NCLT Has Jurisdiction To Adjudicate Contractual Disputes Which Arise Solely From Or Which Relate To Corporate Debtor's Insolvency: Supreme Court

The Supreme Court observed that the National Company Law Tribunal has jurisdiction to adjudicate contractual disputes, which arise solely from or which relate to the insolvency of the Corporate Debtor.

However, for adjudication of disputes that arise dehors the insolvency of the Corporate Debtor, the RP must approach the relevant competent authority, the bench comprising Justices DY Chandrachud and Justice MR Shah observed while upholding the order of the National Company Law Tribunal which stayed the termination by the Gujarat Urja Vikas Nigam Limited of its Power Purchase Agreement with Astonfield Solar (Gujarat) Private Limited. 

In this case, PPA was signed on 30 April 2010, in accordance with which the Nigam has to purchase all the power generated by the Corporate Debtor. On 20 November 2018, the NCLT admitted a petition  filed by the Corporate Debtor under Section 10 of the IBC and commenced the Corporate Insolvency Resolution Process. In May 2019, the Nigam issued termination notices  in which it stated thus : Under Article 9.2.1(e) of the PPA, the Corporate Debtor undergoing CIRP under the IBC amounts to an 'event of default' (b) under Article 9.2.1(a) of the PPA, there was a default in the operation and maintenance of the Plant.  Rejecting the reply issued by the Corporate Debtor, the Nigam stated that they will terminate the PPA under Articles 9.2.1(e) and 9.3.1 since the Corporate Debtor is under CIRP.  Thereafter, the Corporate Debtor filed applications under Section 60(5) of the IBC before the NCLT in regard to the Notices issued by the appellant to the Corporate Debtor, and sought an injunction restraining the Nigam from terminating the PPA.  On 29 August 2019, the NCLT issued its final order restraining Nigam from terminating the PPA and setting aside the First Notice.  

In appeal before the Apex Court, Whether the NCLT/NCLAT can exercise jurisdiction under the IBC over disputes arising from contracts such as the PPA?

According to Nigam, the NCLT does not have any inherent powers, and its exercise of jurisdiction is circumscribed by the provisions of the IBC and thus it does not have the jurisdiction to entertain all disputes or all issues related to the Corporate Debtor.  On the other hand, the contention of the corporate debtor was 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.

The court noted that 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", the court observed. Referring to various provisions and precedents, the bench observed thus:

"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 fora. 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 insolvency proceedings would diminish the value of the debtor's assets and hamper the PART I 61 prospects of a successful reorganization or liquidation. For the success of an insolvency regime, it is necessary that insolvency proceedings are dealt with in a timely, effective and efficient manner. Pursuing this theme in Innoventive (supra) this court observed that 'one of the important objectives of the Code is to bring the insolvency law in India under a single unified umbrella with the object of speeding up of the insolvency process‖. The principle was reiterated in Arcelor Mittal (supra) where this court held that 'the non-obstante Clause in Section 60(5) is designed for a different purpose: to ensure that the NCLT alone has jurisdiction when it comes to applications and proceedings by or against a corporate debtor covered by the Code, making it clear that no other forum has jurisdiction to entertain or dispose of such applications or proceedings'. Therefore, considering the text of Section 60(5)(c) and the interpretation of similar provisions in other insolvency related statutes, NCLT has jurisdiction to adjudicate disputes, which arise solely from or which relate to the insolvency of the Corporate Debtor. However, in doing do, we issue a note of caution to the NCLT and NCLAT to ensure that they do not usurp the legitimate jurisdiction of other courts, tribunals and fora when the dispute is one which does not arise solely from or relate to the insolvency of the Corporate Debtor. The nexus with the insolvency of the Corporate Debtor must exist."

"Therefore, we hold that 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 court also added 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

"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 NCLT is premised on the facts of this case. We are not laying down a general principle on the contours of the exercise of residuary power by the NCLT. However, it is pertinent to mention that the NCLT cannot exercise its jurisdiction over matters dehors the insolvency proceedings since such matters would fall outside the realm of IBC.", it said.

Dismissing the appeal, the bench held thus:

(i) The NCLT/NCLAT could have exercised jurisdiction under section 60(5)(c) of the IBC to stay the termination of the PPA by the appellant, since the appellant sought to terminate the PPA under Article 9.2.1(e) only on account of the CIRP being initiated against the Corporate Debtor; (ii) The NCLT/NCLAT correctly stayed the termination of the PPA by the appellant, since allowing it to terminate the PPA would certainly result in the corporate death of the Corporate Debtor due to the PPA being its sole contract; and

Case: Gujarat Urja Vikas Nigam Limited vs. Amit Gupta [CA 9241 of 2019]

Coram: Justices DY Chandrachud and MR Shah

Counsel: Sr. Adv Shyam Diwan, Adv Ranjitha Ramachandran, Sr. Adv C U Singh, Sr. Adv Nakul Dewan, Sr. Adv V Giri

Citation: LL 2021 SC 142

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