The Hon'ble Supreme Court of India ("SC") has held that National Company Law Tribunal ("NCLT") cannot exercise its residuary jurisdiction under Section 60(5)(c) of the Insolvency and Bankruptcy Code, 2016 ("IBC") to adjudicate upon the contractual dispute between the parties. The National Company Law Appellate Tribunal ("NCLAT") had earlier upheld the order of the NCLT which had stayed the termination notice issued by the Appellant to the Corporate Debtor observing that the main objective of the IBC is to ensure that the Corporate Debtor remains a going concern while referring to section 14 and 25 of the IBC. SC overruled the decision of the NCLAT by observing that there was no factual analysis on how the termination would put the survival of the Corporate Debtor in jeopardy.
The above decision was given by the SC in the matter of TATA Consultancy Services Limited Vs. Vishal Ghisulal Jain, Resolution Professional, SK Wheels Private Limited, Civil Appeal No. 3045 of 2020 decided on 23rd November, 2021, whereby it had set aside the judgment of the NCLAT.
It was observed by the SC that "'27. 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. Thus, we are of the view that the NCLT does not have any residuary jurisdiction to entertain the present contractual dispute which has arisen dehors the insolvency of the Corporate Debtor."
It was further held that the exercise of the NCLT's residuary powers should be governed by the decision of the SC in Gujarat Urja Vikas v. Amit Gupta & Ors. (2021) 7 SCC 209; whereby it was observed that the jurisdiction of NCLT under Section 60(5)(c) of IBC cannot be invoked in matters where a termination may take place on grounds unrelated to the insolvency of the corporate debtor and that in all future cases, NCLT would have to be wary of setting aside valid contractual terminations which would merely dilute the value of the corporate debtor, and not push it to its corporate death by virtue of it being the corporate debtor's sole contract. The SC thus issued a note of caution to the NCLT and NCLAT vide the present case regarding interference with a party's contractual right to terminate a contract.
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