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TMI Blog2021 (11) TMI 798X X X X Extracts X X X X X X X X Extracts X X X X ..... the NCLT to examine an application filed under Section 7 of the IBC. Admittedly, the appellant 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). It is availing of the services of the Corporate Debtor and is using the property that has been leased to it by the Corporate Debtor. Thus, Section 14 is indeed not applicable to the present case - It is evident that the appellant had time and again informed the Corporate Debtor that its services were deficient, and it was falling foul of its contractual obligations. There is nothing to indicate that the termination of the Facilities Agreement was motivated by the insolvency of the Corporate Debtor. The trajectory of events makes it clear that the alleged breaches noted in the termination notice dated 10 June 2019 were not a smokescreen to terminate the agreement because of the insolvency of the Corporate Debtor. The order of the NCLT dated 18 December 2019 does not indicate that the NCLT has applied its mind to the cen ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r on 10 June 2019 which came into effect immediately. The parties have contested the facts leading up to the issuance of the notice. 5. It has been submitted on behalf of the appellant that there were multiple lapses by the Corporate Debtor in fulfilling its contractual obligations, which it failed to remedy satisfactorily. The appellant notified the Corporate Debtor in its email dated 1 August 2018 that it intended to invoke the penalty clause of the Facilities Agreement for the alleged contractual breaches. Another email dated 17 September 2018 was sent to the Corporate Debtor regarding non-compliance with the agreement. Following a site visit, the appellant in its email dated 1 October 2018 directed the Corporate Debtor to take urgent steps to remedy the breaches. On 11 October 2018, the appellant put the Corporate Debtor on notice that it would be constrained to invoke the penalty and termination clauses of the Facilities Agreement for the alleged non-compliance. On 13 October 2018, the appellant addressed an email to the Corporate Debtor highlighting its concerns regarding the insufficiency of housekeeping staff and their malpractices in respect of entering attendance. Even ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d) Cleanliness and up keeping of the center 3. Branding and Navigation not in synchronization with Annexure F of facility agreement In view of all the aforestated events, consider this as a notice of termination as per clause 11 (b) of the Agreement which entitles Tata Consultancy Services Ltd. ( TCS ) to terminate the Agreement with immediate effect by issuance of a written notice in the event of a material breach not being cured within 30 days. Please take notice that the relationship between us as Client/Service Recipient and you as Service Provider/ Vendor/LISP stands terminated with effect from 10th June. 10. On behalf of the Corporate Debtor, it is submitted that certain routine operational requirements were highlighted by the appellant from time to time, which were rectified within a reasonable duration. The Corporate Debtor has allegedly invested ₹ 8.35 crores to fulfil its contractual obligations. According to the Corporate Debtor, the deficiencies raised by the appellant in its letter dated 11 October 2018 were remedied by the end of October 2018. The Corporate Debtor has further submitted that certain other minor issues were cured by Februar ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... AT by its order dated 24 June 2020 upheld the order of the NCLT observing that it had correctly stayed the operation of the termination notice since the main objective of the IBC is to ensure that the Corporate Debtor remains a going concern. The NCLAT referred to Section 14 to highlight that a moratorium is imposed to ensure the smooth functioning of the Corporate Debtor to safeguard its status as a going concern. Further, it is the responsibility of the RP under Section 25 of the IBC to preserve the Corporate Debtor as a going concern. The relevant portions of the judgment are reproduced below: 10 From the order it is seen that the Respondent herein was appointed as Interim Resolution Professional (in short IRP) to carry out the functions as per law. In view of Section 14 once a moratorium was imposed by the Adjudicating Authority Interim Resolution Professional the Interim Resolution Professional will be at the helm of affairs of the company in view of the suspension of the Board of Directors of the 'Corporate Debtor'. As on the date of the imposition of moratorium the business and activities of the 'Corporate Debtor' will have to be carried out for smooth f ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he services of the Corporate Debtor, to which Section 14 has no application; (ii) As a result of the impugned order, the Facilities Agreement, which is a determinable contract has become a non-terminable contract, overlooking the mandate of Section 14 of the Specific Relief Act 1963; (iii) The termination notice was not issued to the Corporate Debtor because it was undergoing CIRP but was on account of the material breaches of the agreement. Multiple opportunities were given to the Corporate Debtor to remedy the breaches before the termination notice was issued; (iv) The Facilities Agreement is not the sole contract of the Corporate Debtor, termination of which would lead to its corporate death. The Corporate Debtor is in the business of automotive parts, which is evident from the main objects of its Memorandum of Association; (v) The NCLT under Section 60 (5) (c) of the IBC cannot invoke its residuary powers where there is a patent lack of jurisdiction. IBC does not permit a statutory override of all contracts entered with the Corporate Debtor. A third party has a contractual right of termination; (vi) The duty of the RP under Section 25 of the IBC is not determinat ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... or was not given a thirty days notice to cure the breach in terms of Clause 11(b) of the Facilities Agreement. The termination notice refers to a notice dated 3 October 2018, which has not been placed on record. While a letter dated 11 October 2018 was received by the Corporate Debtor alleging deficiencies, those were cured by the end of October 2018. This is evinced by the fact that after October 2018, no communication, except those dated 19 November 2018 and 3 February 2019, were received by the Corporate Debtor. The Corporate Debtor had rectified any minor deficiencies that were brought to its notice by the appellant promptly. Thus, the allegation that there were material breaches of the agreement by the Corporate Debtor is incorrect; (v) The appellant became aware that CIRP has been initiated against the Corporate Debtor and had immediately terminated the agreement thereafter; and (vi) The Corporate Debtor had two main sources of income a dealership of Maruti and the agreement with the appellant. The dealership was terminated before the initiation of CIRP, thus the only existing source of income as of the date of initiation of CIRP was the Facilities Agreement, for whi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... elation to the Agreement, except for the enforcement of an arbitral award passed by an arbitration panel pursuant to this clause. 18. Section 238 provides that the IBC overrides other laws, including any instrument having effect by virtue of law. The text of Section 238 stipulates thus: Section 238 - Provisions of this Code to override other laws The provisions of this Code shall have effect, notwithstanding anything inconsistent therewith contained in any other law for the time being in force or any instrument having effect by virtue of any such law. 19. In Indus Biotech (P) Ltd. v. Kotak India Venture (Offshore) Fund, a three judge Bench of this Court, of which one of us was a part (Justice AS Bopanna), held that Section 238 of the IBC overrides all other laws. This Court was considering whether a reference to arbitration made under Section 8 of the Arbitration and Conciliation Act 1996 in terms of the agreement between the parties would affect the jurisdiction of the NCLT to examine an application filed under Section 7 of the IBC. This Court observed thus: 27. As noted, the issue which is posed for our consideration is arising in a petition filed under S ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s relating to the agreement would be entertained by Gujarat Electricity Regulatory Commission. But since Section 238 provides an overriding effect to the provisions of the IBC over any instrument having effect by law, it was held that the NCLT had jurisdiction over the dispute which arose in the context of insolvency proceedings. The relevant extract of the judgment is set out below: 82. 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 operation of law. The basis of this submission is that the word instrument should be given a meaning ejusdem generis to the provision contained in any other law . We do not find force in this argument. Section 238 does not state that the instrument must be entered into by operation of law; rather it states that the instrument has effect by virtue of any such law. In other words, the instrument need not be a creation of a statute; it becomes enforceable by virtue of a law. Therefore, we are inclined to agree with the view taken by NCLT. Section 238 is prefaced by a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... LT for adjudication of disputes which relate to the insolvency resolution process. But when the dispute arises dehors the insolvency of the Corporate Debtor, the RP must approach the relevant competent authority (para 72). We have discussed whether there is a nexus between the termination notice and the insolvency resolution proceedings in the subsequent paragraphs. 23. It was also urged on behalf of the appellant that the NCLT and NCLAT have re-written the agreement changing its nature from a determinable contract to a non-terminable contract overlooking the mandate of Section 14 Section 14 - Contracts not specifically enforceable The following contracts cannot be specifically enforced, namely:-- (a) where a party to the contract has obtained substituted performance of contract in accordance with the provisions of section 20; (b) a contract, the performance of which involves the performance of a continuous duty which the court cannot supervise; (c) a contract which is so dependent on the personal qualifications of the parties that the court cannot enforce specific performance of its material terms; and (d) a contract which is in its nature determinabl ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... re is no default in payment of current dues arising for the use or continuation of the license, permit, registration, quota, concession, clearances or a similar grant or right during the moratorium period; (2) The supply of essential goods or services to the corporate debtor as may be specified shall not be terminated or suspended or interrupted during moratorium period. (2A) Where the interim resolution professional or resolution professional, as the case may be, considers the supply of goods or services critical to protect and preserve the value of the corporate debtor and manage the operations of such corporate debtor as a going concern, then the supply of such goods or services shall not be terminated, suspended or interrupted during the period of moratorium, except where such corporate debtor has not paid dues arising from such supply during the moratorium period or in such circumstances as may be specified. (3) The provisions of sub-section (1) shall not apply to-- (a) such transactions, agreements or other arrangements as may be notified by the Central Government in consultation with any financial sector regulator or any other authority; (b) a surety ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ts jurisdiction over matters dehors the insolvency proceedings since such matters would fall outside the realm of IBC. Any other interpretation of Section 60(5)(c) would be in contradiction of the holding of this Court in Satish Kumar Gupta [Essar Steel (India) Ltd. (CoC) v. Satish Kumar Gupta, (2020) 8 SCC 531 : (2021) 2 SCC (Civ) 443]. 25. Before the initiation of the CIRP, the appellant had on multiple instances communicated to the Corporate Debtor that there were deficiencies in its services. The Corporate Debtor was put on notice that the penalty and termination clauses of the Facilities Agreement may be invoked. This is evident from the appellant s communications dated 1 August 2018, 17 September 2018, 1 October 2018 and 11 October 2018. In its email dated 13 October 2018 the appellant specifically noted that the housekeeping staff being provided by the Corporate Debtor was inadequate. The appellant was apparently constrained to deploy its own staff for housekeeping, evinced from its email dated 19 November 2018. The Corporate Debtor has admitted that the appellant was using its own housekeeping staff and deducting the costs from the invoice. The appellant again intimate ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ate Debtor. In the absence of jurisdiction over the dispute, the NCLT could not have imposed an ad-interim stay on the termination notice. The NCLAT has incorrectly upheld the interim order of the NCLT. 28. While in the present case, the second issue formulated by this Court has no bearing, we would like to issue a note of caution to the NCLT and NCLAT regarding interference with a party s contractual right to terminate a contract. Even if the contractual dispute arises in relation to the insolvency, a party can be restrained from terminating the contract only if it is central to the success of the CIRP. Crucially, the termination of the contract should result in the corporate death of the Corporate Debtor. In Gujarat Urja (supra), this Court held thus: 176. Given that the terms used in Section 60(5)(c) are of wide import, as recognised in a consistent line of authority, we hold that NCLT was empowered to restrain the appellant from terminating PPA. However, our decision is premised upon a recognition of the centrality of PPA in the present case to the success of CIRP, in the factual matrix of this case, since it is the sole contract for the sale of electricity which was en ..... 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