Judgments

TATA CONSULTANCY SERVICES LTD.  VS VISHAL GHISULAL JAIN : CASE SUMMARY

The Supreme Court held in Tata Consultancy Services Ltd. Vs. Vishal Ghisulal Jain (2021) SCC Online SC 1113   that NCLTdoes not have jurisdiction over disputes which arises de hors the insolvency of the Corporate Debtor.

FACTS OF THE CASE

The Appellant and the Corporate Debtor entered into Build Phase Agreement followed by Facilities Agreement.  Facilities Agreement obligated the Corporate Debtor to provide facility to the Appellant for conducting examination for educational institutions. Clause 11 (b) of the Facilities Agreement provided for termination in case material breach committed by other party is not cured within 30 days of the receipt of the notice.

The Appellant communicated to the Corporate Debtor regarding deficiency of services. The Appellant  vide e-mail dated 1st August, 2018 notified the Corporate Debtor that it intended  to invoke penalty clause for breaching Facilities Agreement for alleged contractual breaches. By e-mails dated 17th September, 2018, 1st October, 2018 and 11th October , 2018  the Appellant told the Corporate Debtor to take urgent steps to remedy the breaches failing which penalty and termination clauses will be invoked. Vide e-mail dated  13th October, 2018 the appellant complained about insufficiency of housekeeping staff . On 19th November, 2018, the Appellant intimated the Corporate Debtor that it will deploy its housekeeping staff and deduct the cost from invoice. On 3rd February, the Appellant wrote about issues of power supply and shortage of housekeeping staff.

In the meantime Corporate Insolvency Resolution Process was initiated against the Corporate Debtor on 29th March, 2019.

The Appellant issued notice of termination on 10th June, 2019 in terms of Clause 11 (b) of the Facilities Agreement.

The appellant claimed  that the material breaches by the Corporate Debor  resulted in 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, 2016.

The Corporate Debtor filed Application under Section 60 (5) of the Code for quashing of termination notice. NCLT stayed the termination notice.

Appellant preferred appeal before the NCLAT which was also dismissed.

FINDINGS OF THE SUPREME COURT

Two issues arose before the Supreme Court for consideration – (i) whether NCLT can exercise its residuary jurisdiction under Section 60 (5) (c) IBC to adjudicate upon the contractual dispute between the parties ?  , (ii) Whether in exercise of such residuary jurisdiction, it can impose an ad-interim stay on termination of Facilities Agreement ?

The Supreme Court noted that Clause 12 (d) of Facilities Agreement provided that disputes between the parties shall be subject matter of arbitration. Section 238 provides that IBC overrides other laws.

The Supreme Court observed  that in Gujarat Urja Vikas Nigam Vs Amit Gupta & Ors (2021) 7 SCC 209 it has been held that the NCLT has jurisdiction over the dispute which arose in the context of insolvency proceedings.  Resolution Professional can approach NCLT for adjudication of disputes which relates to the insolvency resolution process. But when dispute arises dehors the insolvency of the Corporate Debtor, the RP must approach the relevant competent authority.

In the instant case the Appellant is neither supplying any goods and services to the Corporate Debtor in terms of Section 14 (2) nor it is recovering property which is in possession of the Corporate Debtor or lessor of such property as envisioned under Section 14 (1) (d). Appellant is availing services of the Corporate Debtor and is using the property that has been leased to it by the Corporate Debtor. Hence Section 14 is not applicable in this case.

In Gujarat Urja Vikas it has been held that jurisdiction of NCLT is not limited by Section 14. 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 Insolvency Resolution Process.

Appellant has communicated multiple times regarding deficiencies in its services on the part of the Corporate Debtor. The Corporate Debtor was put on notice that the penalty and termination clauses of the Facilities Agreement may be invoked. In e-mail dated 13th October, 2018 the appellant specifically complained about inadequate staff.  The Corporate Debtor has admitted that appellant was using its own staff. Termination notices also highlight deficiencies in the services of the Corporate Debtor.

The Supreme Court found that services the Corporate Debtor was deficient and it was falling foul of its contractual obligations. There is nothing to indicate the termination of the Facilities Agreement was motivated by the insolvency of the Corporate Debtor. The Supreme Court concluded that in the instant case the NCLT does not have jurisdiction to entertain the present contractual dispute which has arisen de hors the insolvency of the Corporate Debtor. Without jurisdiction, NCLT could not have imposed an ad-interim stay.

The Supreme Court set aside the order of NCLAT and dismissed the proceedings against the Appellant  for absence of jurisdiction.

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Mukesh Kumar Suman is an advocate and legal author based at Delhi. He regularly appears before various Judicial Forums including NCLT, NCLAT, High Courts and the Supreme Court. He can be approached at mukesh_suman@outlook.com or +91 9717864570.

Mukesh Kumar Suman

Mukesh Kumar Suman

Mukesh Kumar Suman is an advocate based at Delhi. He has rich experience in civil, criminal, commercial, arbitration and corporate insolvency matters. He regularly appears before District Courts, NCLT, NCLAT, High Court and the Supreme Court. He can be approached at mukesh_suman@outlook.com or +91 9717864570.

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