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2021 (12) TMI 289 - AT - Insolvency and BankruptcyValidity of termination of work orders - consistency and prohibition as per Section 20 of Insolvency and Bankruptcy Code, 2016 (IBC) and Section 238 of IBC - whether termination proceeding could not be initiated or continued under bar of moratorium of Section 14 of IBC? - invocation of performance bank guarantees. Whether termination of Work Order No. 1 is in violation of provisional extension letter dated 30.03.2020 and/or Government s order dated 08.06.2020? - HELD THAT - The Corporate Debtor was awarded this work order on 20.03.2017 and has to complete the work within 15 months whereas after lapse of three years the construction has not been completed and thereafter, another three months upto 30.06.2020 was extended even though till 11.06.2020 the Corporate Debtor has completed only 76% of the work (See Pg. 29 of the Rejoinder). In exercise of the power given in clauses 59, 60 61 of the agreement, the Corporation terminated the contract. In the termination letter it is also mentioned that the provisional time extension vide office letter dated 30.03.2020 upto 30.06.2020 shall be treated as null and void after termination of work - There is nothing on record to presume that the clauses 59, 60 61 of the agreement were deleted, modified or varied. Thus, the termination of Work Order No. 1 is not in violation of extension order dated 30.03.2020. Whether the termination of Work Order No. 2 is inviolation of Government Order dated 08.06.2020? - HELD THAT - In the Government order 6 months extension is granted to discharge the obligation under the contract to those awardees of contracts who are not in default for their obligation prior to 19.02.2020, whereas, the Corporate Debtor is defaulter prior to 19.02.2020. Therefore, the Corporate Debtor is not entitled to get the advantage of aforesaid Government order. Thus, it is not convincing that the termination of Work Order No. 2 is in violation of Government order. Whether termination of work orders are in violation of provisions of Sections 14 238 of IBC? - HELD THAT - 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 building. Thus, Section 14 is indeed not applicable to the present case. In the present case, there is no factual analysis on how the termination of work orders would put survival of the Corporate Debtor in jeopardize - the termination of work orders are not in violation of government order dated 08.06.2020 and Section 14 and 238 of IBC. Hence, the Adjudicating Authority does not have any residuary jurisdiction under Section 60 (5) (c) of IBCE to entertain the contractual dispute between the Appellant (Corporation) and the Corporate Debtor. Whether the invocation of bank guarantee was illegal? - HELD THAT - As it is already held that the termination of work orders are not in violation of provisional extension letter dated 30.03.2020 and Government order dated 08.06.2020, so also in violation of provisions of Sections 14 and 238 of IBC, the findings of Ld. Adjudicating Authority are erroneous.Resultantly, the invocation of bank guarantee by the Appellant was not illegal. In the present facts, the Adjudicating Authority cannot exercise the jurisdiction under Section 60(5) (c) of IBC in relation to contractual dispute between the Appellant (Corporation) and the Corporate Debtor - Appeal allowed - decided in favor of appellant.
Issues Involved:
1. Termination of Work Order No. 1 2. Termination of Work Order No. 2 3. Violation of Sections 14 & 238 of IBC 4. Invocation of Bank Guarantee Issue-wise Detailed Analysis: Issue 1: Termination of Work Order No. 1 The Corporate Debtor was awarded Work Order No. 1 on 28.03.2017 for the construction of a building, with a completion date of 09.07.2018. Despite several extensions, the work was not completed. On 30.03.2020, the Corporation extended the completion date to 30.06.2020. However, due to continued delays, the work order was terminated on 11.06.2020 under clauses 59, 60, and 61 of the agreement. The Tribunal found that the termination was not in violation of the extension letter dated 30.03.2020 or the Government's order dated 08.06.2020, which granted extensions only to non-defaulters as of 19.02.2020. The Corporate Debtor was already in default before this date. Issue 2: Termination of Work Order No. 2 Work Order No. 2 was awarded on 13.03.2019 with a completion date of 12.05.2019. The Corporate Debtor failed to complete the work even after multiple extensions. The work remained closed from May 2019 to February 2020 and showed no substantial progress post-lockdown. Consequently, the work order was terminated on 04.08.2020. The Tribunal held that the termination was not in violation of the Government order dated 08.06.2020, as the Corporate Debtor was already a defaulter before 19.02.2020. Issue 3: Violation of Sections 14 & 238 of IBC The Tribunal examined whether the termination of work orders violated Sections 14 and 238 of the IBC. Section 14 pertains to the moratorium on suits and proceedings against the Corporate Debtor, while Section 238 provides the IBC with overriding effect over other laws. The Tribunal referred to the Supreme Court's judgments in Gujarat Urja Vikas Ltd. vs. Amit Gupta and Tata Consultancy Services Ltd. vs. Vishal Ghisulal Jain, which clarified that the NCLT's jurisdiction under Section 60(5)(c) of IBC is limited to disputes arising out of or in relation to the insolvency resolution process. The Tribunal found that the termination of work orders was due to performance issues and not related to the insolvency of the Corporate Debtor. Therefore, Sections 14 and 238 of IBC were not applicable, and the Adjudicating Authority did not have jurisdiction over the contractual dispute. Issue 4: Invocation of Bank Guarantee The Tribunal held that since the termination of work orders was not in violation of the extension letter dated 30.03.2020, the Government order dated 08.06.2020, or Sections 14 and 238 of IBC, the invocation of the bank guarantee by the Corporation was not illegal. The Adjudicating Authority's findings were erroneous, and the invocation of the bank guarantee was upheld as valid. Conclusion: The Tribunal concluded that the Adjudicating Authority did not have jurisdiction under Section 60(5)(c) of IBC to entertain the contractual dispute between the Corporation and the Corporate Debtor. The termination of work orders and the invocation of the bank guarantee were found to be valid. Consequently, the judgment of the Adjudicating Authority was set aside, and the appeal was allowed with no order as to costs.
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