a 180-day advance notice for termination. The lack of such notice and reasons for termination indicated non-compliance with the legal requirements. 4. Application of Judicial Precedents on Contract Termination and Specific Performance: The Respondent cited various judicial decisions suggesting that commercial contracts with termination clauses are determinable and not specifically enforceable. However, the Tribunal did not find these precedents applicable in this case, as the contract extension clause was clear and the conditions for automatic extension were met. The Tribunal focused on the specific terms of the contract rather than general principles from other cases. 5. Impact of COVID-19 on Contract Execution and Tender Process: The Respondent argued that the COVID-19 crisis and resultant lockdowns delayed the tender process, which was initially set to close on March 27, 2020, but was extended multiple times until July 31, 2020. The Tribunal acknowledged the impact of COVID-19 but found that it did not justify the Resolution Professional's actions to invite fresh tenders, as the existing contract was automatically extended due to satisfactory performance and non-termination. Conclusion: The Tribunal concluded that the contract was automatically extended for another year based on satisfactory performance and non-termination. The Resolution Professional's actions to invite fresh tenders were not warranted and did not comply with the contract terms and the Indian Contract Act, 1872. Therefore, the Tribunal allowed the Applicant's request and set aside the steps taken by the Resolution Professional to invite fresh tenders.
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