Residuary Jurisdiction Of NCLT U/S 60(5)(c) of IBC , Can't Be Used To Interpret Terms Of An Agreement Relating To A Third-Party Contract: NCLT Ahmedabad
The National Company Law Tribunal, Ahmedabad Bench, comprising of Dr. Madan B. Gosavi (Judicial Member) and Shri Ajai Das Mehrotra (Technical Member), while adjudicating an application under Section 60(5) of Insolvency and Bankruptcy Code, 2016 (“IBC”) filed by the Resolution Professional (“RP”) of JBF Petrochemicals Ltd in IDBI Bank Ltd vs JBF Petrochemicals Ltd. has held that...
The National Company Law Tribunal, Ahmedabad Bench, comprising of Dr. Madan B. Gosavi (Judicial Member) and Shri Ajai Das Mehrotra (Technical Member), while adjudicating an application under Section 60(5) of Insolvency and Bankruptcy Code, 2016 (“IBC”) filed by the Resolution Professional (“RP”) of JBF Petrochemicals Ltd in IDBI Bank Ltd vs JBF Petrochemicals Ltd. has held that NCLT has limited residuary jurisdiction under section 60(5)(c) of IBC and that it cannot interpret the terms of an agreement relating to a third-party contract
Background Facts
An agreement dated 12.04.2016 (“The Agreement”) was executed between JBF Petrochemicals Ltd (“Corporate Debtor”) and Mangalore Refinery and Petrochemicals Limited (“Respondent”) for supply of Paraxylene to the Corporate Debtor. The Corporate Debtor was admitted in Corporate Insolvency Resolution Process (“CIRP”) on 28.01.2022 and an IRP was appointed. Moratorium under section 14 of IBC was declared. The Resolution Professional for JBF Petrochemicals Ltd. (“Applicant”) submitted that the Respondents terminated The Agreement vide a letter dated 14.06.2022 alleging that Corporate Debtor had committed default in buying Paraxylene and that there had been no off-take for 3 months continuously. It was contended by the Applicant that the Respondent cannot terminate The Agreement during the moratorium. Thus the letter dated 14.06.2022 was bad in law and the Respondent is bound to supply Paraxylene under The Agreement.
On the contrary, it was submitted by the Respondent that the Corporate Debtor committed default in lifting the Paraxylene under the terms of The Agreement. The Agreement was eligible for termination much prior to the initiation of CIRP and there is no breach of the moratorium. It was further contended that section 60(5)(c) of IBC cannot be pressed to compel a 3rd party to perform its part of the contract which was already eligible for termination much prior to initiation of CIRP. The Respondents further referred to the Resolution Plan of the Corporate Debtor which stated that the validity of the Resolution Plan was not affected in the event the Tribunal does not grant any particular relief, concession of prayer requested under PART E of the Resolution Plan. It was hence argued that the Resolution Plan is not dependent upon the revival of The Agreement.
Observations of the Tribunal
The Tribunal observed that the Corporate Debtor was established before 2012, but it could not start its business activities before admission into CIRP or even during the CIRP. It is not a going concern even today. It was observed that the Adjudicating Authority has to declare moratorium to protect and preserve the assets of the Corporate Debtor during CIRP and also to protect the Corporate Debtor’s status as a going concern. The Tribunal held that Section 14 (2A) of IBC is to be pressed in service to preserve the status of the Corporate Debtor as a going concern.
It was further observed that the Applicant had prayed for a direction to the Respondents to supply Paraxylene as and when “the Plant is ready and commissioned”. However, the Tribunal held that its residuary jurisdiction under section 60(5)(c) of IBC is limited and the Tribunal cannot give any finding on whether the agreement between the two parties is still subsisting or not. The Tribunal cannot interpret the terms of an agreement relating to a third-party contract. Under section 60(5)(c) of IBC, the tribunal has been conferred with the jurisdiction to entertain and dispose of any question of law or facts “arising out of or in relation to the Insolvency resolution or liquidation process of Corporate Debtor”. Reliance was placed on the judgment by the Hon’ble Supreme Court in TATA Consultancy Services Ltd. Vs. SK Wheels (P) Ltd., (2022) SCC 583, wherein it was held that NCLT cannot exercise its jurisdiction over matters dehors the insolvency proceedings since such matters would fall outside the realm of IBC.
The Tribunal restrained from commenting on the correctness of the action of terminating the contract by the Respondents and held that the dispute in question between the Corporate Debtor and the Respondents is dehors the insolvency proceedings
With the aforesaid observations, the Tribunal rejected the application.
Case:
Sundaresh Bhat, RP of JBF Petrochemicals Ltd Vs Manglore Refinery and Petrochemicals Ltd in the matter of IDBI Bank Ltd vs JBF Petrochemicals Ltd.
Case No.
IA 660 of 2022 in CP (IB) No. 232/NCLT/AHM/2018
Counsels for the Applicant :Sr. Adv. Rashesh Sanjanwala, Sr. Adv. Saurabh Soparkar, a/w. Adv. Monaal Davawala,
Counsels for the Respondent :Sr. Adv. Navin Pahwa, s/w. Adv. Rohan Lavkumar, Advocate & Adv. Anushree Soni
Counsels for GAIL:Sr. Adv. General Kamal Trivedi, a/w. Adv. Akshat Khare, Adv. Viraj Bairagi, Adv. Samiron Chakroborty, Adv. Kritika Angirish
Counsels for CoC:Sr. Adv. Solicitor General of India Tushar Mehta a/w Adv. Saloni Kapadia
Counsels for Income Tax:Adv. Pankti Shah on behalf of Adv. Maithli Mehta
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