Jurisdiction of NCLT can’t be invoked to Adjudicate Contractual dispute if Termination of Contract unrelated to Corporate Debtor’s Insolvency: Supreme Court grants Relief to TCS [Read Judgment]

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In a major relief to TATA Consultancy Services, the Supreme Court held that Jurisdiction of National Company Law Tribunal (NCLT) can’t be invoked to adjudicate contractual dispute if termination of contract unrelated to Corporate Debtor’s Insolvency.

The appellant, TATA Consultancy Services Limited 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.

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 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 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.

The division bench of Justice Dr Dhananjaya Y Chandrachud and Justice A S Bopanna held that 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.

The court said that 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.

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