TCS Vs Vishal Ghisulal Jain

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Page 1 Saturday, December 11, 2021

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2021 SCC OnLine SC 1113
In the Supreme Court of India

(BEFORE D.Y. CHANDRACHUD AND A.S. BOPANNA, JJ.)
Tata Consultancy Services Limited … Appellant;

Versus
Vishal Ghisulal Jain, Resolution Professional, Sk Wheels Private
Limited … Respondent.
Civil Appeal No. 3045 of 2020
Decided on November 23, 2021
The Judgment of the Court was delivered by
D.Y. CHANDRACHUD, J.:— This appeal arises from a judgment dated 24 June 2020
of the National Company Law Appellate Tribunal1 . The NCLAT upheld the interim order
dated 18 December 2019 of the National Company Law Tribunal2 which stayed the
termination by the appellant of its Facilities Agreement dated 1 December 2016 with
SK Wheels Private Limited3 .
Factual Background
2. The appellant and the Corporate Debtor entered into a Build Phase Agreement on
24 August 2015 followed by a Facilities Agreement on 1 December 2016. The Facilities
Agreement obligated the Corporate Debtor to provide premises with certain
specifications and facilities to the appellant for conducting examinations for
educational institutions.
3. Clause 11(b) of the Facilities Agreement states that either party is entitled to
terminate the agreement immediately by written notice to the other party provided
that a material breach committed by the latter is not cured within thirty days of the
receipt of the notice. Clause 11(b) reads as follows:
“11. Termination
….
(b) Termination for Material Breach. Either party may terminate this Agreement
immediately by a written notice to the other Party in the event of a material breach
which is not cured within thirty days of the receipt of the said notice period.”
4. A termination notice was issued by the appellant to the Corporate Debtor 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. Eventually on 19 November 2018,
the appellant intimated to the Corporate Debtor that it will deploy its housekeeping
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staff and deduct the costs from the invoice. On 3 February 2019, the appellant wrote
an email to the Corporate Debtor raising issues of power supply and shortage of
housekeeping staff, among other deficiencies.
6. The Corporate Insolvency Resolution Process4 was initiated against the Corporate
Debtor on 29 March 2019. The appellant has alleged that it came to know about the
CIRP against the Corporate Debtor when the Electricity Board disconnected the supply
of electricity to the Corporate Debtor on 24 April 2019.
7. On 29 May 2019, the Corporate Debtor in its email alleged that the appellant had
failed to make the requisite payments and the electricity was disconnected as a result.
In its response dated 30 May 2019, the appellant stated that:
(i) It came to know that a CIRP was initiated against the Corporate Debtor when
the electricity was disconnected;
(ii) There were no amounts due to the Corporate Debtor; and
(iii) It made the payments for periods before March 2019. There was a delay in
making payments for March 2019 because the Corporate Debtor requested a
change in bank account details. No invoice was raised for April 2019.
8. The appellant claims that the material breaches by the Corporate Debtor have
resulted in a liability of Rs. 20,78,500. It did not initiate recovery proceedings on
account of the moratorium imposed under Section 14 of the Insolvency and
Bankruptcy Code 20165 .
9. The appellant issued a notice of termination dated 10 June 2019 in terms of
Clause 11(b) of the Facilities Agreement. The termination notice stated thus:
“Despite of all our sincere attempts in settling the crucial business issues, we
have always received unvaried response from your end and these occurrences of
non-observation has now culminated into breach of following terms and conditions
of the Agreement.
1. Not maintaining the minimum level of skillset of personal on exam and non-
exam days which is non-compliance as per Annexure B, Table C, and also a
process violation.
2. Furnishing and Designing guidelines (Annexure B, Table D) not being adhered
a) Furniture broken condition
b) Temperature and ventilation in labs, server room and UPS rooms not being
maintained
c) Deploying housing staff
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 Rs. 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 February 2019. The deficiency
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in relation to the housekeeping staff provided by the Corporate Debtor was allegedly
cured when the appellant hired its own staff. The Corporate Debtor has claimed that it
complied with the directions of the appellant intimated in its email dated 3 February
2019 in respect of changing faulty batteries and providing cleaning products. The
Corporate Debtor has further submitted that while the electricity was disconnected by
the Electricity Board in April 2019, it was eventually restored. It is stated that certain
meetings were held in April-May 2019 where the Resolution Professional6 informed the
appellant that no prejudice would be caused to it and all the services and facilities will
be provided according to the agreement, but the appellant unilaterally terminated the
agreement with immediate effect on 10 June 2019. The Corporate Debtor has
contested the issuance of the termination notice on the ground that no material
breaches have occurred, and, in any event, a thirty days' period is to be given to a
party to cure the defects before the agreement can be terminated under Clause 11(b)
of the Facilities Agreement.
Proceedings before the NCLT and NCLAT
11. The Corporate Debtor instituted a miscellaneous application7 before the NCLT
under Section 60(5)(c) of the IBC for quashing of the termination notice. The NCLT
passed an order dated 18 December 2019 granting an ad-interim stay on the
termination notice issued by the appellant and directed the appellant to comply with
the terms of the Facilities Agreement. The NCLT observed that prima facie it appeared
that the contract was terminated without serving the requisite notice of thirty days.
The conclusion of the NCLT is extracted below:
“Further whether the termination is good or bad in law, is a matter of inquiry,
which requires examination of the fact and circumstances. In this scenario, we are
of the prima facie view that the termination of the contract even without serving a
notice to the corporate debtor is not correct.
In view of the same, we hereby stay the termination notice issued by the
respondent. Until then the respondent shall adhere to the terms of contract without
fail.”
12. Aggrieved by the order, the appellant preferred an appeal8 before the NCLAT.
The NCLAT 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 functioning of the company and the company shall remain as a going
concern. Apart from that the Resolution Professional shall ensure for smooth
running of the company as a going concern and the Resolution Professional shall
perform the duties as per Section 25 of the I&B Code. Sub-Section (2)(a) of Section
25, the Resolution Professional take immediate custody and control of all the assets
of the Corporate Debtor, including the business records of the Corporate Debtor.
Further sub-section 2(b) of Section 25 of the I & B Code states that
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“(b) represent and act on behalf of the corporate debtor with third parties,
exercise rights for the benefit of the corporate debtor in judicial, quasi-judicial or
arbitration proceedings;”
…
Further, the said provision sets out the duty of Resolution Professional to
preserve and protect the assets of the ‘Corporate Debtor’ and lays down the
functions he may perform the same. In view of the duties cast upon the Resolution
Professional, the Resolution Professional to keep the Corporate Debtor as a going
concern and filed an application being C.A. (M.B.)- 2954 of 2019 before the
Adjudicating Authority seeking stay of termination of notice and sought direction to
the Appellant to continue the Facilities Agreement dated 01.12.2016.
11. The Adjudicating Authority after hearing the parties stayed the termination of
notice and directed the Appellant herein to adhere to the terms of contract without
fail. In view of the law, after initiation of the CIRP the ‘Corporate Debtor’ shall
function and continue its business activities. It is the duty of the Resolution
Professional to keep the Corporate Debtor as a going concern. It is the main
objective of the Code to keep the Corporate Debtor as a going concern. The
Adjudicating Authority rightly stayed the termination of notice and there is no
illegality in the Order passed by the Adjudicating Authority dated 18.12.2019.”
13. The judgment of the NCLAT has given rise to the present appeal.
Submissions of Counsel
14. Ms Fereshte D Sethna, learned counsel appearing on behalf of the appellant,
has made the following submissions:
(i) NCLT has misread the provisions of Section 14 of the IBC which relate to the
provision of goods and services to the Corporate Debtor once the moratorium is
imposed. In the present case, the appellant is availing of the 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 determinative of the
jurisdiction of the NCLT. Such a duty cannot be stretched to convert a
determinable commercial contract into a non-terminable contract, forcing a
contracting party to pay for deficient services that it is unwilling to avail; and
(vii) In Gujarat Urja Vikas v. Amit Gupta9 , this Court had injuncted a third party
from terminating its contract with the corporate debtor because there were
concurrent findings of the NCLT and NCLAT holding that the contract in question
was the sole contract of the corporate debtor, and the termination of the contract
by the third party was merely on the ground of initiation of CIRP without there
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being any contractual default on part of the corporate debtor.

15. Ms Udhita Singh, the learned counsel appearing on behalf of the RP, has urged
that:
(i) NCLT is vested with the jurisdiction under Section 60(5)(c) of the IBC to
adjudicate issues relating to fact or law in respect of a company undergoing
CIRP;
(ii) The appellant's argument that the contractual dispute can be decided only
through arbitration and the provisions of the Indian Contract Act 1872 and
Specific Relief Act 1963 are attracted is incorrect. Section 238 of the IBC has an
overriding effect over other laws. This Court in Ashoka Marketing v. PNB10 has
held that two special laws containing non-obstante clauses must be interpreted
harmoniously by looking at the purpose of the laws. Further, this Court has
observed that a special law enacted at a later date prevails over the earlier
special law. Thus, the provisions of the IBC would apply to the present dispute;
(iii) In Gujarat Urja (supra), this Court has held that 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. It was further held that Section 14 of the IBC is not
exhaustive of the grounds of judicial intervention contemplated under the IBC
otherwise Section 60(5)(c) would be rendered otiose. One such ground of
intervention is when the status of the Corporate Debtor as a going concern is in
jeopardy. Thus, the NCLT has the power to exercise its jurisdiction under Section
60(5)(c) of the IBC to ensure that the Corporate Debtor survives as a going
concern;
(iv) The Corporate Debtor 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 which the Corporate Debtor
has incurred a substantial capital expenditure of Rs. 8.35 crores. The termination
of the agreement would adversely affect the Corporate Debtor. In Gujarat Urja
(supra), this Court has held that the termination of an agreement which is the
main source of revenue generation of the Corporate Debtor is against the
objective of the IBC which envisages that the Corporate Debtor should be
preserved as a going concern.
Analysis
16. The rival contentions will now be considered.
17. Based on the appeal, two issues have arisen for consideration before this Court:
(i) Whether the NCLT can exercise its residuary jurisdiction under Section 60(5)(c)
of the IBC to adjudicate upon the contractual dispute between the parties; and
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(ii) Whether in the exercise of such a residuary jurisdiction, it can impose an ad-
interim stay on the termination of the Facilities Agreement.
18. Clause 12(d) of the Facilities Agreement provides that the disputes between
the parties shall be a subject matter of arbitration. The clause reads thus:
“12 Miscellaneous
….
d) Governing Law, Dispute Resolution and Jurisdiction : - This Agreement shall
be governed and interpreted in accordance with laws of India.
In case of disputes or differences between the Parties hereof, shall be subject
matter of arbitration under the Arbitration and Conciliation Act 1996 and any
subsequent related amendments there to, unless settled amicably between the
Parties hereto, be referred to arbitration and such arbitration shall be conducted in
accordance with the rules of arbitration of the Bombay Chamber of Commerce and
Industry (“BCCI”), which rules as modified from time to time, are deemed to be
incorporated by reference into this clause (the “Arbitration Rules”) by an arbitration
panel comprised of a sole arbitrator.
The arbitration panel as referred to above shall be appointed by the BCCI. The
arbitration panel shall deliver the award in the arbitration proceedings within three
(3) months from reference of any dispute to arbitration. The venue of arbitration
shall be Mumbai, India.
The Parties agree that the award passed by the arbitration panel shall be final
and binding upon the Parties, and that the Parties shall not be entitled to
commence or maintain any action in any court of law in respect of any matter in
dispute arising from or in relation to the Agreement, except for the enforcement of
an arbitral award passed by an arbitration panel pursuant to this clause.”
19. 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.”
20. 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 A.S. 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 Section 7 of IB Code, before it is admitted and therefore not yet
an action in rem. In such application, the course to be adopted by the adjudicating
authority if an application under Section 8 of the 1996 Act is filed seeking reference
to arbitration is what requires consideration. The position of law that the IB
Code shall override all other laws as provided under Section 238 of the IB
Code needs no elaboration. In that view, notwithstanding the fact that the
alleged corporate debtor filed an application under Section 8 of the 1996 Act, the
independent consideration of the same dehors the application filed under Section 7
of IB Code and materials produced therewith will not arise. The adjudicating
authority is duty-bound to advert to the material available before him as made
available along with the application under Section 7 of IB Code by the financial
creditor to indicate default along with the version of the corporate debtor. This is for
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the reason that, keeping in perspective the scope of the proceedings under the IB
Code and there being a timeline for the consideration to be made by the
adjudicating authority, the process cannot be defeated by a corporate debtor by
raising moonshine defence only to delay the process. In that view, even if an
application under Section 8 of the 1996 Act is filed, the adjudicating
authority has a duty to advert to contentions put forth on the application
filed under Section 7 of IB Code, examine the material placed before it by
the financial creditor and record a satisfaction as to whether there is default
or not. While doing so the contention put forth by the corporate debtor
shall also be noted to determine as to whether there is substance in the
defence and to arrive at the conclusion whether there is default. If the
irresistible conclusion by the adjudicating authority is that there is default
and the debt is payable, the bogey of arbitration to delay the process would
not arise despite the position that the agreement between the parties
indisputably contains an arbitration clause.”
(emphasis added)
21. In Gujarat Urja (supra), a two judge Bench of this Court, of which one of us was
a part (Justice DY Chandrachud), held that a power purchase agreement, which is a
bilateral commercial contract, is an ‘instrument’ under Section 238. Notably, the
power purchase agreement provided that the disputes between the parties 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 non obstante clause. NCLT's jurisdiction could be invoked in
the present case because the termination of PPA was sought solely on the
ground that the corporate debtor had become subject to an insolvency
resolution process under IBC.”
(emphasis added)
22. Section 60(5)(c) grants residuary jurisdiction to the NCLT to adjudicate any
question of law or fact, arising out of or in relation to the insolvency resolution of the
Corporate Debtor. Section 60(5)(c) provides thus:
“Section 60 - Adjudicating Authority for corporate persons
…..
(5) Notwithstanding anything to the contrary contained in any other law for the
time being in force, the National Company Law Tribunal shall have jurisdiction to
entertain or dispose of-
….
(c) 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 this Code.”
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23. Clause 12(d) of the Facilities Agreement provides that any dispute between the
parties relating to the agreement could be the subject matter of arbitration. However,
the Facilities Agreement being an ‘instrument’ under Section 238 of the IBC can be
overridden by the provisions of the IBC. In terms of Section 238 and the law laid down
by this Court, the existence of a clause for referring the dispute between parties to
arbitration does not oust the jurisdiction of the NCLT to exercise its residuary powers
under Section 60(5)(c) to adjudicate disputes relating to the insolvency of the
Corporate Debtor.
24. The appellant has contested the reliance of the NCLAT on Section 25 of the IBC
to hold that the RP can invoke the jurisdiction of the NCLT to stay the termination of
the Facilities Agreement in pursuance of its duty to preserve the Corporate Debtor as a
going concern. The learned counsel has submitted that the jurisdiction of the NCLT
cannot be determined based on the duties of the RP. Reliance was placed on the
judgment of this Court in Embassy Property Developments (Private) Limited v. State
of Karnataka11 , where this Court held that the duties of the RP are entirely different
from the jurisdiction and powers of the NCLT. While the duty of the RP and the
jurisdiction of the NCLT cannot be conflated, in Gujarat Urja (supra), this Court has
clarified that the RP can approach the NCLT 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.
25. 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 1412 of the Specific Relief Act
1963. It is a settled position of law that IBC is a complete code and Section 238
overrides all other laws. The NCLT in its residuary jurisdiction is empowered to stay the
termination of the agreement if it satisfies the criteria laid down by this Court in
Gujarat Urja (supra). In any event, the intervention by the NCLT and NCLAT cannot be
characterized as the re-writing of the contract between the parties. The NCLT and
NCLAT are vested with the responsibility of preserving the Corporate Debtor's survival
and can intervene if an action by a third party can cut the legs out from under the
CIRP.
26. On behalf of the appellant, it has been further submitted that the NCLAT
misread Section 14 of the IBC, which has no application to the present case. Section
14 of the IBC provides thus:
“Section 14 - 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 lessor where such
property is occupied by or in the possession of the corporate debtor.
Explanation.— For the purposes of this sub-Section, it is hereby clarified that
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notwithstanding anything contained in any other law for the time being in force, a
license, permit, registration, quota, concession, clearances or a similar grant or
right given by the Central Government, State Government, local authority, sectoral
regulator or any other authority constituted under any other law for the time being
in force, shall not be suspended or terminated on the grounds of insolvency, subject
to the condition that there 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 in a contract of guarantee to a corporate debtor.
(4) The order of moratorium shall have effect from the date of such order till the
completion of the corporate insolvency resolution process:
Provided that where at any time during the corporate insolvency resolution
process period, if the Adjudicating Authority approves the resolution plan under sub
-section (1) of section 31 or passes an order for liquidation of corporate debtor
under section 33, the moratorium shall cease to have effect from the date of such
approval or liquidation order, as the case may be.”
(emphasis added)
27. 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. However, in
Gujarat Urja (supra) it was held that the NCLT's jurisdiction is not limited by Section
14 in terms of the grounds of judicial intervention envisaged under the IBC. It can
exercise its residuary jurisdiction under Section 60(5)(c) to adjudicate on questions of
law and fact that relate to or arise during an insolvency resolution process. This Court
observed:
“91. The residuary jurisdiction of NCLT under Section 60(5)(c) of 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 NCLT were to be
confined to actions prohibited by Section 14 of IBC, there would have been no
requirement for the legislature to enact Section 60(5)(c) of IBC. Section 60(5)(c)
would be rendered otiose if Section 14 is held to be exhaustive of the grounds of
judicial intervention contemplated under 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 NCLT is premised on
the facts of this case. We are not laying down a general principle on the contours of
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the exercise of residuary power by NCLT. However, it is pertinent to mention that

NCLT cannot exercise its 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].”
28. 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 intimated the Corporate Debtor to change faulty batteries
of the UPS and provide cleaning products in its email dated 3 February 2019. The
termination notice dated 10 June 2019 also clearly lays down the deficiencies in the
services of the Corporate Debtor. The termination notice enumerated the following
deficiencies:
“1. Not maintaining the minimum level of skillset of personal on exam and non-
exam days which is non-compliance as per Annexure B, Table C, and also a process
violation.
2. Furnishing and Designing guidelines (Annexure B, Table D) not being adhered
a) Furniture broken condition
b) Temperature and ventilation in labs, server room and UPS rooms not being
maintained
c) Deploying housing staff
d) Cleanliness and up keeping of the center
3. Branding and Navigation not in synchronization with Annexure F of facility
agreement.”
29. In Gujarat Urja (supra), the contract in question was terminated by a third
party based on an ipso facto clause, i.e., the fact of insolvency itself constituted an
event of default. It was in that context, this Court held that the contractual dispute
between the parties arose in relation to the insolvency of the corporate debtor and it
was amenable to the jurisdiction of the NCLT under Section 60(5)(c). This Court
observed that “….NCLT has jurisdiction to adjudicate disputes, which arise solely from
or which relate to the insolvency of the corporate debtor… The nexus with the
insolvency of the corporate debtor must exist” (para 69). Thus, the residuary
jurisdiction of the NCLT cannot be invoked if the termination of a contract is based on
grounds unrelated to the insolvency of the Corporate Debtor.
30. 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. 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.
31. 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 entered into by the corporate debtor. In doing so, we reiterate
that NCLT would have been empowered to set aside the termination of PPA in this
case because the termination took place solely on the ground of insolvency. 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. Even more crucially, it cannot even be invoked in the event of a
legitimate termination of a contract based on an ipso facto clause like Article 9.2.1
(e) herein, if such termination will not have the effect of making certain the death
of the corporate debtor. As such, 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 (as was the case in this matter's unique factual
matrix).
177. The terms of our intervention in the present case are limited. Judicial
intervention should not create a fertile ground for the revival of the regime under
Section 22 of SICA which provided for suspension of wide-ranging contracts.
Section 22 of the SICA cannot be brought in through the back door. The basis of
our intervention in this case arises from the fact that if we allow the
termination of PPA which is the sole contract of the corporate debtor,
governing the supply of electricity which it generates, it will pull the rug
out from under CIRP, making the corporate death of the corporate debtor a
foregone conclusion.”
(emphasis supplied)
32. The narrow exception crafted by this Court in Gujarat Urja (supra) must be
borne in mind by the NCLT and NCLAT even while examining prayers for interim relief.
The order of the NCLT dated 18 December 2019 does not indicate that the NCLT has
applied its mind to the centrality of the Facilities Agreement to the success of the CIRP
and Corporate Debtor's survival as a going concern. The NCLT has merely relied upon
the procedural infirmity on part of the appellant in the issuance of the termination
notice, i.e., it did not give thirty days' notice period to the Corporate Debtor to cure
the deficiency in service. The NCLAT, in its impugned judgment, has averred that the
decision of the NCLT preserves the ‘going concern’ status of the Corporate Debtor but
there is no factual analysis on how the termination of the Facilities Agreement would
put the survival of the Corporate Debtor in jeopardy.
33. Admittedly, this Court has clarified the law on the present subject matter in
Gujarat Urja (supra) after the pronouncements of the NCLT and NCLAT. Going forward,
the exercise of the NCLT's residuary powers should be governed by the above decision.
34. We accordingly set aside the judgment of the NCLAT dated 24 June 2020. The
proceedings initiated against the appellant shall stand dismissed for absence of
-----------------------------------------------------------------------------------------------------------------------------------------------------------
jurisdiction. The appeal is disposed of in the above terms with no order as to costs.
35. Pending applications, if any, are disposed of.
———
1 “NCLAT”
2 “NCLT” or “Adjudicating Authority”
3
“Corporate Debtor” or “Respondent”
4 “CIRP”
5 “IBC”
6 “RP”
7 Miscellaneous Application No 2954 of 2019
8 Company Appeal (AT) (Insolvency) No. 237 of 2020
9 (2021) 7 SCC 209; “Gujarat Urja”

10 (1990) 4 SCC 406
11 (2020) 13 SCC 308
12 “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 determinable.”
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TCS Vs Vishal Ghisulal Jain

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SCC Online Web Edition, © 2021 EBC Publishing Pvt. Ltd.

Page 1 Saturday, December 11, 2021

2021 SCC OnLine SC 1113

In the Supreme Court of India

Tata Consultancy Services Limited … Appellant;

being any contractual default on part of the corporate debtor.

the exercise of residuary power by NCLT. However, it is pertinent to mention that

9 (2021) 7 SCC 209; “Gujarat Urja”

12 “Section 14 - Contracts not specifically enforceable

The following contracts cannot be specifically enforced, namely:—

(d) a contract which is in its nature determinable.”

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