NCLT Has Jurisdiction Over Contractual Disputes Arising Solely Out Of Insolvency

  • Sakshi Shukla
  • 01:24 AM, 10 Mar 2021

The Top Court in its recent judgment ruled that NCLT has jurisdiction over contractual disputes arising solely out of Insolvency Proceedings against the Corporate Debtor.

A Division Bench of Justice DY Chandrachud and Justice M.R. Shah, held, “Residuary jurisdiction of 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 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.”

Primary issues dealt by the Court were:

(1) Whether the NCLT/NCLAT can exercise jurisdiction under the IBC over disputes arising from contracts such as the Public Private Agreement (“PPA”)

(2) Whether the appellant’s right to terminate the PPA in terms of Article 9.2.1(e) read with 9.3.1 (of the Agreement) can be regulated by the IBC.

The Bench observed, “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.”

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) marked the commencement of Insolvency proceedings against the Corporate Debtor.

Reiterating the objective of IBC, Court noted, “The enactment of the IBC is in significant senses a break from the past. While interpreting the provisions of the IBC, care must be taken to ensure that the regime which Parliament found deficient and which was the basic reason for the enactment of the new legislation is not brought in through the backdoor by a process of disingenuous legal interpretation.”

Termination of PPA by the Appellants with Astonfield Solar (Gujarat) Private Limited, the Corporate debtor, was stayed by NCLT vide order dated 29.08.2019.

The said order was passed upon the application moved by the Resolution Professional of the Corporate Debtor and Exim Bank, Respondent 2, under Section 60(5) IBC, 2016.

On 15.10.2019, NCLT dismissed the Appeal of the Appellants under Section 61 IBC.

The said order was challenged on the grounds; (1) NCLT and NCLAT do not possess jurisdiction under the IBC to adjudicate on a contractual dispute between the appellant and the Corporate Debtor (2) In any event, the termination of the PPA was validly made under Article 9.2.1(e) and Article 9.3.1 of the PPA.

Case Title: Gujarat Urja Vikas Nigam v. Mr. Amit Gupta | CIVIL APPEAL NO. 9241 of 2019

Statute/Provision Involved: Section 60(5)(c) Insolvency and Bankruptcy Code, 2016.

Access Copy of Judgment