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TMI Blog2021 (3) TMI 340X X X X Extracts X X X X X X X X Extracts X X X X ..... ound independent of the insolvency. The present dispute solely arises out of and relates to the insolvency of the Corporate Debtor - the RP can approach the NCLT for adjudication of disputes that are related to the insolvency resolution process. However, for adjudication of disputes that arise dehors the insolvency of the Corporate Debtor, the RP must approach the relevant competent authority. For instance, if the dispute in the present matter related to the non-supply of electricity, the RP would not have been entitled to invoke the jurisdiction of the NCLT under the IBC. However, since the dispute in the present case has arisen solely on the ground of the insolvency of the Corporate Debtor, NCLT is empowered to adjudicate this dispute under Section 60(5)(c) of the IBC. 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. If the jurisdiction of the NCLT were to be confined to actions prohibited by Section 14 of the IBC, there would have been no requirement for the legislature to enact Section 60(5)(c) of the IBC - Section 60 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... D THAT:- The question of the validity/invalidity of ipso facto clauses has been discussed in a variety of documents over the years, such as: (a) UNCITRAL Guide of 2004; (b) J.J. Irani Committee Report of 2005; (c) Vidhi s Report of 2018 critiquing the IBC; and (d) IBBI s Report of 2020, which acknowledges the issue of ipso facto clauses in relation to government grants. All these materials were available to the members of the various committees which discussed the IBC. Further, suspension of contracts during insolvency was specifically allowed under Section 22(3) of SICA, which was the erstwhile statutory regime - Although various provisions of the IBC indicate that the objective of the statute is to ensure that the corporate debtor remains a going concern , there must be a specific textual hook for the NCLT to exercise its jurisdiction. The NCLT cannot derive its powers from the spirit or object of the IBC. Section 60(5)(c) of the IBC vests the NCLT with wide powers since it can entertain and dispose of any question of fact or law arising out or in relation to the insolvency resolution process. In this case, the PPA has been terminated solely on the ground of insolvency, which giv ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ght of assignment granted under B The genesis of the PPA C Initiation of CIRP D Termination of the PPA E Proceedings before NCLT and NCLAT F Proceedings by the Successful Resolution Applicant G Submissions of counsel G.1 Submissions on behalf of the appellant G.2 Submissions on behalf of the respondents H Issues arising from the dispute I Jurisdiction of the NCLT/NCLAT over contractual disputes I.1 Section 60(5)(c): "arising out of" and "in relation to" I.2 Jurisdiction of NCLT and GERC I.3 Residuary jurisdiction of the NCLT under Section 60(5)(c) J Validity of ipso facto clauses J.1 Position of international and multilateral organisations J.2 National jurisdictions J.3 Position in India K Appellant's right to terminate the PPA in the present case K.1 Analysis of the PPA K.2 Validity of the termination of PPA K.3 Dialogical Remedies L NCLAT's decision on the issue of liquidation M Appellant's liability to pay for the electricity interjected by the Corporate Debtor N Conclusion A The appeal 1 By its judgment dated 29 August 2019, the National Company Law Tribunal "NCLT" or "Adjudicating Authority" stayed the termination by the appellant of its Powe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ued by the State Commission for procurement of power by the appellant from power producers, under Section 86(1)(a) of Electricity Act. The tariff was determined on the basis of the then prevailing capital and financing costs, and debt equity ratio. It was envisaged that the PPA will be for 25 years, with higher tariffs in the first 12-15 years, and a scaled-down tariff for the remaining years. The tariff was to be applicable to solar projects commissioned within the control period of the First Tariff Order, i.e., from 29 January 2010 to 28 January 2012. 7 The appellant filed a petition before the State Commission on 28 May 2013, seeking initiation of proceedings for re-determination of the capital cost and tariff fixed under the First Tariff Order. This petition was filed on the basis that subsequent incentives given to power producers on 27 February 2010 had brought down their cost of capital and, as a consequence, the tariff fixed under the First Tariff Order should be revised. This petition was dismissed by the State Commission on 8 August 2013. An appeal against the order was dismissed by the Appellate Tribunal for Electricity "APTEL" on 22 August 2014. An appeal Civil Appeal ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... years. C Initiation of CIRP 14 The initial years of the operationalization of the PPA appear to have been relatively calm. The first major issue arose between July to December 2015. During this period, there was heavy rainfall and floods in the State of Gujarat, due to which the Plant was shut down for two months. The Plant was severely damaged due to the floods, and the generation of electricity was temporarily paused. By December 2015, normalcy was restored in the generation of electricity and the Plant was generating electricity at 70% of its total generating capacity. 15 During June and July 2017, Gujarat was again affected by floods due to heavy rainfall. The Plant was severely damaged due to the floods. Resultantly, it was only able to operate at 10-15% of its original capacity. 16 Due to the financial stress caused by the disruptions and damage, for which insurance claims remained pending, the Corporate Debtor was unable to fully service its debt to the Financing Parties (the second respondent and Power Finance Corporation), who proposed to declare the Corporate Debtor a non-performing asset ("NPA"). 17 On 15 February 2018, in accordance with Article 8.1 of the PPA, th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... lant stated that it shall terminate the PPA by issuing a termination notice. 21 The first respondent issued his replies to both the notices on 10 May 2019. The replies are summarized below: (i) The reply to the First Notice states that the Corporate Debtor's PPA with the appellant is its only PPA, and hence they are heavily dependent on it for reaching a resolution under the IBC. In case the appellant terminates the PPA, prospective resolution applicants "PRAs" who had submitted their expression of interest for the Corporate Debtor might not submit a resolution plan, which would eventually lead to liquidation of the Corporate Debtor, defeating the main object of the IBC; and (ii) The reply to the Second Notice states that since the Corporate Debtor is undergoing CIRP under the IBC, the operations at the Plant were severely affected due to force majeure events in terms of the PPA. Thus, the conditions of the PPA could not be said to have been breached. 22 On 21 May 2019, a meeting was scheduled between the first respondent and the General Manager (IPP) of the appellant. During this meeting, the first respondent emphasized that if the PPA was to be terminated, revival of the Co ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s an 'instrument' within the meaning of Section 238 of the IBC. The clauses of the PPA are inconsistent with the provisions of the IBC, and stand overridden. However, in paragraph 35 of its order, the NCLT held that the appellant could terminate the PPA, in the event that liquidation proceedings are initiated against the Corporate Debtor. Paragraph 35 reads thus: "35. It is however, made clear that if due to any reason, the Corporate Debtor goes into liquidation, the Respondent Company will be at liberty to terminate the Power Purchase Agreement." 26 The NCLAT by its judgment dated 15 October 2019 dismissed the appeal against the NCLT's order. The NCLAT noted that the appellant attempted to terminate the PPA on the sole ground that the CIRP has been initiated for the Corporate Debtor. It observed that during the CIRP, the first respondent has to maintain the Corporate Debtor as a 'going concern' and the termination of its sole PPA, under which it supplied electricity only to the appellant, would render the Corporate Debtor defunct. Hence, the NCLAT held that the appellant could not terminate the PPA solely on the ground of the initiation of CIRP of the Corporate Debtor, which w ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sent appeal, seeking certain reliefs from this Court or, in the alternative, seeking permission of this Court to allow them to withdraw their Resolution Plan dated 12 November 2019. This Court allowed the Successful Resolution Applicant to withdraw the interlocutory application filed in the present appeal on 20 July 2020. 31 The NCLT by an order dated 3 July 2020, dismissed the application filed by the Successful Resolution Applicant, thereby refusing to grant them permission to withdraw the Resolution Plan. Thereafter, the NCLAT by a judgment dated 30 September 2020, dismissed the appeal filed by the Successful Resolution Applicant against NCLT's order dated 3 July 2020. 32 The Successful Resolution Applicant has since filed an appeal Civil Appeal No. 3560 of 2020 before this Court challenging NCLAT's judgment dated 30 September 2020. By an order dated 16 November 2020, this Court granted a stay against the NCLAT's judgment dated 30 September 2020. G Submissions of counsel G.1 Submissions on behalf of the appellant 33 The case of the appellant has been presented initially in the articulate and carefully reasoned submissions made by Ms Ranjitha Ramachandran, learned counsel. M ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ded to adjudicate on whether the termination of the PPA was valid, or dwelt on the interpretation of the PPA, it has still erroneously set aside the termination of the PPA by the appellant without any basis under the IBC; (v) Even if it is assumed that NCLT has jurisdiction over disputes relating to the PPA, the adjudication of such disputes should be in accordance with the PPA. The sanctity of the contracts must be upheld unless there is a statutory provision interdicting such contracts. There can be no exercise of any inherent or residual power by the NCLT to set aside the termination of a contract absent a statutory interdict. The Resolution Applicant or NCLT have no powers to modify the PPA through a resolution plan. The formation, novation or alteration of the contract must be in accordance with Section 30(2)(e) of the IBC, which provides that the Resolution Plan cannot contravene any provision of law which is in force. The provisions of the Indian Contract Act, 1872 ("Contract Act"), require mutual agreement of the parties for such a modification; (vi) The submission of the respondents that 'property' under Section 3(27) of the IBC includes an actionable claim and hence t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ber 2019, covers licenses or approvals granted by a government authority. However, no reference has been made there to contracts such as PPAs; (iii) The respondents are attempting to resurrect the regime under Section 22(3) of the Sick Industrial Companies (Special Provisions) Act, 1985 "SICA", which empowered the Board to suspend the operation of all or any of the contracts to which the sick industrial company was a party. In Swiss Ribbons Private Limited vs Union of India (2019) 4 SCC 17; hereinafter referred to as "Swiss Ribbons", this Court held that the IBC was introduced because the regime under SICA and Board for Industrial and Financial Reconstruction "BIFR" had failed. Under the IBC, there is no such power to suspend contracts. Hence, when the legislature has wilfully omitted something or in a situation of a casus omissus, this Court cannot introduce what has been omitted by way of interpretation, analogy or implication; (iv) The termination of the PPA cannot be set aside based on the objective of the IBC to ensure that the Corporate Debtor remains a 'going concern', in the absence of a specific provision under the IBC. The objective of the IBC cannot be understood to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... der before in an appeal, which was dismissed by the NCLAT on 4 December 2019. Therefore, the appellant has the right to terminate the PPA under Article 9.2.1(e), irrespective of whether any assignment has taken place under Article 12.9; (vii) The first respondent cannot rely on the resolution plan to prevent termination of the PPA since the resolution plan or process does not modify the terms of the contract of the Corporate Debtor with third parties. Each party took a calculated risk to enter into the contract with the knowledge that the appellant is entitled to terminate the PPA; (viii) The PPA is not an instrument under Section 238 of IBC, since the phrase used in the section - "instrument having effect by virtue of any such law" - does not cover commercial bilateral agreements between a corporate debtor and a third party laying down the terms of an executory contract entered between them. It only applies to a statutory contract or an instrument entered into by operation of law that is inconsistent with the IBC; (ix) No provision of the PPA is inconsistent with the IBC. Article 9.3.1 which specifies a period of 30 days for the Corporate Debtor to remedy a default, and give ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... le 9.2.1(e) are standard clauses in agreements of this nature. Even after the notification of the IBC, similar provisions continue in PPA formats notified by the Government of India as part of the Standard Bid Documents for Tariff Based Competitive Bid Process under Section 63 of the Electricity Act for conventional power. Similar provisions are found in the PPAs being drafted as per Guidelines for Tariff Based Competitive Bidding Process for renewable energy sources; and (c) The bargain between the parties was fair and not one sided. The same default clause has been provided under the appellant's defaults in Article 9.2.2(c), and a corresponding right to terminate has been provided under Article 9.3.2. Similar clauses are provided under the standard PPAs issued by the Government of India for competitive bidding under Section 63 of the Electricity Act. Therefore, the clauses cannot be said to be unreasonable or unconscionable. 35 In summing up their submissions, the appellants have raised two more arguments: (i) The NCLAT's observations in relation to the termination of the PPA if the Corporate Debtor goes into liquidation were incorrect: (a) In the appeal filed by the appel ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he jurisdiction to consider the validity of the termination of the PPA by the appellant on the sole ground of the initiation of the insolvency proceedings of the Corporate Debtor and that the jurisdiction was rightly exercised by the NCLT, in the present case. Mr C U Singh has made the following submissions on the jurisdiction of the NCLT: (i) The application for staying the termination of the PPA was filed by the first respondent before the NCLT under Section 60(5) of the IBC. Section 60(5)(c) confers upon the NCLT complete jurisdiction to decide any application by or against the Corporate Debtor on any question of priorities or any question of law or facts, arising out of or in relation to the insolvency resolution of the Corporate Debtor, notwithstanding any other law for the time being in force. Hence, notwithstanding the provisions of the Electricity Act, the NCLT has jurisdiction to consider an application filed by the RP which may not specifically relate to a particular section of the IBC (such as Section 14), provided the application involves any question of law or facts, arising out of or in relation to the insolvency resolution of the third respondent; (ii) Relatedly, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the IBC are couched in terms of a duty, does not necessarily mean that the NCLT does not have jurisdiction to decide matters that arise from the duty of the RP to preserve the assets or maintain the Corporate Debtor as a 'going concern'. On the contrary, NCLT is the only forum which has the jurisdiction to oversee the resolution process of the Corporate Debtor which necessarily includes the continuation of the Corporate Debtor as a going concern and its successful resolution; (viii) The facts of this case are different from those of Embassy Property (supra) and Municipal Corporation vs Abhilash Lal (2020) 13 SCC 234. Unlike Abhilash Lal (supra), the property in this case (long term contractual right under the PPA) is the property of the Corporate Debtor and not the property of a statutory authority. Further, there was no violation of law when NCLT injuncted the appellant from terminating the PPA on the ground of the initiation of the CIRP of the Corporate Debtor. In addition, the facts in Abhilash Lal (supra) dealt with the public duty of Municipal Corporation in hereinafter referred to as "Abhilash Lal" respect of the construction of a hospital. Further, there were existing defa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e power producer to assign its interest, rights and obligations to a third party; and (g) The PPA contemplates the financing of the project and that there could be financial defaults by the Corporate Debtor. Hence, the PPA specifically allowed financing parties to step in and change the identity of the power producer provided the successor was capable of and willing to assume the obligations of the power producer under the PPA. Article 9.2.1(e) must be read in light of this background. (ii) In relation to the interpretation of Article 9.2.1(e), it was submitted: (a) When the PPA was entered into in 2010, the IBC was not in existence. The contract was a standard form contract. While the clause refers to insolvency or bankruptcy proceedings, the intent of Article 9.2.1(e) could only have been to cover liquidation proceedings as contemplated under the CA 1956. The CA 1956 did not contemplate 'insolvency' or 'bankruptcy' proceedings. Insolvency at the time of the drafting of the clause was understood to include individual insolvency. Hence, Article 9.2.1(e) could not have intended to cover 'insolvency resolution' proceedings under the IBC as a trigger for an event of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y the GERC and has the force of law under the Electricity Act. The PPA sets out the rights and liabilities of the parties and is an instrument for the purposes of Section 238. Being an "instrument", which is inconsistent with the provisions of the IBC, the latter would have overriding effect over the former, in view of Section 238 of the IBC. Therefore, the right to terminate would only arise in case the third respondent fails to cure the default, i.e., resolve itself in accordance with the IBC; and (c) In view of Section 238, the IBC overrides the provisions of the Electricity Act. Section 63 of the IBC provides that "No civil court or authority shall have jurisdiction to entertain any suit or proceedings in respect of any matter on which National Company Law Tribunal or the National Company Law Appellate Tribunal has jurisdiction under IBC." NCLT's jurisdiction excludes that of the GERC. (ii) In relation to the legislative intent underlying Section 14 of the IBC, it was submitted that: (a) The Notes on Clauses to the Insolvency and Bankruptcy Bill, 2015 and the Insolvency Law Committee Report dated 20 February 2020 suggest a clear legislative intent of Section 14 that, an i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... enders, even though it continues to be able to perform its obligations under the PPA. (ii) In relation to the interpretation of Article 9.2.1(e): (a) The term 'law', in Article 9.2.1(e) must be interpreted in a dynamic sense. The interpretation of Article 9.2.1(e) must be considered at the point of time it was sought to be invoked in order to ascertain whether there was an event of default. The exception under which "reorganization" is excluded as an event of default, would apply to the proceedings which were initiated under section 10 of the IBC for the sole purpose of the reorganization of the Corporate Debtor; and (b) The invocation of Article 9.2.1(e) on the ground that proceedings under Section 10 of the IBC had been commenced was both erroneous and premature. It was erroneous because at the time of commencement of the proceedings, the Corporate Debtor was looking at the reorganization of its affairs. It squarely fell within the exception to Article 9.2.1(e). It was premature because unless and until the appellant was sure that after a reorganization the resulting entity would not have the financial standing to perform its obligations or as to its lack of creditworthines ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... (iv) The second respondent as a lender bank may not be able to initiate a dispute resolution process under Section 86(f) of the Electricity Act since it contemplates the resolution of disputes between a generator and a trading licensee; (v) Section 60(5)(c) of the IBC provides that the NCLT can entertain or dispose of any event or action arising out of, in relation to, effecting or hampering the insolvency resolution process. NCLT has the jurisdiction to intervene to the extent of removing any obstacle in the CIRP process for it to reach its logical end, which is approval of the resolution plan or liquidation. The contours of Section 14 of the IBC must be determined under such an understanding of Section 60(5)(c); (vi) The moratorium under Section 14 of IBC is not exhaustive because: (a) The object of section 14 is protection of the Corporate Debtor during the CIRP; (b) The preamble of the IBC provides for preserving the maximum value of the assets of the Corporate Debtor; and (c) Section 14(3) only excludes certain kinds of agreements and transactions from moratorium under Section 14(1), as notified by the Central Government in consultation with the financial regulato ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... a time of 30 days to remedy the insolvency whereas the IBC provides a timeline of 180 days, which is extendable up to 330 days. Section 238 of IBC ensures that the IBC will prevail over the PPA. The phrase "instrument" in Section 238 can be interpreted in light of Section 2(14) of the Indian Stamp Act, 1899 and Section 2(b) of the Notaries Act, 1952 which provide that an "instrument", "includes every document by which any right or liability is, or purports to be, created, transferred, limited, extended, extinguished or recorded." Hence the PPA qualifies as an instrument; (xii) Section 14(1)(d) provides for protection of the property of the Corporate Debtor. The expression "property" would include the PPA in terms of its definition in Section 3(27) of the IBC. Paras 8.1 to 8.3 of the Third Insolvency Committee Report dated 20 February 2020 indicate that the intent of the IBC is to ensure that the Corporate Debtor remains a going concern and contracts cannot be terminated by way of ipso facto clauses relating to insolvency; and (xiii) The appellant terminated the PPA not due to the default per se but due to a commercial decision to negotiate and reduce the purchase price of elect ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tions as are, or may be, conferred on it by or under this Act or any other law for the time being in force.". 44 NCLT owes its existence to statute. The powers and functions which it exercises are those which are conferred upon it by law, in this case, the IBC. 45 The NCLT in its decision dated 29 August 2019 did not specifically examine the issue of its jurisdiction under Section 60(5)(c) of the IBC. It prohibited the termination of the PPA on the ground that it is an "instrument" under Section 238; Articles 9.2.1(e) read with 9.3.1 of the PPA are inconsistent with the provisions of the IBC; and the latter overrides an instrument having effect by virtue of law. One of the considerations which weighed with the NCLT while coming to its determination was that termination of the PPA would prejudice the status of the Corporate Debtor as a ''going concern', and lead to the failure of the CIRP. The NCLT observed: "30. …the CIR process in the instant case was triggered on 20.11.2018, which was further extended by 90 days on 16.05.2019 and the default notices were issued by the Respondent Company on 01.05.2019. That termination of PPA at this stage may have adverse consequences ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... orporate Debtor. On the other hand, the respondents have made a limited submission that while the NCLT may not have jurisdiction to adjudicate upon contractual disputes that arise independent of the insolvency of the Corporate Debtor, it has the sole jurisdiction to decide a dispute that arises from or relates to the insolvency of the Corporate Debtor or where the property of the Corporate Debtor (in this case its rights under the PPA) is sought to be taken away on the ground of insolvency. For their argument, the respondents have relied on Section 60(5)(c) to submit that NCLT is vested with a wide jurisdiction to consider questions of law or fact "arising out of" or "in relation to" insolvency resolution proceedings. 48 In varying contexts, this Court has expansively construed the expressions "relating to" and "arising out of" in its previous decisions. The respondents have relied on some of these judgments to buttress their submissions in regard to the width of Section 60(5)(c). In Renusagar Power Co. Ltd. vs General Electric Company (1984) 4 SCC 679, a two judge Bench while interpreting the words "arising out of" or "related to" in an arbitration clause held as follows, speakin ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s Juris Secundum at pages 620 and 621 where it is stated that the term "relate" is also defined as meaning to bring into association or connection with. It has been clearly mentioned that "relating to" has been held to be equivalent to or synonymous with as to "concerning with" and "pertaining to". The expression "pertaining to" is an expression of expansion and not of contraction." (emphasis supplied) 51 While the phrases "arising out of"" and "relating to" have been given an expansive interpretation in the above cases, words can have different meanings depending on the subject or context. Words are after all, a vehicle for communicating ideas, thoughts and concepts. A one-size-fits-all analogy may not always hold good when we construe similar words in entirely distinct settings. Justice G.P. Singh in his authoritative commentary on the interpretation of statutes, Principles of Statutory Interpretation, has noted that the same words used in different sections of the same statute or used at different places in the same clause or section can have different meanings G.P. Singh, Principles of Statutory Interpretation (1st edn., Lexis Nexis 2015). Therefore, it is necessary to bear ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... entitlements, privileges, benefits, duties, responsibilities, obligations or in any matter arising out of, or in relation to winding up of the company, whether such suit or proceeding has been instituted, or is instituted, or such claim or question has arisen or arises or such application has been made or is made or such scheme has been submitted, or is submitted, before or after the order for the winding up of the company is made." of CA 2013. 53 A textual comparison of the provisions of Section 60(5) of the IBC with Section 446(2) of CA 1956 would reveal some similarities of expression, with textual variations. For the purposes of the present proceedings, it suffices to note that clause (c) of Section 60(5) confers jurisdiction on the NCLT to entertain or dispose of "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 the Code". Section 446(2)(d) of CA 1956 and section 280(d) of CA 2013 use the expression any question of priorities or any other question whatsoever whether of law or fact. These words bear a striking resemblance to the prov ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ayment of government dues and to establish an Insolvency and Bankruptcy Fund, and matters connected therewith or incidental thereto. An effective legal framework for timely resolution of insolvency and bankruptcy would support development of credit markets and encourage entrepreneurship. It would also improve Ease of Doing Business, and facilitate more investments leading to higher economic growth and development. 3. The Code seeks to provide for designating the NCLT and DRT as the Adjudicating Authorities for corporate persons and firms and individuals, respectively, for resolution of insolvency, liquidation and bankruptcy. The Code separates commercial aspects of insolvency and bankruptcy proceedings from judicial aspects. The Code also seeks to provide for establishment of the Insolvency and Bankruptcy Board of India (Board) for regulation of insolvency professionals, insolvency professional agencies and information utilities. Till the Board is established, the Central Government shall exercise all powers of the Board or designate any financial sector regulator to exercise the powers and functions of the Board. Insolvency professionals will assist in completion of insolvency r ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ems which arise from multiplicities of statutes and fora in the erstwhile regime were noticed in the report of the Bankruptcy Law Reforms Committee (2015) ("BLRC"): "14. …The current state of the bankruptcy process for firms is a highly fragmented framework. Powers of the creditor and the debtor under insolvency are provided for under different Acts… It is problematic that these different laws are implemented in different judicial fora. Cases that are decided at the tribunal/BIFR often come for review to the High Courts. This gives rise to two types of problems in implementation of the resolution framework. The first is the lack of clarity of jurisdiction. In a situation where one forum decides on matters relating to the rights of the creditor, while another decides on those relating to the rights of the debtor, the decisions are readily appealed against and either stayed or overturned in a higher court. Ideally, if economic value is indeed to be preserved, there must be a single forum that hears both sides of the case and makes a judgment based on both. A second problem exacerbates the problems of multiple judicial fora. The fora entrusted with adjudicating on ma ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ultiplicity of fora and a timely resolution of the insolvency process. 58 In Sudharshan Chits (I) Ltd. vs O Sukumaran Pillar (1984) 4 SCC 657, a three judge Bench of this Court held that the object of Section 446(2) of CA 1956 was to enlarge the jurisdiction of the Company Court to avoid a multiplicity of proceedings, delay and expensive litigation. The Court was speaking through Justice D.A Desai held: "8..Sub-Section (2) was introduced to enlarge the jurisdiction of the court winding up the company so as to facilitate the disposal of winding-up proceedings…To save the Company which is ordered to be wound up from this prolix and expensive litigation and to accelerate the disposal of winding-up proceedings, the Parliament devised a cheap and summary remedy conferring jurisdiction on the court winding up the company to entertain petitions in respect of claims for and against the company. This was the object behind enacting Section 446(2) and therefore, it must receive such construction at the hands of the court as would advance the object and at any rate not thwart it" 59 Section 4(1) of the PIA used similar words in relation to the jurisdiction of the insolvency court as ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... claims by or against any of its branches in India) or any application made under section 39 of the Companies Act, 1956 by or in respect of a banking company or any question of priorities or any other question whatsoever, whether of law or fad [sic fact] which may relate to or arise in the course of the winding up of a banking company, whether such claim or question has arisen or arises or such application has been made or is made before or after the date of the order for the winding up of the banking company or before or after the commencement of the Banking Companies (Amendment) Act, 1953 (52 of 1953)." (emphasis supplied) 62 In Dhirendra Chandra Pal vs Associated Bank of Tripura Ltd. AIR 1955 SC 213, a four judge Bench of this Court examined the scope of Section 45-B. Justice B. Jagannadhas observed: "4. It is to be remembered that section 45-B is not confined to claims for recovery of money or recovery of property, movable or immovable, but comprehends all sorts of claims which relate to or arise in the course of winding up." 63 The above judgements were undoubtedly in relation to the jurisdiction of courts in relation to winding up and insolvency proceedings under distin ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... veendran observed: "3. (…) The Committee found that multiplicity of court proceedings is the main reason for the abnormal delay in dissolution of companies. It also found that different agencies dealt with different areas relating to companies, that Board for Industrial & Financial Reconstruction (BIFR) and Appellate Authority for Industrial & Financial Reconstruction (AAIFR) dealt with references relating to rehabilitation and revival of companies, High Courts dealt with winding-up of companies and Company Law Board (CLB) dealt with matters relating to prevention of oppression and mismanagement etc. Considering the laws on corporate insolvency prevailing in industrially advanced countries, the Committee recommended various amendments in regard to the provisions of Companies Act, 1956 for setting-up of a National Company Law Tribunal which will combine the powers of the CLB under the Companies Act, 1956, BIFR and AAIFR under the Sick Industrial Companies (Special Provisions) Act, 1985 as also the jurisdiction and powers relating to winding-up presently vested in the High Courts. 4. It is stated that the recommendations of the Eradi Committee were accepted by the Governme ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 13, the National Company Law Tribunal (NCLT) has jurisdiction over the winding up and liquidation of companies. NCLAT has been vested with the appellate jurisdiction over NCLT. Similarly, the Limited Liability Partnership Act, 2008 also confers jurisdiction to NCLT for dissolution and winding up of limited liability partnerships, while appellate jurisdiction is vested with NCLAT. The Committee recommends continuing with this existing institutional arrangement. NCLT should have jurisdiction over adjudications arising out of firm insolvency and liquidation, while NCLAT will have appellate jurisdiction on the same." (emphasis supplied) 67 The institutional framework under the IBC contemplated the establishment of a single forum to deal with matters of insolvency, which were distributed earlier across multiple fora. In the absence of a court exercising exclusive jurisdiction over matters relating to insolvency, the corporate debtor would have to file and/or defend multiple proceedings in different for a. These proceedings may cause undue delay in the insolvency resolution process due to multiple proceedings in trial courts and courts of appeal. A delay in completion of the insolvenc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... authority will adjudicate on fraud, particularly during the process resolving bankruptcy. Appeals/actions against the behaviour of the insolvency professional are directed to the Regulator/Adjudicator." As such, it is important to remember that the NCLT's jurisdiction shall always be circumscribed by the supervisory role envisaged for it under the IBC, which sought to make the process driven by trained resolution professionals. 69 In the present case, the PPA was terminated solely on the ground of insolvency, since the event of default contemplated under Article 9.2.1(e) was the commencement of insolvency proceedings against the Corporate Debtor. In the absence of the insolvency of the Corporate Debtor, there would be no ground to terminate the PPA. The termination is not on a ground independent of the insolvency. The present dispute solely arises out of and relates to the insolvency of the Corporate Debtor. 70 Ms Ramachandran and Mr Diwan have contended that CA 1956, PIA and BRA do not contain any provisions equivalent to Sections 25(2)(b) and 18(f)(vi) of the IBC which empower the RP to exercise rights for the benefit of the Corporate Debtor in certain adjudicatory proceedin ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... must approach the relevant competent authority. For instance, if the dispute in the present matter related to the non-supply of electricity, the RP would not have been entitled to invoke the jurisdiction of the NCLT under the IBC. However, since the dispute in the present case has arisen solely on the ground of the insolvency of the Corporate Debtor, NCLT is empowered to adjudicate this dispute under Section 60(5)(c) of the IBC. I.2 Jurisdiction of NCLT and GERC 73 It has been urged on behalf of the appellant that in terms of Article 10.4 of the PPA, GERC is entitled to entertain the disputes relating to the PPA. 74 Our attention has also been drawn to Section 86(1)(f) of the Electricity Act, which provides that GERC shall discharge the function of adjudicating "the disputes between the licensees, and generating companies and to refer any dispute for arbitration". It has been submitted that, therefore, any issue in relation to the PPA must be raised before the GERC and not the NCLT. 75 Reliance has also been placed on the judgement of this Court in Embassy Property (supra), where this Court held that the NCLT and NCLAT did not have jurisdiction over a dispute arising under the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ch undeniably are public properties. The resolution plan, therefore, would be a serious impediment to MCGM's independent plans to ensure that public health amenities are developed in the manner it chooses, and for which fresh approval under the MMC Act may be forthcoming for a separate scheme formulated by that corporation (MCGM)" In other words, the statutory powers entrusted to the Municipal Corporation to exercise control over its own properties are not overridden by Section 238 of the IBC. Once again, the present situation is distinguishable. The contract in question in Abhilash Lal (supra) was terminated due to defaults unrelated to the insolvency of the corporate debtor. In the present case, the sole default attributed by the appellant to the Corporate Debtor was that it was undergoing an insolvency resolution process, which makes the present dispute amenable to the jurisdiction of the NCLT under Section 60(5)(c) of the IBC. 77 Section 238 of the IBC stipulates that IBC would override other laws, including an instrument having effect by virtue of any such law. The NCLT in its decision dated 29 August 2019 gave detailed findings on the issue of whether the PPA is an instrume ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t, 1958 defines the term 'instrument' in Section 2(1) as follows : "Section 2(1): instrument" includes every document by which any right or liability is, or purports to be, created, transferred, limited, extended, extinguished or recorded, but does not include a bill of exchange, cheque, promissory note, bill of lading, letter of credit, policy of insurance, transfer of share, debenture, proxy and receipt;" 26. That the Merriam-Webster Dictionary defines the word 'instrument', inter alia, as: "a formal legal document (such as a deed, bond or agreement)" 27. Since, the rights and liabilities of parties have been created in the Power Purchase Agreement and such an agreement is enforceable by law and the word 'instrument' inter alia, includes an 'agreement', we are of the view, that the Power Purchase Agreement i.e., PPA is an 'Instrument' for the purpose of Section 238 of IBC 2016." 78 It has been urged on behalf of the appellant that Section 238 does not apply to a bilateral commercial contract between a Corporate Debtor and a third party and only applies to statutory contracts or instruments entered into by o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... accept that human rights are not edicts inscribed on a rock. They are made and unmade on the crucible of experience and through reversible process of human struggle for freedom. They admit of a certain degree of fluidity. Categories of human rights, being of infinite variety, are never really closed. That is why the residuary clause in Sub-section (j) has been so widely worded to take care of situations not covered by Sub-sections (a) to (i) of Section 12 of the 1993 Act. 46. The jurisdiction of NHRC thus stands enlarged by Section 12(j) of the 1993 Act, to take necessary action for the protection of human rights. Such action would include inquiring into cases where a party has been denied the protection of any law to which he is entitled, whether by a private party, a public institution, the government or even the Courts of law. We are of the opinion that if a person is entitled to benefit under a particular law, and benefits under that law have been denied to him, it will amount to a violation of his human rights." (emphasis supplied) 82 In D.R. Kohli vs Atul Products Ltd. (1985) 2 SCC 77, a three judge Bench of this Court differentiated between the power of Central Excise ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... or misconstruction on the part of an officer, or through misstatement as to the quantity, description or value of the excisable goods-on the part of the owner Rule 10-A which was a residuary clause applied to those cases which were not covered by Rule 10 and that (ii) whereas under Rule 10, the deficit amount could not be collected after the expiry of three months from the date on which the duty or charge was paid or adjusted in the owners account-current or from the date of making the refund, Rule 10-A did not contain any such period of limitation." (emphasis supplied) 83 Hence, the residuary jurisdiction conferred by statute may extend to matters which are not specifically enumerated under a legislation. While a residuary jurisdiction of a court confers it wide powers, its jurisdiction cannot be in contravention of the provisions of the concerned statute. In A. Deivendran vs State of T.N. (1997) 11 SCC 720, a two judge Bench of this Court, while determining the limitations of the residuary jurisdiction under Section 465 of the Code of Criminal Procedure, 1973 "CrPC", held that a residuary jurisdiction cannot be invoked when there is a patent defect of jurisdiction or an order ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... o subserve the ends of justice and undue emphasis on mere technicalities which are not vital or important may frustrate the ends of justice. The Courts, therefore, are required to consider the gravity of irregularity and whether the same has caused a failure of justice. To tender pardon by a Chief Judicial Magistrate cannot be held to be a mere case of irregularity nor can it be said that there has been no failure of justice. It is a case of total lack of jurisdiction, and consequently the follow up action on account of such an order of a Magistrate without jurisdiction cannot be taken into consideration at all. In this view of the matter the contention of Mr Mohan, learned Counsel appearing for the State in this regard has to be rejected." (emphasis supplied) 84 In Johri Lal Soni vs Bhanwari Bai (1977) 4 SCC 59 : hereinafter, referred to as "Johri Lal Soni" ("Johri Lal Soni"), a two judge Bench of this Court had to determine whether an insolvency court can scrutinize the validity of a transfer made seven years before the transferor was adjudged as insolvent, when Section 53 of the PIA classified only those transfers as voidable against the receiver, where the transferor was adj ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ote that unlike Section 4 of the PIA, Section 60(5)(c) of the IBC is not subject to other provisions of the statute. Hence, Section 60(5)(c) of the IBC has been worded more expansively than Section 4 of the PIA. 85 In respect of the interplay between Sections 53 and 4 of the PIA, in Johri Lal Soni (supra), this Court further held: "6. It was submitted that the effect of Section 53 of the Act clearly is that it bars the jurisdiction of the Insolvency Court to determine the validity of any transfer made beyond two years of the transferor being adjudged insolvent. It is no doubt true that the words "within two years after the date of the transfer" being voidable as against the receiver does fix a time-limit within which the transfer could be annulled by the Court. But a plain construction of Section 53 would manifestly/indicate that the words "within two years after the date, be voidable as against the receiver and shall be annulled by the Court" clearly connote that only those transfers are excepted from the jurisdiction of the Court which are voidable. The section has, therefore, made a clear distinction between void and voidable transfers-a distinction which ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of a statute. However, at the same time, as held by this Court in Johri Lal Soni (supra), an interpretation which renders the objective of a residuary jurisdiction nugatory cannot be upheld by this Court. A fine line has to be drawn between ensuring that a residuary jurisdiction is not rendered otiose due to an excessively restrictive interpretation, as well as, guarding against usurpation of power by a court or a tribunal not vested in it. 87 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. If the jurisdiction of the NCLT were to be confined to actions prohibited by Section 14 of the IBC, there would have been no requirement for the legislature to enact Section 60(5)(c) of the IBC. Section 60(5)(c) would be rendered otiose if Section 14 is held to be the exhaustive of the grounds of judicial intervention contemplated under the 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 the N ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... dictions of nation-states in their national insolvency laws. In order for us to assess their validity in India, we must first understand the global trends in contemporary jurisprudence. We can attempt to extrapolate our experiential learning from comparative law. As India develops into a responsive member of the international community, our laws cannot afford to be inward-looking. J.1 Position of international and multilateral organizations 89 The UNCITRAL Guide notes that insolvency laws across various jurisdictions either uphold ipso facto clauses or invalidate them. It notes the arguments of both sides thus: "115. The approach of upholding these types of clauses may be supported by a number of factors, including the desirability of respecting commercial bargains; the need to prevent the debtor from selectively performing contracts that are profitable and rejecting others (an advantage that is not available to the counterparty); the effect on financial contract netting of not upholding an automatic termination provision; the belief that, since an insolvent business will generally be unable to pay, delaying the termination of contracts potentially only increases existing level ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ntracts, and injecting unpredictability and extra cost into commercial dealings by creating a variety of exceptions to general contract rules. While this issue is clearly one that may require a careful weighing of the advantages and disadvantages, there are, nevertheless, circumstances where the ability of the insolvency representative to ensure that a contract continues to be performed will be crucial to the success of reorganization and also, but perhaps to a lesser extent, liquidation where the business is to be sold as a going concern. For these reasons, it is desirable that an insolvency law permit such clauses to be overridden. Any negative impact of a policy of overriding these types of clauses can be balanced by providing compensation to creditors who can demonstrate that they have suffered damage or loss as a result of the contract continuing to be performed after commencement of insolvency proceedings, or including exceptions to a general override of these clauses for certain types of contracts, such as contracts to lend money and, in particular, financial contracts (see below, paras. 208-215)." (emphasis supplied) 91 The World Bank, in its Principles for Effective Ins ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y of individual enforcement actions applies, and whose claims came into existence prior to the stay and have not been paid by a debtor, are not allowed to withhold performance of, terminate, accelerate or, in any other way, modify essential executory contracts during the stay period, provided that the debtor complies with its obligations under such contracts which fall due during the stay. Executory contracts are, for example, lease and licence agreements, long term supply contracts and franchise agreements." (emphasis supplied) 93 Thereafter, the EU Directive recommends that the member States of the European Union shall ensure that creditors are not allowed to terminate contracts based on ipso facto clauses when the 'event of default' is a Corporate Debtor undergoing restructuring. Article 7 of the Directive states as follows: "Article 7 Consequences of the stay of individual enforcement actions … 5. Member States shall ensure that creditors are not allowed to withhold performance or terminate, accelerate or, in any other way, modify executory contracts to the detriment of the debtor by virtue of a contractual clause providing for such measures, solely by reason ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t be per se invalid, but they may be set aside where "any such default would deprive the debtor of the advantages of the Code's liquidation procedures" Riggs National Bank of Washington, D.C. v. John Gillis Perry, Jr., in Re John Gillis Perry, Jr., Debtor, 729 F.2d 982 (4th Cir. 1984)n(Court of Appeals for the Fourth Circuit). For instance, the District Court for the District of Delaware has noted "the general trend of the federal courts that the prohibition against ipso facto clauses is not limited to actions [involving executory contracts or unexpired leases]", while invalidating an ipso facto clause premised on bankruptcy filing In re W.R. Grace & Co., 475 B.R. 34, 154 (D. Del. 2012). Similarly, in another case, an ipso facto clause in a non-executory contract was held to be invalid because "it would defeat the purposes of the [US] Bankruptcy Code" and "cannot be enforced by a court of equity" In the Matter of James Margaret Rose Jr., Debtors 21 B.R. 272 (Bankr. D.N.J. 1982) (United States Bankruptcy Court, D. New Jersey). The Bankruptcy Court reasoned that: "Under the Bankruptcy Code, there is no statutory mandate that bankruptcy-default clauses are valid and enforceable. Th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... anada, (2015) 61:1 McGill LJ 139. provision ("flip clause") that would reverse the priorities in favour of the Noteholders if an Event of Default occurred; and: (i) Lehman Brothers set up special purpose vehicles ("Issuer"), which in turn issued Notes to investors ("Noteholders"), including the respondents. The Issuer used the Notes' proceeds to purchase secure investments ("Collateral") while simultaneously entering into credit default swap agreements ("Agreements") with Lehman Brothers Special Financing ("LBSF"). LBSF agreed to pay the Issuer premiums in exchange for the latter's credit protection on loans owned by Lehman Brothers. The premiums the Issuer received from LBSF were then paid to the Noteholders. The Agreement was governed by English law; (ii) On the basis that Lehman Brothers' and LBSF's Chapter 11 filings (i.e., for bankruptcy in the US) in 2008 were 'Events of Default' as outlined in the Agreements, the Noteholders directed the Trustee to terminate the Agreements. The Collateral, which was held by the Trustee, provided security for the Issuer's obligations to the Noteholders and LBSF. Although the latter had priorit ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 13 April 2011), the modern tendency has been to uphold commercially justifiable contractual provisions which have been said to offend the anti-deprivation rule: Money Markets International Stockbrokers Ltd v London Stock Exchange Ltd [2002] 1 WLR 1150; Lomas v JFB Firth Rixson Inc [2011] 2 BCLC 120; and the judgments of Sir Andrew Morritt C and the Court of Appeal in these proceedings. The policy behind the anti-deprivation rule is clear, that the parties cannot, on bankruptcy, deprive the bankrupt of property which would otherwise be available for creditors. It is possible to give that policy a common sense application which prevents its application to bona fide commercial transactions which do not have as their predominant purpose, or one of their main purposes, the deprivation of the property of one of the parties on bankruptcy." (emphasis supplied) 101 Lord Mance in his concurring opinion, expressed a similar view: "177 However, Mr Snowden advanced propositions which would mean that any provision for termination on bankruptcy, which would deprive the trustee or liquidator of the opportunity of continuing the contract and so the bankrupt estate of future potential advantage ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ipso facto clause. In certain jurisdictions in the United States of America such clauses are automatically invalid. In Canada, the court has power to stay the exercise of rights under such clauses. Later in this judgment, I will consider how such clauses are treated under Korean insolvency law. 13 There was no dispute before me as to the efficacy in English law of the provisions in clause 28.1 of the contract which allow termination by reason of an insolvency event. It was accepted that those provisions are valid in English law. In particular, it was accepted that the rule of insolvency law, known as the anti-deprivation rule, does not strike down those provisions. 14 Although there was no argument as to the approach of an English court to the insolvency provisions in clause 28.1 of the contract, it is helpful for present purposes to understand why those provisions do not infringe the anti-deprivation rule or any other rule of English insolvency law. The scope of the anti-deprivation rule has been considered recently by the Supreme Court in Belmont Park Investments Pty Ltd v BNY Corporate Trustee Services Ltd (Revenue and Customs Comrs intervening) [2011] Bus LR 1266; [2012] 1 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... es not invalidate ipso facto clauses. However, the UK Act was recently amended by the Corporate Insolvency and Governance Act 2020 "CIGA", which came into force on 26 June 2020. Amongst other changes, it introduced Section 233B into the UK Act. Section 233B reads thus: "Protection of supplies of goods and services (1) This section applies where a company becomes subject to a relevant insolvency procedure. (2) … (3) A provision of a contract for the supply of goods or services to the company ceases to have effect when the company becomes subject to the relevant insolvency procedure if and to the extent that, under the provision- (a) the contract or the supply would terminate, or any other thing would take place, because the company becomes subject to the relevant insolvency procedure, or (b) the supplier would be entitled to terminate the contract or the supply, or to do any other thing, because the company becomes subject to the relevant insolvency procedure. (4) Where- (a) under a provision of a contract for the supply of goods or services to the company the supplier is entitled to terminate the contract or the supply because of an event occurring before the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s during the Coronavirus emergency." (emphasis supplied) 107 We can therefore conclude that while Section 233B invalidates ipso facto clauses, it does so only in relation to contracts where the terminating party is supplying goods and services to the Corporate Debtor, and does not cover those contracts where the Corporate Debtor was supplying to the terminating party. Further, Section 233B(5)(c) allows an exception even in relation to supplier contracts when it causes "financial hardship" to the terminating party, and Section 233B(6) allows a termination if once after the terminating party is prevented from terminating, the Corporate Debtor goes through another insolvency proceeding. It has also been noted by certain commentators that, given the narrow scope of Section 233B, the decision in Belmont Park (supra) would still have been decided in the same way even under this new regime 'Corporate Insolvency and Governance Act: Ipso Facto (Termination) Clauses' (Ashurst, 26 June 2020) accessed 18 February 2021.. Finally, discussing the legislative process behind CIGA, Felicity Toube QC and Joanne Rumley have noted that the UK Parliament did not intend to use CIGA to bring UK in line ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... agraph of Article L622-13 and the fourth paragraph of Article L622-16." English Translation available at accessed 24 February 2021 of the Commercial Code, categorically states that ipso facto clauses in executory contracts are invalid 'International Comparative Legal Guides' (International Comparative Legal Guides International Business Reports) accessed 18 February 2021. However, termination rights referring to breaches of executory contract, other than ipso facto clauses, remain valid due to events of default occurring both pre- and post-commencement of insolvency proceedings. Further, the insolvency administrator does not have to treat pre-insolvency claims arising out of an executory contract preferentially to continue the contract; however, she has to comply with the contract in the future to prevent termination Ibid at 305. J.2.5 Germany 110 The German insolvency regime is governed by Insolvency Statute, 1999 (Insolvenzordnung) "InsO". However, a change is forthcoming, since on 17 December 2020, the German Parliament passed the Act on the Further Development of Restructuring and Insolvency Law "SanInsFoG", which is expected to lead to a fundamental modification of the restr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ucted if the contractual partner of the insolvent debtor, just because of its insolvency, could terminate a contract which is in the interest and to the benefit of the insolvent debtor. Further, the Federal Supreme Court noted that the stay on termination based on ipso facto clauses did not lead to any disadvantage to the terminating party since they will then receive payment for their deliveries in full as so-called preferred estate liability 'Potential Invalidity of Insolvency-Related Termination Clauses under German Insolvency Rules' (Global Restructuring Watch, 17 September 2014) accessed 18 February 2021. 113 However, to the extent the statutory law itself already provides for an ipso facto termination right, such termination rights have been held to be valid and enforceable. Accordingly, the ipso facto termination of a partnership contract has in the past been upheld by the Federal Supreme Court Volker Gattringer, 'German Supreme Court renders ipso facto clauses invalid and unenforceable - Roma locuta, causa finita?' (K&L Gates, 27.02.2013). Further, in a 2016 decision, the 7th Senate of the Federal Supreme Court upheld an ipso facto clause contained in a construction contra ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... uniformly by all courts June Young Chung and Sy Nae Kim, "Korean Corporate Rehabilitation Proceedings and Cross-Border Insolvency - From the Perspective of the Hanjin Shipping Bankruptcy Case" accessed 24 February 2021. In fact, the International Monetary Fund issued a technical note in September 2020 on "Insolvency and Creditor Rights" while conducting a "Financial Sector Assessment Program" of Republic of Korea, in which they also noted this lack of clarity and recommended legislative guidance Footnote 26 at Page 16, available at accessed 24 February 2021. 116 A lack of this clarity is shown by a case where the predecessor of Article 119 was considered by the Korean Supreme Court in its decision dated 6 September 2007 in the case of Allied Domecq (Holdings) plc vs The trustee of Jinro Co Ltd "Allied Domecq". This was noted in the decision of Pan Ocean Co Ltd (supra) Para 49., discussed above, where the Chancery Division was considering the ipso facto clause in a contract governed by English law, but where the party was undergoing insolvency proceedings in Republic of Korea. The Korean Supreme Court held in Allied Domecq (supra) that, in a case not governed by Article 119, an ins ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... provision in an agreement that has the effect of providing for, or permitting, anything that, in substance, is contrary to subsections (1) to (3) is of no force or effect.", 66.34 "Certain rights limited 66.34 (1) If a consumer proposal has been filed in respect of a consumer debtor, no person may terminate or amend any agreement, including a security agreement, with the consumer debtor, or claim an accelerated payment, or the forfeiture of the term, under any agreement, including a security agreement, with the consumer debtor, by reason only that: (a) the consumer debtor is insolvent, or (b) a consumer proposal has been filed in respect of the consumer debtor until the consumer proposal has been withdrawn, refused by the creditors or the court, annulled or deemed annulled. … Provisions of section override agreement (5) Any provision in an agreement that has the effect of providing for, or permitting, anything that, in substance, is contrary to subsections (1) to (3) is of no force or effect." and 84.2 "Certain rights limited 84.2 (1) No person may terminate or amend - or claim an accelerated payment or forfeiture of the term under - any agreement, includin ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ased on the remaining unpaid contract price. However, Chandos took the position that it could rely on the Insolvency Clause to deduct 10% of the contract price (almost $140,000) as an 'inconvenience fee' and that, once deducted, Chandos owed nothing to Capital Steel. The trustee brought an application seeking a judicial determination of whether the Insolvency Clause was enforceable. 120 The majority opinion of the SCC held that the present clause violated the common law doctrine grounded in the 'anti-deprivation rule', which invalidates provisions that are "engaged by a debtor's insolvency and remove value from the debtor's estate to the prejudice of creditors". Further, it reasoned that the anti-deprivation rule continues to exist at common law; that it was part of Canadian law, and was neither judicially nor legislatively excluded. It further continued to exist even though it was not fully codified in the BIA. Since this rule voids contractual terms that prevent property from passing to the bankruptcy trustee, the non-application of this rule would also go against the purpose of section 71 of the BIA. The majority opinion ultimately relied on the 'effects-based' test for underst ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ipso facto reforms will not apply to (amongst other things) syndicated loans, securities, bonds, promissory notes, financial products, derivatives, and certain contracts involving special purpose vehicles. The excluded contractual rights do not depend on the type of contracts in which they are embodied. 124 However, according to the Explanatory Memorandum to the Amending Act, the stay is not intended to restrict a counterparty from enforcing a right (or disapply self-executing provisions) for any other reason, such as a breach involving non-payment or non-performance. Further, the ipso facto provisions also allow the relevant insolvency administrator to apply for an order expanding the stay to prohibit the exercise of rights (for example, a right to terminate for convenience), even where the right does not expressly operate on the basis of one of the prohibited reasons set out above, if the court is satisfied that a counterparty is likely to exercise those rights for a prohibited reason 'Australia's New Ipso Facto Regime Is Now Live: Are Your Contractual Rights Affected?' (Herbert Smith Freehills | 2 July 2018) accessed 18 February 2021. J.2.10 Singapore 125 In Singapore, ipso ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... for instance: (a) failure to pay outstanding sums; (b) appointment of a receiver; or (c) passing of a resolution for the winding up of the debtor. Further, section 440 does not apply retroactively, and only applies to contracts entered into after 30 July 2020 'Ipso Facto Clauses under the New Insolvency, Resolution & Dissolution Act' (Rajah Tann & Asia, July 2020) accessed 18 February 2021. 126 In addition, two legislative safeguards have been built into the IRDA to balance the contractual interests of stakeholders: (i) Certain types of contracts are exempted from these restrictions. These are the following: (a) derivatives contracts, margin lending agreements or securities contracts; (b) master netting agreements, securities/commodities lending or repurchase agreements, or spot contracts, that contain a netting or set-off arrangement; (c) covered bond or connected agreements; (d) debentures or connected agreements; (e) any agreement to clear or settle transactions relating to a derivatives contract; and (f) business rules of an approved exchange, a licensed trade repository, an approved or recognized clearing house or a recognized market operator; and (ii) Exclus ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 's decision in Belmont Park (supra). However, as noted previously, the UKSC decision was given in the context of the application of the anti-deprivation rule, which protects against the dilution of the value of the company in debt and does not necessarily affect the status of the company as a 'going concern'; (iv) Greece is one of the few countries which legislatively upholds ipso facto clauses; (v) The position of law in the Republic of Korea is unclear due to contradictory judicial decisions, which has prompted demands for legislative clarity. This highlights the growing commercial importance of legislative clarity in this area; (vi) Generally, even where ipso facto clauses are invalidated, it does not have effect on the termination rights of the terminating party based on other events of default in the contract; (vii) Some nations which invalidate ipso facto clauses, such as Austria, Canada, Singapore and UK (limited to supplier contracts), provide for an exception based on "hardship" being caused to the terminating party. This "hardship" is to be determined by the courts; and (viii) Even in nations which legislatively invalidate ipso facto clauses, there are often con ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... However, as is evident, this recommendation was never directly embodied legislatively since the current IBC contains no clear-cut provision which invalidates ipso facto clauses. In fact, the issue of the invalidation of ipso facto clauses was noted in a December 2018 report titled 'Insolvency and Bankruptcy Code: The journey so far and the road ahead' issued by Vidhi Centre for Legal Policy Pages 34-35, available at accessed on 18 February 2021. The report notes that the IBC "does not per se prohibit the operation of ipso facto clauses during insolvency proceedings. However, Section 14 provides for a limited exception prohibiting the termination, suspension or interruption of specified "essential goods or services" (i.e. water, electricity, telecommunication services and information technology services to the extent they are not direct inputs to the output produced or supplied by the corporate debtor), and also provides relief to the corporate debtor from the recovery of any property by an owner or lessor during the moratorium". As a solution, the report recommends a conditional stay on the operation of ipso facto clauses, beginning from the insolvency commencement date, since "a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ebtor attempt to terminate or suspend them even during the CIRP period. This could be attempted in two ways: one, by relying on ipso facto clauses, by virtue of which these grants may be terminated on the advent of insolvency proceedings themselves, and second, by initiating termination on account of non-payment of dues. 8.4. The Committee discussed that by and large, the grants that the corporate debtor enjoys form the substratum of its business. Without these, the business of the corporate debtor would lose its value and it would not be possible to keep the corporate debtor running as a going concern during the CIRP period, or to resolve the corporate debtor as a going concern. Consequently, their termination during the CIRP by relying on ipso facto clauses or on non-payment of dues would be contrary to the purpose of introducing the provision for moratorium itself. Thus, the Committee concluded that the legislative intent behind introducing the provision for moratorium was to bar such termination. 8.5. In this regard, the Committee noted that depending on the nature of rights conferred by them, these grants may constitute the "property" of the corporate debtor. Section 3(27) ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... constituted under any other law for the time being in force, in accordance with the Explanation to Section 14(1); and (ii) Contracts where the counter-party supplies essential/critical goods and services to the Corporate Debtor, within the meaning of Sections 14(2) and 14(2A). However, no clear position emerges in relation to the validity of ipso facto clauses in other contracts, from the bare text of the IBC. Hence, this task is now left to this Court in the present case. 136 In order to fully appreciate the weight of this task upon us, it is important to understand that one of the key principles enshrined within our Constitution is separation of powers between our three main organs: the legislature, the executive and the judiciary. In Rai Sahib Ram Jawaya Kapur vs State of Punjab (1955) 2 SCR 225 , speaking for a Constitution Bench, Chief Justice Bijan Kumar Mukherjea, spoke about the 'separation of powers' doctrine in the following terms: "12…The Indian Constitution has not indeed recognised the doctrine of separation of powers in its absolute rigidity but the functions of the different parts or branches of the Government have been sufficiently differentiated and c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... (i) The extent of invalidation of ipso facto clauses, i.e., termination solely based on an 'insolvency event' (filing of an application for commencement of CIRP, commencement of CIRP, appointment of RP, et al) within the IBC will be invalid; (ii) Whether the invalidation is absolute or conditional during the insolvency process; (iii) What kinds of contracts should be exempt from this invalidation; (iv) What should be the nature of the exceptions to the invalidation of ipso facto clauses to preserve the interests of the terminating party; (v) Whether the invalidation should happen prospectively or retrospectively; and (vi) What safeguard will be required to ensure that parties do not circumvent the invalidation. 141 The issues which we have delineated above are not exhaustive. The enumeration only seeks to highlight the complexity of the task at hand, which will require consideration of a variety of principles, which have to be balanced. The tension between the rights of a corporate debtor during the insolvency process as against the contractual rights of a terminating party, which is central to the task at hand, is one which has been acknowledged even by the UNCITRAL ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... C. 146 The PPA defines the term 'law' in the following terms: "Law" means any valid legislation, statute, rule, regulation, notification, directive or order, issued or promulgated by any Governmental Instrumentality." 147 Article 4.1(iii) provides that the Corporate Debtor shall sell the power produced by it to the appellant on first priority basis and is not allowed to sell to any third party. Article 4.1(x) states that the Corporate Debtor shall continue to hold at least 51% equity stake for the first two years after the Commercial Operation Date and at least 26% for 3 years thereafter. Article 5.2 of the PPA, as we have noted previously, clarifies that, in case the commissioning of the Plant is delayed beyond 31 December 2011, the appellant shall pay the tariff as determined by the GERC for Solar Projects effective on the date of commissioning of the plant or the tariff provided under the clause, whichever is lower. 148 Article 9.1 of the PPA clarifies that the PPA shall become effective upon the execution and delivery thereof by the parties and shall remain in operation for a period of 25 years. Article 9.2.1 enumerates the Events of Default by the Corporate Debt ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... te Debtor's rights under the PPA is permissible, with the prior written consent of the other party. The proviso to this Article makes it clear that any assignee shall expressly assume the Corporate Debtor's obligations thereafter arising under the PPA, on the furnishing of satisfactory documentation. 151 At this juncture, it is important, at the risk of repetition, to note the concurrent findings of fact returned by the NCLT and the NCLAT as to the PPA being the sole basis for the Corporate Debtor's existence. In its judgment dated 29 August 2019, the NCLT held as follows: "6. That the Corporate Debtor is reportedly a Special Purpose Vehicle (SPV) set up only for generation of solar power in the State of Gujarat. The Respondent is the only purchaser of power generated by the Corporate Debtor's Plant, therefore, the PPA is very critical to the "going concern" status of the Corporate Debtor. … 30... That termination of PPA at this stage may have adverse consequences on the status of the Corporate Debtor as "going concern" and eventually, may jeopardise the entire CIR Process." In the impugned judgment, the NCLAT held as follows: "'Guja ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ety of documents over the years, such as: (a) UNCITRAL Guide of 2004; (b) J.J. Irani Committee Report of 2005; (c) Vidhi's Report of 2018 critiquing the IBC; and (d) IBBI's Report of 2020, which acknowledges the issue of ipso facto clauses in relation to government grants. All these materials were available to the members of the various committees which discussed the IBC. Further, suspension of contracts during insolvency was specifically allowed under Section 22(3) of SICA, which was the erstwhile statutory regime. Section 22 of the SICA provided for the suspension of legal proceedings and contracts, of which sub-Section (3) was in the following terms: "(3) Where an inquiry under section 16 is pending or any scheme referred to in section 17 is under preparation or during the period] of consideration of any scheme under section 18 or where any such scheme is sanctioned thereunder, for due implementation of the scheme, the Board may by order declare with respect to the sick industrial company concerned that the operation of all or any of the contracts, assurances of property, agreements, settlements, awards, standing orders or other instruments in force, to which such sick ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to stay the termination of the PPA. In the absence of an explicit stand taken by the legislature, this Court's intervention in this matter would be guided by ascertaining the legislative intention from the provisions of the IBC. 156 Section 14 of the IBC reads as follows: "Moratorium.--(1) Subject to provisions of Sub-sections (2) and (3), on the insolvency commencement date, the Adjudicating Authority shall by order declare moratorium for prohibiting all of the following, namely-- (a) the institution of suits or continuation of pending suits or proceedings against the corporate debtor including execution of any judgment, decree or order in any court of law, tribunal, arbitration panel or other authority; (b) transferring, encumbering, alienating or disposing of by the corporate debtor any of its assets or any legal right 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ists the conditions under which a moratorium can be imposed by the NCLT in terms of sub-sections (a) to (d). It further clarifies that a license, permit, quota, concession, grant or right given by a government cannot be suspended or terminated on the grounds of insolvency, subject to certain exceptions. This clarification was added by way of an Explanation to Section 14(1) with effect from 28 December 2019. The Report of the Insolvency Law Committee dated 20 February 2020, as discussed above, noted that without such government grants "the business of the corporate debtor would lose its value and it would not be possible to keep the corporate debtor running as a going concern during the CIRP period, or to resolve the corporate debtor as a going concern" Para 8.4. The Report further stated that the termination of such grants during CIRP on account of ipso facto clauses or non-payment of dues is in contravention of the purpose behind imposition of moratorium itself. 158 While recommending the inclusion of an explanation, the Report of the Insolvency Law Committee stated that while it was of the view that termination or suspension of such grants is prevented by Section 14, it recommen ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... orate debtor's assets during the insolvency resolution process so that it can be kept running as a going concern during this time, thus maximising value for all stakeholders. The idea is that it facilitates the continued operation of the business of the corporate debtor to allow it breathing space to organise its affairs so that a new management may ultimately take over and bring the corporate debtor out of financial sickness, thus benefitting all stakeholders, which would include workmen of the corporate debtor." (emphasis supplied) 162 Further, the scheme of the IBC, inter alia, in terms of Sections 20(2)(e), 25(1) and definition of resolution plan shows that it aims to preserve the corporate debtor as a 'going concern'. The relevant portion of Section 20 is extracted below: "20. Management of operations of corporate debtor as a going concern (1) The interim resolution professional shall make every endeavour to protect and preserve the value of the property of the corporate debtor and manage the operations of the corporate debtor as a going concern. (2) For the purposes of sub-section (1), the interim resolution professional shall have the authority- …&helli ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... that a provision should be given an harmonious interpretation which comports with the intention of the Legislature. The commentary provides: "The rule of strict construction, however, whenever invoked, comes attended with qualifications and other rules no less important, and it is by the light which each contributes that the meaning must be determined. Among them is the rule that that sense of the words is to be adopted which best harmonises with the context and promotes in the fullest manner the policy and object of the legislature. The paramount object, in construing penal as well as other statutes, is to ascertain the legislative intent and the rule of strict construction is not violated by permitting the words to have their full meaning, or the more extensive of two meanings, when best effectuating the intention. They are indeed frequently taken in the widest sense, sometimes even in a sense more wide than etymologically belongs or is popularly attached to them, in order to carry out effectually the legislative intent, or, to use Sir Edward Cole's words, to suppress the mischief and advance the remedy." (emphasis supplied) 165 Given that the terms used in Section ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... dialogical remedies - where the Court engages in a dialogue in its judgments with the other two organs of government so that each organ can best perform its constitutionally assigned role. To illustrate, in its judgement in S. Sukumar vs The Secretary, Institute of Chartered Accountants of India (2018) 14 SCC 360, a two judge Bench of this Court, speaking through Justice Adarsh Kumar Goel, held as follows: "53.1.The Union of India may constitute a three member Committee of experts to look into the question whether and to what extent the statutory framework to enforce the letter and spirit of Sections 25 and 29 of the CA Act and the statutory Code of Conduct for the CAs requires revisit so as to appropriately discipline and regulate MAFs. The Committee may also consider the need for an appropriate legislation on the pattern of Sarbanes Oxley Act, 2002 and Dodd Frank Wall Street Reform and Consumer Protection Act, 2010 in US or any other appropriate mechanism for oversight of profession of the auditors. Question whether on account of conflict of interest of auditors with consultants, the auditors' profession may need an exclusive oversight body may be examined. The Committee m ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he doctrine of separation of powers can be operationalized in a nuanced fashion. It is in this way that the Court can tread the middle path between abdication and usurpation This phrase is taken from - O Ferraz, 'Between Usurpation and Abdication? The Right to Health in the Courts of Brazil and South Africa' in Oscar Vilhena Vieira, Upendra Baxi, Frans Viljoen (eds), Transformative Constitutionalism: Comparing the Apex Courts of Brazil, India and South Africa (PULP, Pretoria 2013) 375, 393. L NCLAT's decision on the issue of liquidation 171 NCLT in paragraph 35 of its order dated 29 August 2019 upheld the right of the appellant to terminate the PPA, in case a liquidation process is initiated against the Corporate Debtor. The appellant had neither challenged this issue in its appeal before NCLAT nor was it raised by any other party. However, the NCLAT deleted the observations made by the NCLT in paragraph 35, thereby holding that the appellant cannot terminate the PPA even if the Corporate Debtor goes into liquidation. Since no pleadings or prayers were made in relation to paragraph 35 of NCLT's order, NCLAT could not have considered this issue as a subject matter of the appeal. ..... X X X X Extracts X X X X X X X X Extracts X X X X
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